Court against Taxtortion: Bombay HC asks tax officials to follow its orders or pay penalty from their salaries

Moneylife Digital Team 03 June 2016

Economy & Nation

Coming down heavily on tax officials for not following its directions, the Bombay High Court in a recent judgement has said that non-compliance with its orders would result in officials paying individual penalties, including forfeiture of their salaries until they take a corrective action. The Court was hearing a case related with Larsen & Toubro Ltd, one of the country's largest engineering company and the Central Excise Department (Writ petition No2855 of 2016).

"...officers after officers are reluctant to take decisions for the consequences might be drastic for them. No officer is acting independently and following judgments of this Court, but waiting for the superiors to give them a nod. Even the superiors are reluctant given the status of the assessee and the quantum of the demand or the refund claim. We are sure that some day we would be required to step in and order action against such officers who refuse to comply with the Court judgments and which are binding on them as they fear drastic consequences or unless their superiors have given them the green signal," the Division Bench of Justices GS Kulkarni and SC Dharmadhikari said in its order.

It said, "If there is such reluctance, then, we do not find any enthusiasm much less encouragement for business entities to do business in India or with Indian business entitles. Such negative reactions / responses hurt eventually the National pride and image. It is time that the officers inculcate in them a habit of following and implementing judicial orders which bind them and unmindful of the response of their superiors."

"A copy of order be sent to the Secretary in the Ministry of Finance, Government of India and the Chairman, Central Board of Excise and Customs. We are constrained to observe as above simply because repeated suggestions to Mr (Pradeep S) Jetley (counsel for the respondents) so as to persuade the officers to withdraw the orders impugned in the petition of their own did not meet any favourable response," the Bench added.

The Excise Department has demanded a tax of Rs32.39 crore with interest from L&T for alleged use of common input services in the manufacture of exempted goods. L&T filed an appeal against this order before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), along with a stay application seeking waiver of the condition of pre-deposit of the remaining dues and recovery and on condition of depositing Rs50 lakh, the balance dues. The demand was held in abeyance.

On 29 January 2016, an Assistance Commissioner passed an order that indirectly adjusted the amount of demand originally confirmed but stayed by the Tribunal. In short, he allowed the rebate (claimed by L&T) only to the extent of Rs3.17 crore in cash and Rs1.61 by way of credit in the CENVAT account.

In its order, the Bombay HC observed that "He purported to reject the other claim for rebate and restricting it in such manner that the balance sum which could not be recovered on account of the stay granted by the Tribunal that would reach the Government coffers."

Disposing of the petition, the Bench said, "...we quash and set aside the impugned order. The refund claim shall now be granted and the respondent shall not insist on compliance with clause (b) of the operative order at page 21 of the paper-book. That direction and to this extent stands quashed and set aside."

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