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Govt tightens tax recovery norms
January, 08th 2013

The Central Board of Excise and Customs (CBEC) has sought to initiate recovery proceedings on custom, excise and service tax orders raised if the tax evader is unable to obtain a stay within 30 days.

After 30 days of filing of an appeal together with a stay application by the taxpayer with the Commissioner (Appeals) or the Customs, Excise and Service Tax Tribunal (CESTAT), the indirect tax authorities will move to recover the demands raised, even if the stay application has not been heard. In case of appeals before the courts, even this 30-day period is not available and recovery will be initiated immediately, according to a CBEC circular issued last week.

Practically, it is difficult for taxpayers to obtain a stay order within such a short period. The irony is that the law itself permits the appellate authorities, both the Commissioner (Appeals) and the higher authority CESTAT to hear a stay petition within six months from the date of filing a stay appeal. There are various other situations outlined in this circular, but the essence in each case is the same-it all boils down to expediting recovery proceedings.

For indirect tax matters, the taxpayer when filing a litigation appeal in parallel also files a stay application. Prior to the issue of this circular, dated January 1, 2013, which is addressed to the chief commissioners, the indirect tax authorities did not resort to coercive action to recover the demand raised, till the stay application was heard. This circular has also rescinded seven earlier circulars, some of which were more beneficial to the taxpayer.

This circular will not only impact India Inc-both large and small entities-but will also impact service providers and professionals that pay service tax. Bipin Sapra, partner, Ernst & Young, said: "While this circular refers specifically to excise, the procedure set out would be applicable to service tax matters also." Today almost all services, apart from 17 exempt heads under the negative list, such as school educational services, public transport, health care, services provided by an individual advocate to other individuals, to name a few, are covered under the service tax net and taxed at 12.36%. Ramifications of this circular are wide, as the cash flow situation now arising owing to prompt payment of service tax demand, may cascade down to consumers through higher pricing.

Sunil Gabhawalla, a chartered accountant, said: "The circular is draconian and detrimental to the interests of taxpayers. Taxpayers will have to follow up aggressively to ensure they get a stay within 30 days.

However, if for instance, the Commissioner (Appeals) or the Tribunal bench does not hear the matter due to huge pendency or non-availability of bench members, it may be difficult to obtain the stay. Typically, even the government department representatives ask for an alternative date for hearing of the stay application which results in delays."

A government official said: "This circular was issued after a Supreme Court order. The Supreme Court in the case of Krishna Sales had observed: 'As it is well known, mere filing of appeal does not operate as a stay or suspension of the order appealed against'." He also added that taxpayers delay hearing proceedings to buy time to pay the demands. An added procedural problem arises for taxpayers.

"Once a stay is obtained, refund will have to be given. However, obtaining a refund is time consuming. The circular will cause an added administrative burden to both taxpayers and tax authorities," added Sapra.

During the first half of the current financial year 2012-13, indirect tax collections had arisen at a low rate of 15.6% to Rs 2.17 lakh crore only. The government has fixed the target of indirect tax collection, comprising customs, excise and service tax, at Rs 5.05 lakh crore for the current fiscal.

Some illustrations provided in CBEC's circular

Serial NoAppellate authorityScenario for tax payerCBEC's direction for tax recovery

1Commissioner (Appeals)Tax payer has filed an appeal together with stay applicationRecovery to be initiated 30 days after filing of appeal, if no stay is granted within 30 days

2CESTATSame as aboveSame as above

3High Court or Supreme CourtCESTAT or High Court has confirmed the orderRecovery to be initiated immediately

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