Sunil Jain: Behave yourself, Mr Taxman

If taxpayers can sleep a little easier now, they have mattress manufacturer Sheela Foam to thank.

For, this Uttar Pradesh-based firm has unwittingly triggered off a series of events that have finally led to the Supreme Court coming down heavily on tax officials who use one excuse or the other for delaying repayments to people for years at a stretch""the most common excuse for not giving refunds to taxpayers who have spent years fighting their cases before the appellate tribunal Cestat (Customs, Excise, and Service Tax Appellate Tribunal) and various courts is that the cases are "time barred"!

Forget about tribunals and courts, in the case of a firm called Tanir Bari Power Company Private Limited, despite the finance ministry's directions, the Bangalore commissioner, who reports to the same ministry in New Delhi, refused to refund Tanir Bari's money saying the ministry's circular was not correct in law (see Rational Expectations, October 4, 2004)!

Indeed, the Supreme Court came down heavily on the government. The Central Board of Excise & Customs offered to issue a circular on the matter to its officers, saying that the refunds had to be made within a period of three months of the order of the appellate tribunal/court, and if there was a delay of more than three months "appropriate disciplinary action will be initiated against the concerned defaulting officers" and then went on to say that the 12 per cent interest that would have to be paid by the government during the period of delay "may be recoverable from the concerned officers".

The Court has attached the draft circular to its order passed in December 2004 and said its contents form part of the order. It then dismissed eight other cases with similar orders""the latest Excise Law Times has all the details of this judgement in the ITC case (this is not the main ITC cigarette excise evasion case but pertains to ITC Bhadrachalam) as well as the other eight cases as well.

People familiar with such cases of tax officials not refunding money despite orders of Cestat or of other courts say there are more than a hundred such cases, and a whole host of them will now get cleared along similar lines""that is, the taxman will have to pay a 12 per cent interest for any delay beyond 90 days and the government will have to take disciplinary action against officials responsible.

In some cases like that of Indian Thermoplastics, Cestat (then known as Cegat) passed an order asking the government to refund Rs 7.15 lakh way back in June 1996, but only a small part of this was refunded (the extra duty charged was not refunded), and that too in May 2003. In another case of a huge delay, customs officials finally resorted to the plea that the file had been misplaced!

The Sheela Foam case, of course, takes the cake. In the late '90s, the company had an excise valuation dispute with the taxman and was forced to deposit Rs 1 crore during the investigation of the case. The company won its case at Cegat in 2002, but the government appealed in the Supreme Court, where it lost.

While the Noida excise authorities made the repayment, those at Ghaziabad refused to do so, which brought Sheela Foam back to Cestat asking for justice.

With tax officials refusing to pay the money after Cestat's orders, and even filing an affidavit saying Cestat needed to reconsider its decision, Cestat sent them a notice asking why contempt proceedings shouldn't be begun against them.

It didn't help that the Chief Commissioner of Meerut, who was in charge of both the Noida and Ghaziabad areas, was openly uncooperative""he filed an affidavit backing the Ghaziabad officer, but when asked how the Noida officer had made the payment went so far as to say the Noida official's decision was being reviewed!

While the Court stayed the contempt proceedings, the president of Cestat was angry enough with the blatant non-compliance with Cestat orders, she got a larger bench in Delhi to examine all cases of non-compliance, and even wrote to the Attorney General on how tax officials simply refused to comply with Cestat rulings.

The bench was a lot stricter in its orders and in several cases even said that since there was a loss of public funds (since Cestat ruled the government had to pay interest to the petitioners during the period of delay) the Central Board of Excise and Customs should identify the officers responsible for such matters and file their findings before Cestat.

The government, backing its officers' harassment of taxpayers and blatant disregard for even court orders, went to the Court arguing that no interest can be levied""presumably if no interest is to be paid, the officers cannot be charged with having caused the government a loss, and so no action will be taken against them for merely harassing taxpayers.

Anyway, the Court began hearing the government's appeals against various Cestat orders, and in its famous December order said that disciplinary action will be initiated against the officers concerned and the interest payable by the government may be recovered from the officers""that is, their pensions could be attached.

Whether the government will actually punish officers, of course, is something to be watched. In the Sheela Foam case, two officers responsible, the excise commissioner of Ghaziabad and the chief commissioner of Meerut, were rewarded with better postings""the Ghaziabad official joined the economic intelligence bureau and the Meerut one became a member of the Settlement Commission!