M J Antony: Tax cases with nine lives

OUT OF COURT

Keeping revenue matters on the docket for decades can be avoided if the court vacation is used to weed them out.

In recent years, Chief Justices of India have been promising to cut down the arrears in the Supreme Court as fast as it can be done. The arrears have indeed reduced. However, one of the areas in which the backlog is persisting seems to be taxation. Though the exact figures are not available, a survey of the recent judgements delivered by the court shows the antiquity of these cases pertaining to income tax, sales tax, trade tax and customs.

One typical litigation was Commissioner of Customs vs Clariant (India) Ltd. The assessment year was 1977-78 when the company imported raw materials from Sandoz Quinn under a technical collaboration agreement. The department loaded technical know-how charges to the assessable value of the raw materials under the rules framed under the Customs Act. The dispute was first adjudicated in 1994. The department's appeal to the Collector of Customs was decided in 1997. The company appealed to CEGAT in 2000. The department's appeal to the Supreme Court was taken up last month. It merely remitted the matter to the adjudicating authority "which will decide the matter de novo in accordance with the Customs Valuation Rules 1988".

In Madhumilan Syntex Ltd vs Union of India, the company and three of its directors faced prosecution for deducting Rs 1.3 lakh as TDS in 1989 and not crediting it in the government account as required under the Income Tax Act. Later, it was credited with interest. Since there was a delay in the deposit, a show cause notice was issued and the commissioner of income tax granted sanction in 1992 to prosecute the directors. Then started the tortuous litigation to the high court and the Supreme Court.

Disposing off the case and allowing the prosecution, the Supreme Court said: "It is true that the matter relates to the remote past. The complaint was filed in the beginning of 1992 and more than 15 years have passed. But it cannot be ignored that the prosecution could not be over in view of the applications. There was no failure, negligence or inaction on the part of the prosecuting agency."

In another recent judgement, Essar Steel Ltd vs Union of India, the controversy was over the interpretation of an interim order passed by the Supreme Court in 1991. The company submitted a bill of entry. The declared value was not accepted by the department. A show cause notice was issued in 1988. The company paid the transaction value demanded by the department and the goods were cleared. Then the company challenged the assessment before CEGAT. It decided the petition in the company's favour and directed the refund of the excess amount. To cut the long story short, the Supreme Court said in its latest order: "Justice has been done in the matter. Accounts have been settled...We do not wish to expand the controversy. We do not wish to go into the larger controversy regarding chargeability of interest under the Customs Act as it stood in 1988."

The above case showed that the rules and notifications had changed during the period of litigation. A telling case of this type was Govt of AP vs Corporation Bank. The question was whether a bank was a 'dealer' under the sales tax law when it sold pledged ornaments. The auction took place in 1989. The law had since been amended to clarify the status of financial institutions. However, this case continued for nearly two decades and the arguments turned to whether the amendment was retrospective or prospective in operation.

The heady dispute over who will pay the wages of excise officials posted in a distillery in Jammu & Kashmir was pending since 1973. After prevarication, this rambling litigation (Gupta Modern Breweries vs State) came to an end just two weeks ago in the Supreme Court.

The pendency of any case for decades is painful, the more so when fundamental rights are involved. However, keeping revenue cases on the docket also has a damaging effect on the economy. Either the government is losing its due or innocent firms might be struggling with litigation.

One ray of hope at present is the change in the summer schedule of the Supreme Court. The number of holidays have been reduced by a fortnight. Three benches are sitting almost daily to dispose of old cases. Urgent matters will be heard by a two-bench bench which can pass interim orders. This is a sharp departure from the practice of closing down the entire court during the summer, a practice followed by the colonial masters. Some of the futile litigation in which the parties have lost interest and the law has changed can be weeded out during the vacation.