'This Case Shows How Tax Dept. Miserably Falls Short of Expectation': Delhi HC Makes Serious Observations on "the Procedural Fallibility and Shortcomings" Of GST System[Read Judgment]

In a case of unlawful expropriation of Input Tax Credit, the Delhi High Court last week made serious observations on "the procedural fallibility and shortcomings" of the GST system, even stating that the case demonstrates "how the tax department has miserably fallen short of the expectation". The issue raised by the Petitioner was that an attempt was made to transition the available credit under the indirect tax structure, as prevailing in India prior to 1st July, 2017 (comprising multifarious duties and taxes imposed by the Centre as well as States), by filing Form TRAN-1. But the electronic credit ledger under the GST laws does not reflect the entire credit. In the words of the bench, "The ITC seems to have vanished in the rigmarole of the statutory GST Forms" "We have time and again made adverse remarks on the procedural working of the GST system in several decisions. We may just add that we do not derive any pleasure when we make such observations, as comments of the Court affect the reputation of the administration in the country. Such remarks are made only when we are constrained to do so. The case before us is one where there is a complete lack of understanding and fairness on the part of the Tax Department. The fact that Respondents have done nothing to solve the problem faced by the Petitioner, fueled with the adamant stand before us, contributes to skepticism of GST technical infrastructure, which we feel should and can be easily avoided. Only if Respondents were to engage with the taxpayers with a genuine intention to solve the problems, confidence in the system can be built up and such matters would not reach courts", noted the bench of Justices Manmohan and Sanjeev Narula "Since GST law is a major tax reform in indirect taxation, the difficulties faced in filing of the statutory forms is understandable. In this process, human errors cannot be ruled out and if they occur, the solution is not to criticize the taxpayer for the fault, but instead, the Government should endeavour to find a resolution", noted the Delhi High Court. The division bench proceeded to state, "We cannot ignore the fact that the necessary Forms under GST are difficult to identify and the Government had to put efforts to assist the citizens in understanding the procedures. Till date, GST awareness campaigns and citizen outreach programmes are in place to acquaint the taxpayers with the GST filing procedures. Particularly, with the entire system being online, the interface between the taxpayers and authorities is entirely electronic. This requires some basic fundamental knowledge for using the technology". The Court expressed its regret that the tax department failed to address the basic and fundamental problem faced by the Petitioner that occurred while filing a Form, seemingly on account of a bona fide or inadvertent mistake- "Instead of offering a restitutive solution they have stonewalled all the attempts made by the Petitioner The injustice and prejudice caused to the Petitioner is profound and it's disillusionment and despair is evident" The bench proceeded to state that GST laws required taxpayers to embrace transformative new ways, and that the use of technology can be daunting for many taxpayers who hitherto before, were largely dependent on conventional manual filings of returns. "In order to overcome the resistance to change and encourage transformation and remodeling of the entire accounting structure at taxpayers' end, the electronic mode should be user friendly", it said. The Division bench continued to observe that Tax laws, as it is, are complex and hard to interpret. Moreover, no matter how well conversant the taxpayers may be with the tax provisions, errors are bound to occur. Therefore, if the tax filing procedures do not provide for an appropriate avenue to correct a bona fide mistake, the same would lead to the taxpayers avoiding compliances. The Court opined that "the government should support its citizens by making the burden of compliance and payment as simple as possible". It said that the intent and efforts of the Government should be to extend proper assistance, information and education to taxpayers so that they fulfil their obligations, that this should be the critical area of focus in the area of tax administration which would ensure compliance with tax laws and also build confidence amongst taxpayers. It continued to reflect that "Indeed, by explaining the significance of payment of taxes, and the role that a taxpayer plays in building the nation, the Government endeavors to encourage and motivate the citizens to be tax compliant", and that "If we strive to achieve this goal, it is necessary that we must also provide appropriate channels for resolution of their genuine problems". The Court was of the view that A successful resolution, a positive response and an effective, time bound redressal mechanism is crucial for building confidence amongst the taxpayers and for...

'This Case Shows How Tax Dept. Miserably Falls Short of Expectation': Delhi HC Makes Serious Observations on "the Procedural Fallibility and Shortcomings" Of GST System[Read Judgment]

Mehal Jain

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