You tolerate them, they grow in numbers.
You punish them, why so for economic offence, they wonder.
You finish them, other employed by them lose their jobs.
You therefore make them mend, so that tax paying remains the trend.

In debate circles on tax systems, a renewed topical interest has been generated recently, with Mr. Tarun Bajaj, Revenue Secretary announcing the Government’s resolve to decriminalize GST tax system. Normally, it can be done (going by the norms in Customs and direct taxes) by introducing either compounding of offences or settlement provisions or more importantly by periodic upward revision of financial limits for arrest. The statement highlighted that the Government is contemplating policy initiative of not incarcerating individuals till the time an intent to come out clean, even post detection is visible.

It is interesting to be aware of how, the apex court has viewed economic offences and treatment required to be meted out to them over decades.

In 1983 (13) E.L.T. 1527 (S.C.) in the matter of BALAKRISHNA CHHAGANLAL SONI Versus STATE OF WEST BENGAL, while calling for deterrent punishment in a customs smuggling offence, it was observed that the penal treatment should be tailored to the individual but the penal strategy must be regulated by social circumstances, individual factors and the character of the crime. Since India is facing an economic crisis and gold smuggling has had a disastrous impact on the State’s economy, therefore, a serious view must be taken of professional economic offenders, such as, smugglers, hoarders and economic offenders and others of their ilk which show a distressing growing tendency. The fact that the accused comes from a respectable or high family rather emphasizes the seriousness of the malady and the consequential punishment for the violation of such laws must be equally deterrent. Similarly, in 1983 (13) E.L.T. 1661 (S.C.) in the matter of STATE OF MAHARASHTRA Versus CHAMPALAL PUNJAJI SHAH, in a customs criminal trial matter, it was noted that in economic offences stakes involved and offence being one which can jeopardize the economy of the country, it is impossible to take a lenient view. In 2017 (356) E.L.T. 3 (S.C.) in the matter of Rohit Tondon v/s E.D. in relation to bail matter under prevention of money laundering it was held that economic offences are deep-rooted conspiracies and involving huge loss of public funds, they are serious and grave offences affecting economy of country as whole.

It is thus clear that S.C. has been showing no leniency in the matters of economic offences, consistently over a period of time as the same are considered to be discriminating against the honest tax payers and society and therefore against the nation’s interest. Courts, in fact, have been coming out heavily when the economic condition of the country so warrants. Whenever an economic crisis has emerged, the approach of the courts became more deterrent too.

Therefore, in tax matters it is clear that the approach of the Court’s has emerged in synch with the approach of tax policy makers, who being aware of the comfort level or crisis in an economy, move according to times. Therefore, the prerogative to decriminalize certain tax offences , bring amnesty schemes or bring stringency in the tax systems embedded to the need of times, has been of the legislative or executive authorities. Courts however have shown little leniency only, while dealing with beneficial provisions like settlement or compounding, if broader parameters laid down in the policy are met. The policy makers while making such schemes are aware that any measure to decriminalize should not give unfair advantage to dishonest tax payers. And the remorse over past activities and desire to undo the unfair advantage obtained, is present and demonstrated in the acts. The underlying philosophy is to take away unfair advantage of tax evader by putting him in the position equivalent to that of honest tax payer and still to put some financial burden/ cost on him so that desire to be repetitive does not remain present.

Some of the amnesty schemes in the past, especially under direct tax system, which were driven purely by desire of the Governments of the day, to earn some extra revenue, even when they allowed some benefits of the past to be retained by the tax evader, were adversely commented by the apex court. Supreme Court even advised that such schemes may not meet the approval of judicial scrutiny, if brought in future.

While it may appear to a superficial analyst that bringing of amnesty schemes or decriminalizing or in contrary severely criminalizing tax offences is a periodic and recurrent exercise. And is bound to happen sooner or later or close to elections or to garner little extra, when collection gets tough (as in case of house tax). The fact for larger revenue earning levies, is that at a macro level such policy initiatives only to some extent get operationalized when tax position becomes comfortable. Logic is perhaps to reward taxpayer and trading community as a whole by making law less stringent for tax evaders so that those who are not on board with those lawfully discharging tax, should join the bandwagon by coming out clean from the past. A strong signal of arrests and prosecutions, in time of fiscal crisis, for tax evaders is equally required to be sent. None other than policy makers, thus can be aware of the timings for appropriate initiative.

In GST for instance, the existence of fake registrations and fake invoice cases right in the beginning of tax system was indicative, that not many were prepared to mend their ways of thriving on the tax evasion. They sure needed shock treatment of being behind the jail rods to do it. That having been done, through various drives and then e- invoicing bringing irreversible buoyancy in the system, the competent analyzing policy makers (now having reach of data analytics tools to assist) might have realized that it is time to introduce some element of clemency even for tax evaders wanting to mend themselves. Similarly, raising of limit say for instance from ₹5 crores of evasion to ₹20 crores of evasion in GST and other tax systems can lead to departmental manpower being better deployed for hardcore recovery from tax evaders on civil side, rather than wasting their breath in courts for prosecutions. Better tax compliances can also be ensured by channelizing of efforts towards those whose contribution in tax kitty, is considerable.

After all a late payment of evaded tax with interest at any point of time, still reduces burden of present or future higher taxes for the honest tax payer. And therefore is always a welcome step for the society. For the hardened ones ready to gamble their business existence, the system or the law is bound to catch up with them, some day. As far, as revenue authorities are concerned, the first principle of enforcement is focus on the big fish which are difficult to catch, rather than small ones who may be more in number but are liked as hush money is easy to beget from them. For such collusion can lead to a joint venture in plundering of evaded taxes.

For those who honestly collect indirect taxes and pay it without passing any civil services exams, some incentive in future may someday be required to be considered.

An Article by Somesh Arora – the  Editor of this Forum

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