Top management of firms should be summoned for a few specified reasons and after written justification at a senior level, orders CBEC.
The central government told tax officials last week that none of the senior management of large companies - chief executives, head of finance, general managers and so forth - should be summoned for evidence or to enforce recoveries.
In a circular issued on January 20, the Central Board of Excise & Customs (CBEC) has said the top management needs to be summoned only when there are indications of their involvement in a decision making process which might have led to revenue loss for the government.
“The instruction is welcome and reinforces the mindset of the new government to put a taxpayer-friendly tax administration in place. Though the instruction does not refer to customs matters, the taxpayer community can hope that the customs authorities would also respect the protocol set by their governing Board,” stated corporate law firm BMR Legal.
The instruction notes that summons are routinely issued by field formations under Section 14 of the Central Excise Act, 1944, to senior officials of companies, to call for evidence, documents or to enforce recoveries. It has said these should be a final resort.
CBEC has said a summons should be issued only by officers of the rank of superintendent, and only after prior written permission of an officer not below the rank of an assistant commissioner, with reasons to be recorded.
Where prior written permission is not possible, oral or telephonic permission needs to be obtained and the officer intimated at the earliest.
The previous government of Manmohan Singh had been criticised by both Indian and foreign companies for a regime of tax notices, which led to many companies postponing their investment plans.
“The government is moving in the right direction. The extension of provisions of imprisonment to the service tax laws created lot of uneasiness in the industry at large. This progressive circular comes as a major relief,” said Sumit Lunker, partner, indirect tax, BDO India LLP.
“India’s ranking in the World Bank’s ‘Doing Business’ report is far below the (five-country) BRICS counterparts. Such measures will help boost confidence and build trust between authorities and tax payers. A similar circular was issued in 1989 but it has been 25 years and it is very important that the ground authorities follow some house rules framed by CBEC. It is also imperative that state VAT (value added tax) authorities align with the mindset and intent of the Union government, making India a preferred place for doing business,” he added.
Late last year, the high court in Mumbai had struck down tax department cases against multinationals Vodafone and Shell in separate cases; the department had imposed taxes on their investments in Indian arms.
In its election manifesto, the Bharatiya Janata Party which is now in power at the Centre had promised to curb 'tax terrorism' and promised to make it easy to do business.
BMR Legal says at a policy level, the norm that the power to issue a summons needs to be exercised with discretion has existed for a long time. Even the circular issued in 1989 clearly provided that it should be a last resort, when the assessees do not cooperate during investigation.
Leighton India Contractors: Tax authorities slapped a notice on the company for subscribing to the shares of its Indian arm; it was a Rs 900 crore (Rs 9 billion) transfer-pricing dispute
IBM: The US technology major was asked to pay Rs 5,753 crore (Rs 57.53 billion) as income for under-reporting revenue for 2008-09
Nokia: Received a Rs 13,000 crore (Rs 130 billion) tax demand for transfer-pricing violations. The company has since moved court and shut its Chennai unit
Cairn India: Cairn Energy transferred shares of Jersey-based Cairn India Holding to Cairn India in 2006. The share transfer in India was valued at about Rs 26,000 crore (Rs 260 billion). Authorities claimed this led to capital gains for Cairn UK Holdings taxable in India. The matter is still under consideration
Vodafone: Tax dept says Vodafone liable to pay tax on the sale of shares by Hutch to Vodafone in 2007. SC rejects tax department’s tax demand notice. UPA govt comes out with an ordinance to tax the transaction. The matter is unresolved
Hindalco: I-T dept asks Hindalco to pay tax on guarantees given to overseas subsidiaries' loan facilities for the acquisition of Novelis
Shell: Shell asked to pay tax on equity investment in its Indian subsidiary. Bombay HC rules in favour of Shell