Revenue & Tax Matters

Legal Framework of Revenue and Tax Matters in India

• Introduction: Revenue and taxation in India form the foundation of the country's fiscal policy, enabling the government to fund public services, infrastructure, and social welfare programs. Governed by a detailed, lawful framework, the system of taxation in India is categorized into direct and indirect taxes, which both the central and state governments impose. The Constitution of India specifies the structure of taxation, along with the three lists — Union, State, and Concurrent lists —outlining the tax powers of different government levels. 
• Constitution of India
  • Article 265: No tax may be imposed or collected without the provisions of law.
  • Article 246: Provides the distribution of legislative powers between the Union and the States through the Union List, State List, and Concurrent List, including matters of taxation.
• The Income Tax Act, 1961: The Income Tax Act, 1961, governs the taxation of individuals, corporations, and other entities based on their income. Section 2(24) of the Act defines 'income,' including profits, salaries, dividends, and other similar earnings. The Income Tax Department, under the Central Board of Direct Taxes (CBDT), is responsible for administering and enforcing these tax laws. The system of income tax in India is progressive, imposing higher rates on higher levels of income.
• Central Goods and Services Tax (CGST), 2017: The Central Goods and Services Tax (CGST), implemented in 2017, replaced various indirect taxes, including VAT, Service Tax, and Excise Duties. GST is a destination-based tax with three main components: CGST (collected by the central government), SGST (collected by state governments), and IGST (collected by the central government on interstate transactions). The GST Council, established under Article 279A of the Constitution, is responsible for formulating policies and making amendments to the GST laws. The Central Board of Indirect Taxes and Customs (CBIC), under the Department of Revenue, Ministry of Finance, administers and enforces GST at the central level in India.
• The Customs Act, 1962: The Customs Act, 1962, governs the levy and collection of customs duties on dutiable goods imported into or exported from India (Section 12). It establishes a legal framework to prevent import and export for specific reasons (Section 11). It empowers the Central Government to grant exemptions from duty (Section 25) and regulates lawful international trade through detailed procedures for import and export clearances (Chapter VII). The Act outlines the roles and powers of the officers (Section 3–5). It also prescribes penalties and adjudication processes for violations (Section 112, 114, 122, 122A) and provides appeals in Chapter XIV. 
• The Companies Act, 2013: The Companies Act, 2013, governs corporate laws in India. It lays down provisions for the maintenance of books of accounts (Section 128), preparation of accurate financial statements (Section 129), and audits to ensure transparency. The Act does not directly govern taxation.
• The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015: This Act aims to combat the issue of undisclosed foreign income and assets. The Act imposes a tax at a rate of 30% on such undisclosed foreign income and assets (Section 3). Section 4 specifies what will be considered as undisclosed foreign income and assets for taxation purposes. If there is failure to comply with the provisions of the Act, then it is accompanied by stringent penalties (Section 41, 49, 51). It thereby seeks to improve compliance and transparency in foreign asset reporting.

Tax Administrations

• Central Board of Direct Taxes (CBDT): The CBDT, a body under the Department of Revenue, Ministry of Finance, is responsible for formulating policies, administering, and enforcing direct tax laws, including the Income Tax Act, 1961.
• Central Board of Indirect Taxes and Customs (CBIC): It handles customs duties, central excise, and Goods and Services Tax.
• State Tax Authorities: These entities are responsible for taxes such as VAT, state excise, and state GST.
• Income Tax Department: This department is responsible for enforcing laws related to income tax and collecting taxes.
• Tax Tribunals: The Income Tax Appellate Tribunal (ITAT) and GST Appellate Tribunal serve as quasi-judicial authorities for solving matters.
• Appellate Mechanism: Taxpayers have the right to appeal tax authority orders through a structured appellate framework. Taxpayers can request revisions of orders under section 264 of the Income Tax Act before the Commissioner of Income Tax.

International Framework 

• Double Taxation Avoidance Agreements (DTAAs): These agreements are established among two or more countries, focusing on eliminating or reducing double taxation on income or profits generated by one country's citizens in another. These agreements provide solutions, such as tax credits or exemptions, to prevent taxpayers from being subject to double taxation on the same income across multiple jurisdictions. DTAAs also describe the taxing authorities of every nation regarding distinct kinds of income. India has signed it with more than 85 countries.
• The International Monetary Fund (IMF): The IMF provides technical assistance and policy recommendations to countries on tax-related issues, particularly concerning revenue mobilization, fiscal transparency, and effective tax systems. It guides nations in forming tax policies and enhancing revenue collection methods.
• World Trade Organisation (WTO): While the WTO primarily deals with trade regulations, it also indirectly affects tax matters by establishing a universal standard of trade practices, which entails various guidelines related to taxation.
• Financial Action Task Force (FATF): The FATF develops nationwide standards to combat money laundering and the financing of terrorism, which notably impacts matters of taxation. Countries are asked to adopt stringent financial transparency measures to prevent illicit activities.
• World Bank: The World Bank collaborates with nations to create an effective system of taxation, providing technical support and policy assistance on public financial management and revenue generation, particularly in low-income and developing countries.
• International Bureau of Fiscal Documentation (IBFD): The IBFD is a renowned organization specializing in global tax law. It provides resources, research, and analysis on International tax cases, offering advice to governments, businesses, and tax professionals.

Significant Amendments  

• The Taxation Laws (Amendment) Act, 2021
  • Section 9, Income Tax Act, 1961: It revised the Income Tax Act, 1961, to ensure that no tax demands would be issued in the future under the 2012 amendment to section 9 for offshore indirect transfers of Indian assets, provided such transactions took place before 28 May 2012, the date when the Finance Act, 2012, was enacted.
• The Central Goods and Services Tax (second amendment) Act, 2023
  • Section 110: Section 110(1)(b)(iii) was inserted, which states the qualifications and appointment of GST Appellate Tribunal members.
  • Proviso to Section 110: A new proviso was added, stating that a person who has not reached the age of 50 years will not be eligible for appointment as president or member of the Appellate Tribunal.

Violation of the Laws 

• Tax Evasion: Tax evasion refers to the intentional act of avoiding the payment of taxes owed to the government. Some general examples of these include reporting low income, overdrawn expenditures or deductions, failure to file returns, or not completely disclosing income; modifying financial documents; or making incorrect claims for exemptions. Section 270A of the Income Tax Act, 1961, deals with the under-reporting and misreporting of income. 
• Tax Returns: Failure to file tax returns by the required timeline is a violation of Indian Tax legislation. Taxpayers who refuse to file their returns will face fines and might be subjected to prosecution if the refusal to file is consistent. According to the Income Tax Act, 1961, Section 139 (Return of Income), tax returns must be filed within a specified timeline. If they fail to do so, authorities can impose penalties under Section 271F.
• Tax Payments: Failure to pay taxes or delaying payments is also a violation. This entails both direct and indirect taxes. Section 220(2) of the Income Tax Act, 1961, imposes interest on delayed payment. Additionally, Section 47 and 50 of the GST Act, 2017, stipulate penalties for non-payment or late payment, along with interest on the outstanding amount.
• Avoidance and Manipulation: Although avoidance of tax is not unlawful, employing aggressive strategies specifically designed to evade taxes through artificial arrangements can attract scrutiny under the General Anti-Avoidance Rules (GAAR). Section 68 (unexplained credits) and 69 (unexplained investments) of the IT Act, 1961, focus on questionable income sources. 
• Non-Compliance with GST: The Act establishes the lawful structure for the taxation of goods and services in the country. Violation of GST includes failure to register for GST, making fraudulent invoices or tax credits, failing to comply with GST filing timeframes, and submitting incorrect or misleading GST returns. Section 122 of the CGST Act imposes penalties for offenses such as issuing invoices without delivering goods and services or abusing fraudulent tax credits. Section 132 of the Act addresses punishment for certain offenses, including imprisonment for a term that may extend to 1 year, 3 years, 5 years, and a fine, as applicable. 
• Books of Accounts: Taxpayers are required to maintain systematic records of their income and expenditure. Modifying these records is termed a violation of tax laws. Section 277 of the IT Act, 1961, states that it is an offense to make false statements in any verification under the Act or to submit accounts or statements that are known to be false or not believed to be true. This offense may result in imprisonment of not less than 3 months, which can extend up to 3 years, along with a fine (in matters involving amounts less than ₹100,000), or imprisonment of not less than 6 months, which can extend up to 7 years and a fine (in matters involving amounts of ₹100,000 and above).
• Tax Fraud and Conspiracy: When a person or organization conspires to avoid taxes, they can be charged with conspiracy or fraud. Such circumstances typically involve large-scale operations aimed at intentionally defrauding the government of tax revenue. Section 318(4) of the BNS, 2023, pertains to cheating and deceitfully persuading the delivery of property. Sections 61 and 61(2) of the BNS, 2023, address the crime of criminal conspiracy.

Procedure for Filing a Complaint 

• Income Tax Issues
  • Assessment or Fine: If an individual is unsatisfied with the assessment of income tax or penalty, there is an option of Appeal. Filing of an appeal with the Income Tax Appellate Tribunal from the CIT(A) 's decision (Section 253). If an individual feels that the ruling is unfavorable, they can submit an appeal to the High Court under Section 260A of the IT Act. Provisions are also provided to approach the Supreme Court.  
• GST Issues
  • GST Non-adherence or Misconduct: For issues related to GST, a complaint must be lodged with the GST department. A formal complaint can be submitted to the department or the authority, and an aggrieved party is eligible to file an appeal before the GST Appellate Tribunal within the specified time limit as prescribed. Further procedures are also outlined if the Appellate Authority's order is impugned. It is pertinent to mention here that Criminal prosecution can be initiated before the concerned court if the individual is found guilty. 
• Matters of Customs Duty
  • Against Customs Officials: If you have complaints concerning misconduct, corruption, or illegal detention, you can submit a complaint to the customs department or the CVC. The complaint should be in writing, including all essential details, supporting evidence, and relevant documents. It can be submitted online. For the Commissioner of Customs, it should be filed within 60 days from the date you received the order. Aggrieved by the order passed by the Commissioner, the appeal should be filed with the Customs, Excise, and Service Tax Appellate Tribunal within 3 months from the date of receipt of the order from the Commissioner. Lastly, if unsatisfied or aggrieved parties, they can approach the higher courts.
• General Steps for Lodging a Tax Complaint in India 
  • Concerned Authority: This depends on the nature of the matter, and it is essential to determine the type of complaint that should be filed with the appropriate authority.
  • Written Complaint: It should be detailed, including facts, personal information, and a copy of relevant orders or notices linked to the issue. It can be submitted either online or in person at the relevant portals and to the authorities.
  • Follow-up: After submission, it is advisable to continue monitoring court matters to stay updated.

How Can Seasoned Advocates Help You? 

• Strategies and Compliance: Possess complete knowledge of tax laws and can assist clients with legal methods to minimize tax responsibilities. Help in tax planning, ensuring maximum utilization of exemptions and deductions while maintaining compliance.
• Appeals: Appeal to the appropriate Appellate Authorities against the wrong evaluation of a client's matters in Income Tax, GST, or any other tax. Help in planning a route through the process of appeals, whether with the Commissioner of Income Tax or the GST appellate Tribunal, ensuring the timely submission of appeals.
• Tax Evasion or Fraud: In situations of alleged tax evasion or fraud, defend the client by challenging the demand notices and case presented, presenting counterarguments, and protecting their rights.
• Negotiations and Settlements: Aid you in negotiating settlements with tax authorities. Help you resolve conflicts through the settlement process or Alternative Dispute Resolution (ADR) methods.
• Cross-Border Matters: Provide counsel to persons or business entities engaged in Global transactions on adherence with both Indian tax regulations and global tax treaties, like DTAAs..
• Tax Refund Complexities: Assist clients in situations where tax refunds are delayed or denied, providing guidance and support throughout the process. Handle the procedural aspects and represent clients in contesting decisions made by tax authorities.
• Representation: Represent clients in complex tax disputes before the authorities, tribunals, appellate authorities, High Courts, and the Supreme Court, advocating effectively to secure favourable outcomes. 

Conclusion

To conclude, India's framework on revenue and taxation comprises several laws and rules that ensure the proper regulation, imposition, and administration of taxes. While the tax system may present complexities, these challenges can be effectively managed with the assistance of legal experts. To know more, contact us.