Arbitrariness in Section 159 (CGST Act, 2017) & its Impact on Corporate Governance

The Indian tax regime affects corporate governance by either imposing liabilities or offering tax incentives; in contrast, corporate governance has an impact on the management of a company’s tax affairs. The Central Board of Indirect Taxes and Customs (CBIC) recently issued guidelines for the initiation of prosecution under Goods and Services Tax. These guidelines limit the possibility of misuse of the provisions and provide clarity to the tax authorities as to the process to be followed in filing a claim under the Act. So let us discuss the Arbitrariness in Section 159 CGST Act, 2017.

What is Section 159 of the CGST Act, 2017 all about?

According to Section 159 of the Central Goods and Services Tax Act, 2017 (“CGST Act”), the rules provide that Pr. commissioner, commissioner, or any other officer designated by the aforesaid authority may disclose the particulars of the taxpayer to the public in “deserving cases”, keeping in mind the public interest. Moreover, such unlimited sweeping powers pave the way for malpractices by the Central Board of Indirect Taxes and Customs (CBIC) which harass taxpayers, and require scrutiny on any basis, which affects the image of the business in the market.

Section 159- Publication of information about persons in certain cases

• This provision empowers the competent authority to publish names and other information about persons in default as information for the public.
• This provision also deals with persons whose names may be published if the proceedings concern a company/firm/association of persons.
• The Competent Authority may cause the following particulars to be published:
  • Names of any person
  • Other particulars relating to proceedings or prosecution under the Act, so far as such person is concerned.
• In addition, the competent authority may also decide to publish:
  • In the case of a firm- the names of the partners
  • In the case of a company- the names of the directors/executives/secretaries and treasurers/managers
  • In the case of an association of persons- the names of the members

Exception- However, publication in connection with the imposition of a fine can only be made if the following conditions are met:

• The time for filing an appeal to the first appellate authority (u/s 107) has expired and no appeal has been filed by the persons concerned (OR)
• The appeal is filed and disposed of (against such persons).

Arbitrary Exercise of Power: “Deserving Cases”

CBIC Guidelines aim to limit the possibility of abuse of innocent taxpayers from harassment by GST officials. However, there is ambiguity in several provisions of the CBIC. The full interpretation of the CGST Directive and Act of the above section provides that the commissioner or any other officer designated by the aforesaid authority may disclose particulars of a person convicted under the Act.

The basis for establishing this publication is not determined; The CBIC guidelines state that such disclosure must be made in the public interest and should only be made in “deserving cases”. What is ambiguous is that the guidelines do not set out the circumstances in which such unlimited power is to be exercised. Disclosure of information is not limited to the details of a convicted person, GST officials can also disclose any information relating to the proceedings or prosecution of that person. The only condition that must be met is that the disclosure must be made in the public interest. Such unfettered power gives the GST officials a huge scope to apply the provisions arbitrarily.

Implications on Ease of Business and Corporate Governance

India’s tax regime affects corporate governance by either imposing liabilities or offering tax benefits; in contrast, corporate governance has an impact on the management of a company’s tax affairs. Ease of doing business is the combined result of simplified rules and procedures that support the smooth functioning of the business in general, taking into account the strategies used for Corporate Governance.

The implications of Section 159 of the CGST Act are that the unfettered power to disclose the information of a convicted person may lead to misuse of the law. In addition, the explanation given in Section 159 makes it clear that in the case of a firm, company, or other association of persons, the Commissioner has the discretion to publish details of the general manager, agents, partners, secretaries, treasurer, or members of the company. Examples of abuse include asking for a bribe, and using threats or violence to extort money from a convicted person for not disclosing information.

In a scenario where the information is made public, control on an indefinite basis affects the conduct of the business and the market image of the business. In addition, disclosure of information acts as a means of threat to obtain conclusive testimony, if at all there is a possibility of criminal prosecution. Such unlimited blanket powers in the hands of the tax official serve to destroy the market image of the business and thereby hinder the day-to-day business.

Final words

The CBIC guidelines are intended to limit the possibility of innocent taxpayers being abused from being harassed by tax officials. Section 159 of the CGST Act, however, confers a discretionary power on the tax officer which, instead of limiting the scope for misuse, widens the scope for misuse of the Act.

The guidelines have given the revenue officers unlimited freedom to apply the section as per their whims and fancies as there is no basis on which the authorities can decide that a case is “deserving”. In addition, a positive approach to taxation has recently been adopted through an increase in tax incentives; on the other hand, such a provision falls right down the rabbit hole of a negative strategy carried out by tax officials. The section does not prescribe any monetary limit to be considered a meritorious case, which in turn creates fear of scrutiny. Fear negatively affects business by being the opposite of the “ease of doing business” principle.

In conclusion, the central government must remove the loopholes arising out of Section 159 of the CGST Act to save innocent taxpayers from being harassed by revenue officials.