'Revenue Loss To State Is Loss Of Public At Large': Madras High Court Reprimands Tax Department For Corruption, Delayed Recovery

The Madras High Court last week issued directions to ensure that strict actions are undertaken against officials in the Commercial Tax Department who have wilfully indulged in corrupt activities, received freebies in lieu of favours or are responsible for dereliction of their duties.

Justice S.M Subramaniam observed that State revenue must be protected and appropriate action must be initiated against erring officials.

"Revenue to the State is to be protected. If there is a loss of revenue to the State on account of the lapses, negligence and dereliction on the part of the Competent Authorities, then the Government is duty bound to initiate action against all those erring officials, who all are responsible and accountable for such revenue loss and recover the loss of revenue from those officials after instituting an appropriate action under the Discipline and Appeal Rules and for recovery of loss of revenue", the Court observed.

Background:

In the instant case, a notice was issued to the petitioner on October 4, 2012 for tax recovery with respect to certain property he had purchased in 2006. He was however unaware of any encumbrance attached to the property when he purchased the same. The petitioner further informed the Court that the defaulter in the present case is the seller who had failed to pay the applicable tax for the years 2000-2001 and 2001-2002.

However, instead of issuing notice to the seller, the petitioner had been issued the aforementioned notice in 2012 for the recovery of the pending sales tax and proceedings under the Revenue Recovery Act had been initiated against the petitioner. Accordingly the concerned notice was under challenge in the instant case.

The petitioner contended that he was a 'bonafide purchaser' and that his interests must be protected. It was also pointed out to the Court that the impugned notice had been issued to the petitioner after a lapse of about eleven years from when the sales tax arrears were due and about six years after the purchase of the property by the petitioner. Since the concerned authorities had failed to initiate action for the recovery of sale tax arrears within a reasonable time, the impugned notice is liable to be set aside, the petitioner further stated.

The counsel appearing on behalf of the respondent authorities submitted before the Court that despite several orders being issued to the concerned seller (defaulter), no response was received. Thus, proceedings for recovery of the sales tax was initiated against the petitioner and it was communicated that the property under dispute would be attached under the provisions of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) in case the pending amount is not paid within a period of seven days.

Observations:

Taking into consideration the grievance of the petitioner, the Court observed that there had been a 'blatant lapse on the part of the Competent Authorities of the Commercial Tax Department in pursuing the matter for recovery of arrears of sales tax'.

Further, it was observed that under Section 24-A of the TNGST Act, 1959, a property sale carried out for adequate consideration and without notice of pending proceedings under the TNGST Act would not be void.

"In the present case, undoubtedly, the second respondent was aware of the proceedings, which were pending before the first respondent. However, he sold the property in the year 2006 probably on the impression that no action was taken by the first respondent for more than six years regarding the sales tax arrears due for the years 2000-2001 and 2001- 2002. Ultimately, the delay caused at the instance of the first respondent Department is the reason for loss of revenue to the State", the Court observed.

The Court further observed that despite the public at large lamenting about the ongoing corrupt activities of the tax officials, no measures had been undertaken by the Commercial Tax Department to curb such a practice. It was also opined that the State revenue being the backbone of the State's economy must be protected and that there cannot be any compromise in the implementation of the provisions of the Tax Laws in order to uphold constitutional principles.

"The ultimate sufferers on the one end is the common man and the other end is the State revenue. At the cost of the common man and the State revenue, these traders and the officials are not only inactive but not initiating action properly and indulging in corrupt activities. Thus a conjoint and serious actions are required to be taken and in the event of allowing such corrupt activities to continue for a longer period, then the State revenue would suffer, which would impact the implementation of the constitutional principles of equality in economic status and social justice as well as the implementation of various welfare schemes for the benefit of the public", the Court observed.

Opining on the recurrent practice of tax authorities openly accepting and demanding freebies from the business community in lieu of favours, the Court observed,

"The evil menace of demand and acceptance of freebies in large scale in a routine manner are causing loss to the State revenue, as these corrupt officials are failing in their duties, to initiate appropriate actions against the illegalities prevailing amongst the traders, businessmen etc. Thus, the higher officials are bound to monitor these aspects effectively and efficiently, so as to control the menace and deal with such officials in a hard manner without showing any misplaced sympathy."

Justice Subramaniam further observed that in cases of such nature there is an ongoing practice of actions either not being initiated or initiated belatedly allowing the illegality to lapse and allowing the traders to escape from the clutches of law. In such circumstances the State revenue suffers irreparable loss, the Court noted.

"Revenue loss to the State is the loss to the public at large. The monetary losses are neither compensated nor recovered and therefore, the State is deprived in implementing the public welfare policies in favour of common women and men. Thus, adequate care is to be taken, so as to ensure that the taxes, as applicable, are collected promptly and the officials, who all are not prudent in execution of law, are dealt with mercilessly," said the Court.

Directions Issued

Accordingly, the Court issued the following directions to ensure the welfare of the citizens at large and to adequately penalise erring officials.

• Suitable orders should be issued to all the subordinate authorities across the State to identify cases where no actions are taken or actions are taken belatedly after an efflux of time for the collection of tax or arrears of tax. Accordingly, appropriate action must be taken against officials who are responsible and accountable for such lapses, negligence or dereliction of duty. If the misconduct or otherwise is proved, further action is to be initiated to recover the loss of State revenue from those officials.

• The concerned respondent-authorities must coordinate with the Department of Vigilance and Anti-Corruption to conduct frequent surprise raids to control the evil menace of corrupt activities of demand and acceptance of bribe or receipt of freebies from the business community across the State of Tamil Nadu. In case such offences are identified then criminal action must be initiated under the relevant laws.

• Suitable orders must be issued to all competent authorities to verify the service records of the officials of the Commercial Tax Department and make a comparison with the actual assets of the family members as well as the declared assets in the service records and if any disproportionality of wealth is identified, all suitable actions are to be initiated under the Service Rules in force.

• All long pending cases regarding State revenue are to be reviewed periodically on war foot basis and reports are to be collected and steps are to be initiated to protect the interest of the State revenue.

Case Title: GE Govindaraj v. The Assistant Commissioner (CT) and Ors

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