The power of tax officers should be reined by statutory amendments, not memos
Direct and indirect tax revenue boards in India need to balance the wide powers granted to their officers with a sense of responsibility on how to use them. This should preferably be achieved by amending the necessary statutes rather than merely issuing memos and instructions. Unfortunately, the latter method has been utilised more often. Most recently, it was the turn of the Central Board of Excise and Customs (CBEC) to issue an instruction asking its officers to be more circumspect in resorting to extreme steps when collating evidence. In November last year, the Central Board of Direct Taxes (CBDT) had also issued a memo asking its officers to be ‘non-adversarial’ when dealing with tax payers. It is not the first time that the CBDT & CBEC have issued such communications to their field staff.
It is common knowledge that tax officers in India (like in many other countries) enjoy wide, statutorily granted powers to deal with the tax payers. That such powers are often exercised in excess is also common knowledge. These powers are considered as the manifestation of the sovereign’s right to impose tax. Statutes, in fact, often deem tax proceedings to be akin to those of a civil court; its presiding officers are vested with many of the powers of a judge. As such, tax proceedings are described as being ‘quasi-judicial’ – proceedings that are often administrative in nature but require the presiding officer to adjudicate on a set of facts. Though quasi-judicial bodies exercise some of the powers of courts they do not function as such. Their principal limitation is that they must follow the basic principles of natural justice otherwise their actions are liable to be struck down in a regular court of law.
While the rights of these officers are explicitly stated in taxing statutes the corresponding obligations on how to use them are only implied or developed through court judgments. The resultant lack of clarity and cohesion ensures that the outer bounds of these duties are stretched much further than any outer limits on the rights of officers. The CBDT and the CBEC have indeed laid down norms to be followed by officers during tax proceedings by officers – but they are by way of memos and instructions. In the hierarchy of codified law, they are as low down as one can get.
The Revenue Boards are facing the classic principal-agent problem – how does the principal (CBDT & CBEC) incentive its agents (tax officers) to not do anything that is against the principal’s interests? Despite the necessity for some of these powers, empowering officers with broad rights and powers while casting weak, unenforced obligations on them is definitely not the solution.
One of the ways this problem could be solved is to put the rights and obligations on the same footing – by amending the provisions that give these powers to also contain the obligations and safeguards. In the absence of such statutory safeguards, we can expect to see more such memos and instructions being repeatedly issued to little effect.
Surya Prakash B.S is an alumnus of the Graduate Certificate of Public Policy and can be found on Twitter on his handle @SuryaPrakashBS. The views expressed here are personal.