PremiumThe instructions seek to sensitise officers about the serious repercussions of prosecution for the persons involved and cautions officials to take decisions on a case to case basis
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New Delhi: Prosecution should not be launched indiscriminately against all the directors of a public limited company for tax evasion and should be limited only to persons who oversaw its day-to-day operations and have taken active part in the offence or have connived in it, Central Board of Indirect Taxes and Customs (CBIC) has said in a detailed set of instructions.
The instructions issued on Thursday seek to sensitise officers about the serious repercussions of prosecution for the persons involved and cautions officials to take decisions on a case to case basis weighing the nature and gravity of offence, extent of tax evaded and the quality of evidence.
Prosecution should not be filed merely because a tax demand has been confirmed in the adjudication proceedings, CBIC said. Nor should prosecution be launched in cases of technical nature, or where additional claim of tax is based on a difference of opinion regarding interpretation of law, CBIC pointed out in the instructions.
Besides, the evidence collected should be adequate to establish beyond reasonable doubt that the person had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed criminal intent for committing the offence.
“It follows, therefore, that in the case of public limited companies, prosecution should not be launched indiscriminately against all the directors of the company but should be restricted to only persons who oversaw day-to-day operations of the company and have taken active part in committing the tax evasion etc. or had connived at it," CBIC said.
An email sent to the finance ministry spokesperson on Thursday night seeking comments for the story remained unanswered at the time of publishing.
Experts explained that the guidelines stipulate that prosecution should normally be launched where amount of tax evasion, or misuse of input tax credit or fraudulently obtained refund in relation to specified offences is more than ₹five crores but this monetary limit is not applicable in cases of habitual evaders and arrest cases.
“These guidelines have elucidated numerous practical scenarios related to procedural aspects of launching prosecution , arrests cases, withdrawal of prosecution, publication of names of persons convicted and compounding of offences that will pave the way for a good and simple tax," explained Rajat Mohan, a partner at accounting firm AMRG Associates.
The move is part of a series of changes CBIC has recently announced to make sure that tax enforcement is fool proof and there is no overreach by individual officers. This is also expected to improve the business environment.
Last month CBIC told field officers to be judicious while exercising their power of issuing summons to senior officials of companies such as chief executive officers,), chairman and managing directors , and chief financial officers . The tax authority said senior management officials of any company or a public sector unit should not generally be issued summons in the first instance. They should be summoned when there are clear indications in the investigation of their involvement in the decision-making process which led to loss of revenue, CBIC said. The tax authority also last month raised the monetary threshold for arrest and prosecution for smuggling as part of efforts to streamline penal provisions.