Makemytrip faces coercive onslaught
Somewhere between two mega shows—Startup India and MakeInIndia—a senior executive of the travel portal makemytrip.com faced three needless days in jail and the humiliation it involves. This drastic and coercive action by the tax department was based on its interpretation of the rules and conclusion that the portal had evaded Rs67 crore of service tax. And, like in the days of the United Progressive Alliance (UPA), the taxmen did not bother serve the company with a show-cause notice. Since the makemytrip executive was clearly not personally liable for tax evasion, the action was meant to frighten and intimidate top management. And it, clearly, worked.
The company reportedly deposited Rs40 crore in taxes to have him released, on 11th January, after three days in jail. It was only on 20th January, in response to a civil action filed by the company, a shocked Delhi High Court barred the excise department from initiating coercive action and demanded to see the full facts, that the media reported the issue. An angry Division Bench of Justice S Murlidhar and Justice Vibhu Bakhru remarked: “No show-cause notice, not even a scrap of paper to show that he owes Rs67 crore to you. This is a remarkable way of collecting taxes. Do you have any document to prove his liability? Now, even without a notice you have collected Rs40 crore. We are getting reduced to a police state; that is what is happening.” In fact, such action was routine under the UPA2 government. Show-cause notices were issued only after raids, harassment and arrests that force companies to fulfil tax demands as interpreted by various tax authorities. Clearly, things are much the same.
In the makemytrip’s case, the issue was about who is responsible for paying value-added tax on the hotel and airline bookings done through the company. Makemytrip claims it is an intermediary and the tax must be paid by the actual sellers of hotel rooms and airline seats. In the evolving e-commerce world, the issue is complicated by foreign direct investment (FDI) rules, conflicting policies at the Centre and states. Thousands of tax-related cases, which are a consequence of the coercive collections during the UPA regime, have piled up in courts and tribunals across the country. Many thousand crores of rupees are blocked up, with no end in sight, to slow and expensive litigation. This government has not attempted to unravel the mess except to direct officials not to contest smaller demands.
Fortunately, the Delhi High Court refused to accept the excise department’s contention that no show-cause notice needed to be served. According to the law portal barandbench.com, the Court observed, “As the law stands, you cannot enter a person’s house and arrest them because you feel that they have (done) something wrong. This will not happen under our watch.” (sic) Isn’t this what we had expected under Narendra Modi’s watch? The prime minister has promised simplification, clarity, end to taxtortion and less red tape. But, with enormous powers given to tax officials under the draconian Black Money Act, it is no surprise that investigation agencies do not see any need to change their ways.
The next hearing of the case is on 23rd February; but, before that, the Modi government is hosting another high-voltage MakeInIndia event in Mumbai. Will any of our industrialists, who will share the stage and the limelight with ministers and bureaucrats that day, dare to ask the government to cut down on the mega shows and first focus on clarifying and simplifying tax policy, if it really wants to encourage entrepreneurship and job creation in India?