No justification for appeal fees payable by taxpayer as appeal is usually to get redressal of wrongs done by revenue officers.

[C.A. DEV KUMAR KOTHARI]

Revenue matters:

No justification for appeal fees payable by taxpayer as appeal is usually to get redressal of wrongs done by revenue officers. Costs in case of frivolous appeal can be prescribed.

Reasons for appeal by tax payers:

Tax payers have to file appeals usually against order of authorities or courts to seek redressal of grievances caused to them due to wrong orders, and high handedness of revenue officers. It is a matter of record that the revenue officers are in habit of raising unjust, illegal and unfair demands which are contrary to the law. Flouting even judgments of the Supreme Court is not very uncommon by the revenue officers. This is also a matter of record that a major portion of demands raised by revenue officers is deleted/ vacated even in the first appeal. Therefore, the cause of action for filing an appeal by taxpayer is usually wrongs done by revenue officers.

Who get appeal fees:

The appeal fees is usually collected by the same department of the Government whose officers have committed wrong acts. Therefore, these are wrong done by the Government itself. Charging fees for filing an appeal cause of action of which is wrong done by the government itself is therefore not at all justified. Our Constitution provides for equality before law, however, we find that there is no such equality when the matter for appeal fees is considered. The revenue officers are not required to pay appeal fees but tax payer is required to pay appeal fees. By charging higher amount of appeal fees some times justice is also denied.

Exemption of appeal fees in case of appeal by revenue:

We find that the revenue is usually exempted from paying appeal fees when it files appeal against order of a lower appellate authority against further higher appellate authority or court. However, the taxpayer is required to pay fees (except in some cases like appeal by way of cross objection when revenue has filed an appeal)

Appeal fees:

As per provisions of various direct and indirect tax laws tax payer is required to pay prescribed appeal fees. In case of direct tax laws we find that the appeal fees is based on the assessed amount of income or wealth which is not justified. In case of indirect taxes like Central Excise, Service tax etc. the appeal fees is based on amount demanded, that is after giving credit of tax or duty paid . Certain slabs for appeal fees with a maximum amount are also prescribed under law.

Costs in case of frivolous appeals instead of appeal fees is desirable:

As discussed earlier, there is no justification of levying appeal fees on taxpayer because the appeal is against the order of government therefore, the wrong doer is benefitted for his wrongs. Suppose in a case there is loss as per return and the A.O. reduces loss. The assessee  has to prefer appeal and after appeal order the revised loss is equal to the loss as per return.  In this case there is no tax payable, but assessee has to pay appeal fees just to get relief against wrongs done by the A.O. thus there is no justification of appeal fees.

However, the appellate authorities can be vested with right to levy costs or damages, in cse it is found that the appeal has no merit at all or the appeal is frivolous.  

Fees under Income Tax Act :

We find that the appeal fees is fixed with reference to the amount of income assessed and therefore even if the amount involved in dispute is meager amount but assessed income is a larger amount, the fees payable becomes excessive. For example suppose income as per return was Rs. twenty five lakh, the assessed income is Rs.25.50 lakh. The dispute to be resolved is only in respect of addition or disallowance of Rs. 50,000/-, however, the appeal fees payable is fixed with reference to the  assessed  income of Rs. 25.50 lakh and therefore appeal fees payable for filing an appeal before the CIT(A) will be Rs.1000/-  u/s 249(1) (iii)  and for appeal before the ITAT will be Rs.10000/- as per section 253(6) (c).

In case of appeal against penalty orders also the revenue is trying to charge fees based on assessed income although  as per true meaning of the expression ' where the subject matter of an appeal relates to any other matter  … .as used in section 249(1)(iv) and 253(6) (d) the fees for appeal against penalty should not be related to  assessed income.

In case of appeal against block assessment there are different provisions which are nort discussed int his writeup.

Appeal fees in case of  Loss:

In case of loss , in fact there is no gross total income, no deduction under chapter VI-A ,and there is also no computation of ' total income' computed by the A.O. In fact loss may be kept apart for carry forward. A loss cannot be called an income in the context of charging sections. There is no deeming  provision to suggest that for this purpose income includes loss as is case in connection with section 64.

Therefore, it can be said that the case would fall under section 259(1) (iv)  (Rs. 250/-)  and 253(6)(d) ( Rs. 500/-) for appeal before the CIT(A) and ITAT respectively, and therefore fees should not be fixed with reference to the amount of loss computed by the A.O.  

Appeal fees in case of income reduced to nil by set off of loss:

In case for the year income is positive figure but after set off of past losses income is reduced to nil. The total income assessed or computed by the A.O. is nil, and therefore fees payable will be minimum of prescribed amounts. Although the disputed amount may be substantial.

Rationalized fees under C/E Act:

As per law as it stands the appeal fees payable is based on duty, interest or penalty demanded. This amendment was proposed vide clause 73 of the Finance (No.2) Bill, 2004 and then enacted. In section 35B of the Central Excise Act, sub-section (6), was substituted as follows:

"(6) An appeal to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner and shall, irrespective of the date of demand of duty and interest or of levy of penalty in relation to which the appeal is made, be accompanied by a fee of -

(a)     where the amount of duty and interest demanded and penalty levied by any Central Excise Officer in the case to which the appeal relates is five lakh rupees or less, one thousand rupees;

(b)     where the amount of duty and interest demanded and penalty levied by any Central Excise Officer in the case to which the appeal relates is more than five lakh rupees but not exceeding fifty lakh rupees, five thousand rupees;

(c)     where the amount of duty and interest demanded and penalty levied by any Central Excise Officer in the case to which the appeal relates is more than fifty lakh rupees, ten thousand rupees;

Provided that no such fee shall be payable in the case of an appeal referred to in sub-section (2) or a memorandum of cross-objections referred to in sub-section (4).

(7) Every application made before the Appellate Tribunal -

(a)     in an appeal for grant of stay or for rectification of mistake or for any other purpose;  or

(b)     for restoration of an appeal or an application,

shall be accompanied by a fee of five hundred rupees."

In case of excise appeal the appeal fees will be  based on a rational for the reason that admitted and paid  excise duty and interest is not taken into account for fixing appeal fees. This is because of the words used are "the amount of duty and interest demanded and penalty levied". Therefore, the admitted amount of excise duty and interest which has been paid is reduced from the demand and the manufacturer will not suffer for excessive fees.

For example:       

Excise duty levied                             Rs.500 lakh

Interest levied                                  Rs.   10 lakh

Total                                               Rs.510 lakh

Less paid by manufacturer

Excise duty                                     Rs. 500 lakh

Interest                                           Rs.     9 lakh

Total                                              Rs. 509 lakh

Demand raised                               Rs.1 lakh.

In the above case although total excise duty assessed or determined is Rs.500 lakh but it was paid. Admitted interest was also paid to the extent of  Rs. 9 lakh and therefore demand is only for disputed interest demand of Rs. one lakh. Therefore the appeal fees shall be payable based on demand of Rs. one lakh only. This has some rational.

Need to amend Income Tax Act also:

Under Income Tax Act also the fees may be fixed with reference to demand raised for income tax and interest and penalty levied instead of present base of assessed income to make the process of appeal affordable and the fees to have a nexus with the amount involved for consideration of the Appellate authorities..

The basis should be relief sought:

If at all appeal fees is desirable, it should be fixed with reference to the amount of  relief sought and subject to minimum and maximum  fees payable.