Doctrine of Impossibility – A Tool of Defense in Taxation Matters

The doctrine of ‘Lex non Cogit Ad impossibilia’ is an age-old maxim used globally as a measure of defense in various legal matters. In our Country also various judicial forum has appreciated this maxim from time to time and provided relief. Of late, this concept has been used extensively in the taxation matters as well. Further due to COVID-19 pandemic this concept has gained much importance as it is impossible to meet certain statutory obligations. 

Meaning & Concept:

The maxim “Lex non Cogit Ad impossibilia” is of the Latin origin. It means the law does not compel a man to do anything vain or impossible or to do something which he cannot possibly perform. In Hughey v. JMS Development Justice Owens of the United States Court of Appeals used these words- “Lex Non cogit ad impossibilia: The law does not compel the doing of impossibilities.

Here, the word “lex” literally means a system of law, “non” means does not, “cogit” means to compel, “ad” means to, and “impossibilia” means impossible. It thus means a body of law does not compel or forces someone to do the thing which is impossible. Law requires nothing impossible.

This maxim is one of the important pillars of doctrine of necessity which along with another maxim “Impotentia excusat legam” propagates that when law creates a duty or charge and the party is disabled to perform it, without any default in him, and has no remedy over it, then the law in general will excuse him.

Importance & Use:

The genesis of the doctrine is rooted in the law of contracts. Section 56 of the Indian Contract Act, 1872 allows contracts to be set aside due to supervening impossibility preventing its performance. This, however, is different from a force majeure clause which relieves the contractual obligation to perform only in an identified ‘force majeure event’ earmarked in the contract, whereas ‘impossibility’ covers other unforeseen circumstances that are not covered under the force majeure clause. Thus, principles embodied in the legal maxims ‘lex non cogit ad impossibilia’ and ‘impotentia excusat legem’ could come to the rescue in such unforeseen situations. Time and again, various Courts accepted the application of this maxim and excused the parties from performance of obligations.

Let us try to understand the approach of the Courts while applying the above principles.

• In case of Emperor v. Ganpat Laxman Kalgutkar, AIR 1938 Bom 427 the Hon’ble Bombay High Court has explained that if in the interpretation of an enactment, the Court finds that the duty imposed is either impossible of performance and beyond the normal capacity of a reasonable or prudent man, or when performance in the strictest language of the enactment is either idle or impossible, then the enactment must be understood as dispensing with the strict performance of that duty.

• In case of State of Rajasthan v. Shamsher Singh (1985 AIR 1082) it was argued before the Hon’ble Apex Court that however mandatory the provision may be, where it is impossible of compliance that would be a sufficient excuse for non-compliance, particularly when it is question of time factor.

• Similarly, while dealing with a question as to whether an assessee can be penalized for failure to carry out an act prior to its incorporation the apex court in the case of Life Insurance Corp Ltd. v. CIT (1996) 219 ITR 410 held that the law does not contemplate or require the performance of an impossible act – Lex non cogit ad impossibilia.

• The Supreme Court in the case of State of MP Vs. Narmada Bachao Andolan [(2011) 7 SCC 639], applied this maxim and held that thus, where the law creates a duty or a charge and the party is disabled to perform it without any fault on his part and has no control over it, the law will in general excuse him.

• The judgment of Hon’ble Supreme Court in the case of Krishnaswamy S. PD. v. Union of India [2006] 151 Taxman 286/281 ITR 305 is also a guiding force wherein the Hon’ble Court held that the law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases.

• In a more recent case of State of Uttar Pradesh vs. Inhuman condition at quarantine centres and for providing better treatment to corona positive on 21.05.2021 the Supreme Court of India (“SC”) has broadened the scope of the ‘doctrine of impossibility’, which is traditionally invoked in the contractual regime, the SC observed that the ‘doctrine of impossibility’ would be equally applicable to Court orders. This decision was in response to the slew of directions issued by the Allahabad High Court to improve the state’s health infrastructure. These directions, as pointed out by the Solicitor-General, proved to be difficult, almost impossible to implement. Therefore, the two-Judge bench of the SC decided to give the directions a flavour of an “advice of the Court” rather than considering them to be the High Court’s mandate. In this context, the SC invoked the doctrine of impossibility terming the Allahabad High Court’s order as “impossible”.

Thus, it is well-settled that an obligation gets discharged due to impossibility of performance. The law of impossibility of performance does not necessarily require absolute impossibility, but also encompass the concept of severe impracticability.

Application of Doctrine of Impossibility in Taxation matters

Let’s understand the applicability of the doctrine in taxation laws with some judicial precedents.

• The Delhi High Court in the case of Arise India Ltd. V. Commissioner of Trade and Taxes [TS-314-HC-2017(Del)-VAT], has held that in the present case, the purchasing dealer is being asked to do the impossible, i.e. to anticipate the selling dealer who will not deposit with the Government the tax collected by him from those purchasing dealer and therefore avoid transacting with such selling dealers. Therefore, there was need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not to punish bona fide purchasing dealers. The latter cannot be expected to do the impossible. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution.

• The larger Bench in case of Lucas TVS Ltd., V. Commissioner of Central Excise, Chennai‘ – 2009 -TMI – 32247 – CESTAT CHENNAI held that the doctrine cannot be invoked by any person who himself failed to do the possible, to do that the law required him to. The defense might be available to an assessee in procedural matters. It cannot be taken against the substantive provisions of a taxing statute providing for compulsory levy.

The argument placed was that it was impossible for the assessee to have paid the differential amount of duty (which was occasioned by subsequent price revision) at the time of clearance of goods and therefore it cannot be said that such duty ‘ought to have been paid’ at the time of clearance of the goods. It is argued that the law cannot ask a person to do impossible. The defence of impossibility was taken by the assessee to resist the demand of interest. But the same was not accepted in view of the fact that there was already a mechanism for provisional assessment under rule 7 of the Central Excise Rules which the assessee failed to resort to escape interest liability.

• In case of Commissioner of Income Tax vs. Premkumar reported in 2008 (2014) CTR 452 (All.) the Hon’ble Allahabad High Court while dealing with the question whether an assessee can be faulted for not declaring the amount of capital gain on acquisition of land when the amount of compensation itself is not determined held that requiring the assessee to file a proper and complete return by including the income under the head ‘Capital gain’ would be impossible for the assessee in such cases.

• A larger bench of the Tribunal in case of Hico Enterprise vs. Commissioner of Customs reported in 2005 (189) ELT ( Tri.LB) following the maxim Lex non Cogit Ad impossibilia held that the transferee of a quantity based license issued by the Licensing authority under the scheme of exemption notification no.204/92 –Custom, cannot be denied the benefit of this exemption, if subsequently it is found that the original license holder ( transferor)  had obtained the license by fraud and misrepresentation and the condition of notification that in respect of the goods exported in discharge of the export obligation, Cenvat Credit  had  not  been availed, had not been fulfilled, as the condition which is required to be fulfilled by the transferor cannot be expected to be fulfilled by the transferee.

• While dealing with question as to whether an assessee can be held liable to pay interest for failure to pay advance tax during the year when the liability to pay tax had arisen on account of amendment to law which took place after the end of the year, Hon’ble Madras High Court in the case of CIT V. Revathi Equipment Ltd. (2008) 298 ITR 67 (Mad) held that the assessee was not liable to pay advance tax and therefore levy of interest under sections 234B and 234C is not justified.

• In the case of Escorts Ltd. v. CIT [2002] 257 ITR 468, Hon’ble Delhi High Court was concerned with claim of an assessee for grant of refund under section 244 of the Act, which was denied to an assessee by the revenue on the ground that the assessee himself was responsible for delay of refund, and therefore cannot claim the amount of interest. While considering the rights of the assessee to claim interest, the Hon’ble Delhi High Court held that if the Assessing Officer could not perform his duties to complete the order of assessment in the absence of any evidence furnished by the assessee, the Department cannot be blamed therefore. A law cannot be interpreted in vacuum. It has to be interpreted having regard to the facts and circumstances involved in each case.

Areas under GST Law where Doctrine of Impossibility can be applied:

The author finds certain areas under the GST law wherein the doctrine of Impossibility can be invoked. The key provisions where doctrine of impossibility may be possibly argued are as follows:

• In order to avail input tax credit by the recipient of goods and/or services, 16(2)(c) of the CGST Act, 2017 imposes a condition that the supplier should have paid taxes on such supply to the Govt. account. However, there is no mechanism provided on the GST portal to know and verify whether the supplier of goods and/or services has actually paid tax on such supply. Though the common portal has provided a facility to verify return filing status of the supplier but in view of the author the same is not going to serve the purpose. Thus, the law cannot compel the recipient to do the impossible i.e., to ensure that the Supplier has paid the tax to the Government.
  

• Of late, taxation department have started issuing notices on account of mis-match of ITC in GSTR-3B vis-a-vis ITC reflecting in Form GSTR -2A on the GST portal. Again, in view of the author, ITC should not be denied as long as the other conditions as stipulated in law are satisfied because the recipient of goods or services has no control over the supplier. It is beyond one’s control to make supplier to file return and pay tax and get ITC reflected on the portal. So, here again, one can possibly argue the matter on the basis of the above maxim.
  

• The present scenario of Covid -19 pandemic has caused financial hardship to many sectors. In such a scenario the condition for reversal of Input Tax credit if payment to the supplier is not made within 180 days is again a troublesome provision under second proviso to section 16(2). Thus, the author strongly feels that this proviso to section 16(2) is going to be a big challenge for the business houses and very soon going to be tested legally on the touchstone of this maxim. It will be impracticable as well as impossible to follow this condition in the pandemic.
  

• Under the present provisions of section 80 of the CGST Act,2017 the Commissioner is empowered to extend the time for payment or allow payment of tax due in installments. But this facility is specifically barred and not available in respect of self- assessed tax liability in any return. This is again creating a big problem for the taxpayers particularly in the COVID-19 Pandemic where everyone is facing liquidity problem & tight financial position. However, some of the Courts in the Country has already allowed relief by providing instalment facility even for the self-assessed tax liability. But here author feels that one may also look it as ‘inability to perform’ instead of ‘impossibility to perform’. So, this doctrine needs to be applied carefully in such cases.
  

• Expiry of E-way Bill’s validity during transit is also an area where this doctrine can be used. Many a time it is seen that the validity period of E-way Bill expires while the goods are in transit. This may be due to reasons beyond control like heavy traffic on the route, construction or repair activities on the route etc. and due to such reasons, the E-way bill get expired. The flying squad officers never shows any sympathy in such cases and levy tax and penalty even in cases where goods are accompanied by E- Invoice. Sometimes it is also not possible to extend validity within the time frame prescribed due to certain reasons beyond one’s control like – expiry during night hours, poor connectivity, no means of communication in transit, public holiday etc. etc. So, under such circumstances the doctrine of impossibility may be possibly invoked to buttress the argument.
  

• Recently, the Govt. has announced for reduction in GST late fee and a GST Amnesty Scheme for the period of July 2017 to April 2021 was brought for non-filers. This GST Amnesty scheme for period July 2017 to April 2021 is applicable only if, GST Returns with Tax payment is filed up to 31st Aug’2021.Now, registration of most of the non-filer who wants to avail this scheme is already cancelled by the system /department due to non-filing and time limit of 90 days for revocation of such cancelled registration is also over. Due to this reason many taxpayers are not able to activate their GST Registration and make payment of pending tax liability. The only option left is to file an appeal to the Appellate Authority but either the time to file appeal is over or by the time their case will be disposed of the statutory timeline of 31st August, as per the Scheme, will be over. So, under such circumstances it is impossible to avail the benefit of this scheme. So, one can take support and contest this matter on the basis of above maxim.
  

Conclusion:

The doctrine of impossibility is one of the important principles of equity and has been successfully argued in the taxation matters also. In almost all cases, the fundamental tests which have been applied by courts before applying the above legal maxims to the facts of a case, are to see whether the event (i.e., non-compliance with a law) was beyond the control of the person, occurred without any fault of the person and it resulted in an impossibility. Further it should also be noted that the doctrine should not be used in a routine manner or a matter of practice in each and every case. There is always as difference between ‘impossibility’ to do and ‘inability’ to do. Rather, the above doctrine or principles are invoked in case of exceptional or extraordinary circumstances only. The courts have strictly interpreted the doctrine of impossibility and have excused non-performance on a case-to-case basis.

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Disclaimer: The views expressed above are purely personal views of the author. The possibility of other views on the subject matter cannot be ruled out. So, the readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The author is not responsible in anyway.

The author is a practicing Chartered Accountant at Guwahati and can be reached at: [email protected]