GST and Breach of public trust by agents of collection

Any indirect tax including GST, which is said to be imposed on business, trade and supply of goods & services is actually a tax on the common public, as the ultimate burden of such tax is borne by the common public. The business entities are merely agents for collection of such indirect taxes from the common public. We can say that business entities are middle interface between the government and the common people. The business entities are just a trustee of the money paid by the public as tax.

Business entities who are collecting the taxes from the common public are bound by the doctrine of public trust as the common public making payment of such taxes to the business entities are under a belief that whatever is being collected from them, the same will flow to the government.

Now imagine a situation where these agents of tax collection, on one hand collect the money from the common public but on the other hand instead of depositing the money collected to the government, they enrich their own pockets.

Though the problem has been tried to be addressed in the GST act 2017 under the provisions of section 76 which deals with instances of tax collected but not paid but that has not been found to be an effective deterrent. In a number of investigations carried out, it has been found that many business entities are indulged in such activities without any fear of law or moral conscience. They are keeping the money collected as GST from common public into their own pockets. In some of the cases, they are not ready to deposit the collected taxes even after being caught and even after accepting the fact that they have collected and they are liable to pay to the government. In such scenarios, the revenue authorities are left with no option but to go for show cause notices, adjudication and recovery proceedings for the tax amount which should have been otherwise come to the government.

This situation of tax collected but not paid has been found to be more frequent in sectors like Restaurants, Hotels, Insurance etc. It was astonishing to find during an investigation that one of the most claimed to be ethical business house also indulged in collecting GST and not depositing the same. They even accepted the fact during investigation but they don’t want to pay the same to the government. They don’t even care for the fact that their peers in the same sector are not involved in such practice, so they cannot claim it as standard business practice as well. They are doing unjust enrichment of themselves at the cost of public money. The estimated plundering of public money by these business entities runs into hundreds of crores.

Now the question comes, Is not it complete breach of public trust? and Can such breach be called as criminal breach of trust?

The public at large when they pay taxes for the goods and services availed by them, they trust the business entities that whatever taxes they are paying that will flow to the government exchequer.

If we look at the IPC 1860, section 405, which deals with criminal breach of trust, the essential ingredients of Criminal breach of trust are:

a) The accused must be entrusted with property or dominion over it.

b) He must have dishonestly misappropriated the property

c) or converted it to his own use or disposed of it in violation of such trust.

Thus, the incidences where a business entity collects money from public as GST and does not deposit the same to the government fulfill all the ingredient tests as mentioned above and falls under criminal breach of public trust.

The situation needs to be handled with more assertive approach in GST. There is a need to make violation of section 76 in GST act, as a criminal breach of public trust and mis-appropriation of even one rupee of public money by the business entities should be dealt assertively with in the provisions of section 405 of the IPC act 1860. There is a high time that responsibility and accountability needs to be imposed upon the business entities also as a stake holder in indirect taxes. The state should facilitate ease of doing business and handhold the honest and compliant business entities but at the same time it is the duty of the state to punish such perpetrators who are unjustly enriching their pockets and feeding upon the public money.