When taxpayers provide statements, especially in connection with surprise inspections, to Goods and Services Tax (GST) officers, these statements can have significant implications for their future tax liabilities. It is essential to understand the circumstances under which these statements can be retracted and the legal framework governing such retractions.
I. MEANING OF RETRACTION:
“Retraction” is not defined in any Indian statute. In its literal meaning, “retraction” generally refers to the act of withdrawing a statement, confession, or admission that was previously made, often with an intent to correct an error or clarify a misunderstanding.
II. WHY SHOULD RETRACTION BE ALLOWED?
- In Kishore Lal Chaltibai (AIR 1959 SC 504), the Supreme Court of India has observed that retraction is a crucial tool for correcting false statements. This highlights the importance of retracting statements that are inaccurate or misleading.
- In Satinath Kumar (HUF) CIT (106 ITR 64), the Supreme Court held that a confession can be relied upon only if it is voluntary and not made under duress or mistake. This emphasizes the need for statements to be made voluntarily and without external pressure.
III. PROCEDURE FOR RETRACTION OF STATEMENTS UNDER GST LAW:
Civil Procedure Code, 1908 provides that admissions made in pleadings can be retracted by amending them under Order 6 Rule 17 of the Civil Procedure Code, 1908. Similarly, statements earlier admitted can be retracted by filing affidavits before the Court.
While there is no specific provision or procedure in CGST Act or any other taxation law regarding retraction of statements, the generally accepted procedure for retraction of statements in civil proceedings are followed in tax law proceedings as well. Therefore, affidavit-filing is the commonly accepted method of filing retraction of statements. Courts have also been accepting this method for retracting statements made before quasi-judicial authorities. The accepted practice is to file retraction before the same authority to whom the earlier statement was made.
Courts through judicial pronouncements, have laid down various common restrictions and conditions to be considered for accepting the retraction of an earlier statement as relevant. Courts have consistently held that
retraction must be
– made at the earliest opportunity
– made without undue delay and within reasonable time of giving the previous statement,
and that
– reason for retraction should be stated and should be reasonable;
– corroborative evidence to show why the earlier statement was made and why it is being retracted now, may be required to be given.
Generally accepted reasons for retraction to be considered relevant are that:
– earlier statement was made under mistaken understanding of facts;
– earlier statement was made in a situation of incomplete availability of information or of documents;
– mistakes were made while making the earlier statement due to confusions;
– earlier statement was made under force or coercion or intimidation. [The Indian Evidence Act, 1872 lays down in Section 24 that a confession made by a person is irrelevant if it is made under any inducement, threat or promise. The applicability of the principle underlying Section 24 of IEA to tax matters have been accepted by the Supreme Court of India as well. (Cases cited below)]
IV. HOW MUCH DELAY IS PERMITTED?
“At the earliest opportunity” is the mantra for retraction of statements. The Courts have insisted that whenever the deponent is aware that his statement is compromised due to presence of coercion or undue influence, as soon as such coercion or undue influence is lifted, the retraction should be made. In cases where the deponent realises that his statement has been compromised only upon seeing the copy of statement, the retraction should be made as soon as the copy of statement is received.
If retraction is delayed beyond such identifiable earliest opportunities, the deponent has to show presence of sufficient cause for the delay if his retraction has to be accepted by courts.
When Central GST Intelligence Wing conducts inspections and collects statements, usual practice is that they immediately provide copy of the statement. But when Kerala State GST Department obtains statements from persons, copy of the statement is usually provided to the deponent much later, along with the Show Cause Notice. In such a situation, it is the opinion of the author that time of receipt of statement copy is to be considered as the earliest opportunity for retraction.
The question regarding the time limit for retraction of statements made before GST authorities is presently under consideration before the Hon’ble Supreme Court of India.
V. SOME CASE LAWS REGARDING WHEN RETRACTION OF STATEMENTS CAN BE ACCEPTED:
- Time lapse considered detrimental:
The Madras High Court’s 2-Judge Bench in Thiru S. Shyam Kumar v. ACIT 99 taxmann.com 39 (Madras) [Tax Case (Appeal) No.1371 of 2008] observed that the assessee’s retraction of statement was done after almost two years of giving the statement, so it was rightly viewed by the ITAT as an afterthought and not considered as relevant.
- Admission is not ultimate. Assessee is allowed to retract & show why the admission was incorrect:
Supreme Court in Pullangode Rubber Produce Company Ltd. v. State of Kerala & Another, (1973) 91 ITR 0018 (SC) had held that the admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made admission to show that it is incorrect and the assessee should be given proper opportunity to show the correct state of affairs.
- When retraction was supported by corroborative evidence, its relevance was accepted:
Madras High Court’s 2-Judge Bench decided in favour of assessee in M. Narayan and Bros. v. Assistant Commissioner of Income Tax, Special Investigation Circle, Salem, (2011) 13 Taxmann.com 49 (Madras). The Madras High Court had held that when assessee had explained his statement as not correct in context of materials produced, no amount could be added to his income on the basis of his statement. This means, when retraction statement is supported by corroborative evidence, it was accepted by the Madras High Court.
- Retraction has to be made within reasonable time & supported by cogent reasons & if possible, corroborative evidence:
Madras High Court’s 2-Judge Bench in Commissioner of Income Tax v MAC Public Charitable Trust (2022) 144 Taxmann.com 54 had held that a statement recorded under Section 132(4) of Income Tax Act cannot be discarded simply because the assessee has retracted the same. The genuineness and timeliness of that retraction has to be evaluated. The Court had quoted with approval the observations and reasonings made by the Rajasthan High Court in a similar case of Pr. Commissioner of Income Tax v. Shri Roshan Lal Sancheti [D.B.Income Tax Appeal No. 47 of 2018]. Extracts from Madras High Court’s judgment are given below:
“61. In view of the law discussed above, it must be held that statement recorded under Section 132(4) of the Act and later, confirmed in statement recorded under Section 131 of the Act, cannot be discarded simply by observing that the assessees have retracted the same, because such retraction ought to have been generally made within a reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. Such a statement when recorded at two stages cannot be discarded summarily in cryptic manner by observing that the assessees in the belatedly filed affidavit have retracted from their statements. Such retraction is required to be made as soon as possible or immediately after the statement of the assessees was recorded. Duration of time when such retraction was made, assumes significance and in the present case, retraction has been made by the assessees after eight months to be precise, 237 days.”
The Court also cited with approval the decisions of various High Courts in the judgement as follows:
“63. The statements given to the Assessing officer under Section 132 (4) have legal force. Unless the retractions are made within a short span of time, supported by affidavit swearing that the contents are incorrect and it was obtained under force, coercion and by lodging a complaint with higher officials, the same cannot be treated as retracted. This position laid down in catena of decisions by the various High Courts in CIT vs. Lekh Raj Dhunna [344 ITR 352 (P&H)], Bachittar Singh v. CIT [328 ITR 400 (P&H)], Rameshchandra & Co. v. CIT [168 ITR 375 (Bom.)], Dr. S.C. Gupta v. CIT, [248 ITR 782 (All.)], CIT v. Hotel Meriya [332 ITR 537 (Kerala)], CIT v. O. Abdul Razak [350 ITR 71 (Kerala)].”
- Retraction has to be made within reasonable time & supported by cogent reasons & if possible, corroborative evidence:
High Court of Rajasthan in Pr. Commissioner of Income Tax v. Shri Roshan Lal Sancheti [D.B.Income Tax Appeal No. 47 of 2018] held that a statement recorded under Section 132(4) of Income Tax Act and later confirmed in statement recorded under Section 131 of the Act, cannot be discarded simply because the assessee has retracted the same. The genuineness and timeliness of that retraction has to be evaluated. The Court observed that such retraction ought to have been generally made within reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. The Court held that, in the absence of such actions on the part of the assessee, such retraction of statement cannot be considered relevant.
The High Court of Rajasthan had quoted with approval its earlier decision in CIT, Bikaner Vs. Ravi Mathur, 2017 (1) WLC (Raj.) 387 which was on a similar matter of retraction.
VI. CONCLUSION
Retracting statements made before GST officers is a rather complex legal matter that requires careful consideration of the circumstances and legal framework. Taxpayers must understand the implications of making statements to tax authorities and the procedures for retracting them. By retracting statements in a timely and proper manner, taxpayers can protect their rights and interests, and avoid potential legal and financial consequences. If faced with such a situation, seeking legal counsel is advisable to navigate the complexities effectively. “Prevention is better than Cure”.
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Article by Adv (Dr.) KS Hariharan B.Com., MBA, LL.M., Ph.D.
Faculty | Practising Lawyer, High Court of Kerala.
Phone: 9895069926
Very useful article. Thanks for the valuable inputs.🙏