WHAT HAPPENS IF A BUDGET IS NOT PASSED?

By

 

K. VIJAY KUMAR

 

 

In view of the recent happenings in the country, this question is being repeatedly discussed. The consequence of a Finance Bill not getting the approval of Parliament are now more a reality than a hypothesis. In this connection the relevance to such a situation in Customs and Central Excise matters is perhaps worth a review.

 

 

It is perhaps well known that as per the provisions of the Provisional Collection of Taxes Act, 1931, certain Customs and Central Excise Duties have immediate effect after presentation of the bill to Parliament. That is increase in Customs and Excise duties are effective from the midnight of the presentation of the Union Budget unlike other taxes like Income tax and other increases like increase in railway freight or postal rates which are normally effective from the new Financial year or after passing the budget.

 

But there is a difference in the case of Customs and Excise duties. If the duties are not given immediate effect, there is possibility of large-scale manipulation of trade to take undue advantage of the budgetary changes. It should be noted that not all proposals in the Finance Bill relating to Customs and Excise duties have immediate effect. The general understanding is that a Finance Bill comes into force only from the date of enactment or a date to be determined by the Government after enactment if there is such a provision in a particular clause of the Finance Bill. But Provisional Collection of Taxes Act, 1931, gives the power to Government to make certain Customs and Excise Duties immediately effective.

 

 

Section 3 of the Provisional Collection of Taxes Act, 1931 gives the power to the Government to make a declaration in the Finance Bill that any provision of the Bill relating to imposition or increase of Customs or Excise Duties shall have immediate effect. It is interesting to note that first of all there has to be a declaration in the Finance Bill that certain provisions will have immediate effect. It is in compliance with this proviso that we find a declaration under the Provisional Collection of Taxes Act, 1931 in the Finance Bill that certain clauses of the Finance Bill have immediate effect. It is also of interest that this immediate effect is only in relation to imposition or increase in Customs and Excise duties. Merely because a particular clause is declared to have immediate effect under the Provisional Collection of Taxes Act, 1931, it will not have immediate effect unless it relates to an imposition or increase in Customs and Excise Duties. So the natural corollary is that a decrease in Customs and Excise Duties will not have immediate effect. To give effect to such decrease immediately, exemption notifications are given (to the existing rates)

 

What is Immediate Effect?

 

Section 4(1) of the Provisional Collection Taxes Act, 1931, says that a declared provisional shall have effect immediately on the expiry of the day on which the bill is introduced in Parliament, that is, when the budget is presented on the 28^th February, the provisions are effective from 0000 hours of the first day of March. Though by an undertaking under Rule 224, under Central excise, they are made effective from 5 p.m. on the budget day, as per the Provisional Collection Taxes Act, 1931, it is effective only from next day.

 

The declared provision under the Provisional Collection Taxes Act, 1931, ceases to have effect under the following conditions:

 

1. When it becomes an Act with or without amendments.
   
2. When Government by notification directs that it ceases to have
   effect in pursuance of a motion passed by Parliament.
   
3. If it does not cease to have effect under (1) or (2), then on the expiry of seventy five days after the Bill was presented to Parliament.
   

   
    

   Thus the maximum life of a Declared provision is seventy five days. It can be seen that a Finance Bill presented to Parliament:-
   

   1. can be passed without any amendment as is normally the case.
      
   2. can be passed with some amendments which rarely happens. (This may happen now)
      
   3. may be rejected(which may mean the Government itself going out).
      
   4. may not be passed at all(for any reason).
      

 

 

Now what are the consequences of each of the above situations, with regards to imposed or increased duties already collected by virtue of Provisional Collection of Taxes Act, 1931?

 

In the first case that is when the budget is passed without amendment, there is no effect, as the Bill has become law.

 

In the second case that is when the Finance Bill is passed with amendments and if these amendments result in certain declared increase or imposition not accepted by the Parliament, then the position is that the duties collected from the day after the presentation of the Finance Bill till its enactment which would not have been collected if the amended provision had been the declared provision, should have to be refunded.

 

What happens if after presentation of the Finance Bill, the Government falls and the same Finance Bill is reintroduced by the new Government?

 

Under the Provisional Collection of Taxes Act, 1931, the provisions of the new Bill can have effect from the date of presentation of the new bill and the old Bill not having become law ceases to have effect after seventy five days and refunds have to be given.

 

In the third and fourth situations, as stated earlier the proposals cease to have effect after seventy five days and if it so happens, all the duties collected will have to be refunded.

 

So if a budget is not passed within seventy five days, the new Government ( new because, the question of an unsuccessful Finance Bill occurs only when the Government of the day has fallen) will inherit a huge refund claim in respect of increased or imposed duties of customs and excise. Of course as per the Central Excise and Customs Laws(Amendment) Act, 1991, refunds under Customs and Central Excise are granted to the parties only when the incidence of Tax is not passed on to the buyer. Otherwise the refundable amount is credited to the Consumer welfare fund.

 

Thus the biggest beneficiary in case of the budget not getting parliamentary approval will not be the party that toppled the ruling party, but the fund. But people who have paid excess duty may not file any refund claim at all, because any refund will go the fund. However if it can be proved that incidence has not been passed on, refunds can be claimed and even those who bore the burden of increased duties can claim refund.

 

The net result will be

1. There will be a litigation galore, or
   
2. The government will have to refund thousands of crores of rupees collected, or
   
3. Both the above.
   

 

 

 

EXCISE LAW TIMES – 01.09.1997 – A 91