We are not final because we are infallible, but we are infallible only because we are final. Justices of this Court are human beings, capable of erring.
Justice Robert H. Jackson

Appeal: The Rationale Behind it

The aforesaid quotation was borrowed from the famous American Supreme Court Justice’s remarks on the case concerning to Brown v. Allen [Brown v. Allen, 344 U.S. 443] emphasizing upon the power and necessity of remedy. As one regard, no man is perfect. A man, as remarked by The Great Shakespeare in his play Hamlet, is full of contradictions. He states even though a man being noble in reason, infinite in faculty, in apprehension, like a God yet a quintessence of dust.

The most convincing reason why do the human civilization felt the necessity for the separation of power and appellate remedy in the decision-making process would find in the idea of ‘human’s tendency toward being fallible’. It would lie in the fact that ‘a higher human intellegentia’ corrects the lower ones. That’s why every higher position demand higher qualification than lower one and higher have an authority of do ‘complete justice’ by correcting the latter one. One should bear in mind, whatsoever, that law requires there should be a presumption of correctness or righteousness until and unless otherwise proved to.

The right to judicial review, as often remarked in the Minerva Mills [1981 SCR (1) 206] case, is the basic structure of the constitution. The one whose constitutional or legal right has been suspended has a right to approach before the court of law for the entertainment of the same.

A trial authority is said to be the most competent body to render the decision from the disputing parties, be it either judicial or quasi-judicial bodies. In regard to taxation, a tax officer is said to be the first judge of the tax administration. Since the law grants the quasi-judicial function to be performed by the officer, one is required to render the reasoned decision by applying the ‘judicial mind’. If the same decision is influenced from the administrative mind, the judiciary has a right and duty to correct it and replace with apt decision.

Assessment Procedure

The term “assessment” is defined by the Income Tax Act, 2058 as an assessment of tax that must be paid in accordance with this Act, and it also includes an assessment of interest and penalty that is made in accordance with this Act.

The Income Tax Act, 2058 outlines three distinct ways for determining tax liability:

• Self-assessment
• Jeopardy assessment
• Revised assessment

Self-Assessment

When a person submits their income return within the prescribed deadline, it is treated as an assessment for that income year, and such assessment is regarded as a self-assessment.

Section 99 of the Income Act, 2058 enshrines the provision concerning to the self-assessment whereby the concerned taxpayer is legally obliged for calculating their tax liability with due diligence.

Jeopardy Assessment

In addition to self-assessment method, section 100 of the Income Tax Act, 2058 outlines the parallel method where in some specific situations the Inland Revenue Office (IRO) may issue a Jeopardy Assessment order.

The circumstances under which the same order can be made are enshrined in section 96(5) of Income Tax Act, 2058:

• The person or the taxpayer becomes bankrupt, is wound up, or goes into liquidation.
• The taxpayer is about to leave Nepal Immediately.
• The taxpayer is about to cease his business activities in Nepal.
• The IRO considers any other circumstances as appropriate for the order.

Upon receiving such a notice from the IRO, the taxpayer must submit a tax return for the period specified in the notice. While carrying out a jeopardy assessment, the Department must provide the taxpayer with a fair chance to present evidence in their defence.

Revised Assessment

According to Section 101 of the Income Tax Act, 2058, tax authorities are empowered to make amended assessments to revise a taxpayer’s liability. The Department may amend an assessment multiple times within a four-year period, as it considers necessary.

The same legal provision is duly reflected in Section 20(4) of the Value Added Tax Act, 2052. In case of assessment of withholding taxes (TDS) section 90(8) of the Income Tax Act, 2058 and in case of excise section 10D(1) of Excise Act, 2058 is exercised for assessment by the IRD.

In cases where an incorrect assessment arises due to fraud, the four-year limitation does not apply. However, the amended assessment must be completed within one year from the date the Department receives the relevant information.

The Department cannot alter an assessment that has already been revised or reduced under an order of the Revenue Tribunal or a competent court, except in situations where such an order is reopened.

The Supreme Court has also intervened in the matter of statute of limitation prescribed by the law thereby delimiting the tax authority’s hazardous assessment. The court in the case of Inland Revenue Office vs. Asia Pacific Communications Associate Nepal Pvt. Ltd. (Decision No. 10920) remarked that once the self-assessment being made by the concerned taxpayer, the duty to conduct and complete the amended assessment lies to tax authority within four years of such self-assessment.

The same proposition has also been reiterated in the case of Raj Krishna Shrestha vs. Inland Revenue Department (070-WO-0621).

The Appellate Hierarchy of Taxation

The Nepalese taxation regime prescribes apparently two remedies over a decision made by Tax Officer, namely the ordinary and extra-ordinary jurisdictions.

The ordinary jurisdictions involve around the hierarchy of remedies initiating from administrative review to the Supreme Court. On regard to the extra-ordinary jurisdiction, the same can be exercised directly approaching to the respective High Court or Supreme Court via writ petition.

A. Ordinary Jurisdictions

i) Administrative Review

The administrative review is the correctional jurisdiction enjoyed by the Director General of concerned department on the decision made by the trial officer.

• Section 115 of Income Tax Act, 2058
• Section 19 of Excise Duty Act, 2059
• Section 31(A) of Value Added Tax Act, 2052

These provisions authorize the right to file an application by the taxpayer if one is not satisfied with the decision of respective IRO or the Tax officer.

Such review must be filed within 30 days from the date of notice of final assessment. The time for filing review/appeal can be extended by 30 days provided the extension is granted by the IRD. The request to extend time must be filed within 7 days from expiry of the initial period.

The department inherits the right to review decisions including:

• Advanced rulings
• Estimates by the Department
• Assessments under relevant laws
• Decisions made by officers in official capacity

ii) Revenue Tribunal

Once the matter is decided by administrative review, appeal lies before the Revenue Tribunal.

Relevant provisions include:

• Section 116, Income Tax Act, 2058
• Section 32, VAT Act, 2052
• Proviso to Section 19(1), Excise Act, 2058
• Section 62, Customs Act, 2064

The Tribunal consists of Law, Revenue, and Accounts members as per Revenue Tribunal Act, 2031. The Tribunal exercises authority equivalent to the High Court.

iii) Supreme Court

The Revenue Tribunal Act, 2031 authorizes the Supreme Court to entertain appellate jurisdiction subject to special leave.

Section 8 allows appeal only on:

• Question of jurisdiction
• Improper examination of evidence
• Violation of procedural law
• Serious legal error

B. Extra-Ordinary Jurisdiction of Supreme Court and High Court

Articles 133 and 144 of the Constitution of Nepal, 2072 confer extraordinary jurisdiction where:

• No other remedy exists
• Existing remedy is ineffective
• Public interest or constitutional question is involved

Judicial Practice on Exercise of Extraordinary Jurisdiction

The Supreme Court has consistently held that extraordinary jurisdiction should be exercised sparingly.

Key cases include:

• Pradeep Kumar Agrawal v. Tax Office, Morang [NKP 2052, Vol. 7, Decision No. 6032]
• Man Bahadur Belbase and Nandini Khadya Udhyog v. Tax Office, Nepalgunj [NKP 2049, Vol. 5, Decision No. 4522]
• Development Project Service Center Nepal v. Government of Nepal [NKP 2071, Vol. 4, Decision No. 9143]
• Prem and Prem v. Tax Assessment Committee [NKP 2044, Vol. 1, Decision No. 2992]
• NAME Institute for Medical Education Pvt. Ltd. v. Inland Revenue Department [NKP 2066, Vol. 12, Decision No. 8411]
• Dwarika Nath Dhungel et al. v. Large Taxpayers Office (NCELL Case) [NKP 2076, Vol. 1, Decision No. 10163]

The courts have emphasized that writ jurisdiction cannot replace statutory remedies, except in exceptional circumstances such as arbitrariness, violation of natural justice, or matters of national economic interest.

Security Deposit Requirements for Tax Appeals in Nepal

Administrative Review Stage

• 100% of undisputed tax
• 25% of disputed tax
• Deposit must be in cash
• Voucher generated through IRD portal

Revenue Tribunal Stage

• 100% of undisputed tax
• 50% of disputed tax
• Cash or bank guarantee permitted
• Deposit to District Treasury Comptroller Office

Any deposit made at the administrative review stage is adjusted at the tribunal stage.