An Overview of Appellate Remedy of Taxation in Nepal

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, and 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 the 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. That said, 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 Appellate Hierarchy of Taxation

Inland Revenue Department

Preliminary Assessment: 15 Days
Final Assessment: 30 + 7 Days

Revenue Tribunal

Supreme Court

Appeal Period: 60 Days
Special Leave Period: 35 + 15 Days

Ordinary and Extra-ordinary Jurisdictions

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 and Section 31(A) of Value Added Tax Act, 2052 authorizes 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 is bound to be filed within 30 days from the date of notice of final assessment. Time for filing review/ appeal can be further extended by 30 days provided that extension is granted by the IRD.

ii) Revenue Tribunal

Once the matter being adjudged and decided by the administrative review, the appeal over the same lies before the Revenue Tribunal. Income Tax Act, 2058, Section 116, VAT Act, 2052 Section 32, Excise Act, 2058 Proviso to Section 19(1) and Customs Act, 2064 Section 62 are duly concerned with the right to file a corrective appeal before the Revenue Tribunal.

iii) Supreme Court

The Revenue Tribunal Act, 2031 authorizes the Supreme Court to entertain the appellate jurisdiction over the decision made by the tribunal subject to some conditions. However, a special grant is required to be permitted to exercise the appeal right.

B. Extraordinary Jurisdiction of Supreme Court and High Court

In addition to the appealable case under the Revenue Tribunal Act, Art. 133 and Art. 144 of Constitution of Nepal, 2072 has conferred wide powers to the Supreme Court and High Court respectively subject to conditions that:

• Any other legal right for which no other remedy has been provided.
• Or for which the remedy even though provided appears to be inadequate or ineffective.
• Or for the settlement of any constitutional or legal question involved in any dispute of public interest or concern.

Judicial Practice

The Nepalese judiciary to some extent has been following the case-by-case-basis approach in regard to the entertainment of extra-ordinary jurisdiction in the tax concerned issues. The Supreme Court’s full bench in its seminal judgement of Pradeep Kumar Agrawal Vs Tax office Morang [NKP 2052, Vol. 7, D.N. 6032], refrained from invoking the extra-ordinary power since such entertainment requires the existence of abduction of fundamental right and violation of principles of natural justice, which de facto lacked in the same case.

Security deposit to be furnished

It is to be kept in mind that security deposit of full amount (100%) of the undisputed amount and one-fourth (25%) of the disputed amount needs to be furnished while filing appeal to the IRD for Administrative Review.

Further, for filing appeals to Revenue Tribunal security deposit of full amount (100%) of the undisputed amount and half (50%) of the disputed amount must be furnished. The amount already deposited while filing appeal at Administrative Review can be adjusted at this level i.e. only the net or balance amount is to be deposited additionally. The amount can be deposited either in cash or in the form of bank guarantee. But, the amount needs to be deposited in the account of District Treasury Comptroller Office.