Measures to curb & dispose Indirect Tax litigations

[dipsang vadhel]

Although a tax not due cannot be levied on a subject and the right of appeal is an indispensable feature of any tax system & stay proceeding is essential safeguard to business against unwarranted Tax payment on baseless tax notices/ demands.

The Government has done a very little than what is expected to do for reducing tax litigation in Indirect Taxation. The union budget has introduced a new Voluntary Compliance Encouragement Scheme, 2013 for service Tax, enhance the monetary limit of the Single Bench of the Tribunal to hear and dispose of appeals from Rs. 10 lakhs to Rs. 50 lakhs, to make “resident public limited companies” eligible for seeking advance ruling on central excise and service tax matters as is available on the Customs side.

While the above steps are welcome to reduce and quickly dispose of tax litigation as unwarranted tax litigation strains the resources of both the Government and the taxpayer in terms of time and money. This would, however, require implementation of reforms not only in letter but also in spirit.

In view of the author, following are more compelling reasons for protracted litigation

1. The existence of multiple appellate levels through which a disputed issue has to pass before attaining certainty. A tax dispute may take anywhere up to 20 years to attain certainty depending on the level to which it is escalated, and this is much beyond the international standards.

2. Inadequate number of appellate benches exacerbates this problem.

3. Non separation of small scale litigation from corporate litigation and separate appellate benches for their speedy disposal.

3. Conflicting opinions from different appellate forums across the country also add to the uncertainty. Since the binding nature of a court decision is limited to its jurisdiction, tax disputes inviting conflicting decisions are prone to continuing litigation till the issue attains certainty.

4. Though it is within the powers of the Government to proactively amend the statute to bring it in sync with judicial interpretations, or the intention of the lawmaker, and thereby clarify the legal position and put to rest any pending and future litigation, it takes time to happen.

5. Mostly, litigation continues unabated. Worst, if the final outcome goes against the Revenue, the verdict is sought to be nullified by retrospectively amending the statute in the garb of bringing the provision in line with the legislative intention. This only results in a heightened sense of uncertainty and spoils the investment sentiment.

6. Although alternative dispute redressal mechanisms exist, most tax disputes are dealt with under the traditional route, as the alternative mechanisms have not proved to be very successful on account of certain inherent limitations.

The recent example of not following reforms in spirit to reduce unwarranted litigation is evident from circular No. 967/01/2013-CX on Recovery of confirmed demand during pendency of stay application. As, the recovery proceeding initiated by the department on the premise of said circular has been stayed by higher the higher appellate forums, this Union Budget, Provisions of section 35C (2A) of the Central Excise Act, 1944 as applicable to service tax matters are being amended to provide for a maximum ceiling of 365 days up to which the Tribunal can grant stay of recoveries. By inserting a proviso in this section, it is being stipulated that after 365 days from the stay order, this stay shall stand vacated even if the disposal of the case is pending for no fault of the assessee.

Attempt of the Government to recover demands pending appeals and stay application even if the disposal of the case is pending for no fault of the assessee is absolutely unfair and cruelty on the subject particularly because of rampant confirmations of demand by adjudicating authorities in sheer disregard of the law laid down by the higher appellate forums.

As a matter of policy, it must be realized that tax dues will continue to come only if Business keeps on going. It is not prudent to ask tax dues from business pending the matter with appellate authorities. As a matter of prudent policy, innocent, honest & helpless tax payer should not to be penalized by initiating recovery proceeding in case where disposal of the case is pending in Tribunal for more than 365 days for no fault of the assessee.

Perhaps, the move gives color of reality to the following  phrases reflecting Government’s view of the economy : "If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidies it."

Let us hope Business moves  in time of slowdown, so that Govet can enjoy levying & collecting the Tax revenue . Let us also hope that these tax levy & collection do not stop business from moving, thereby leaving the Government wih only option of subsidiesing it.