Is the Scheme of Dispute Resolution for Service Tax, useful?

[Priyesh Agrawal]

Our Finance Minister, Shri Arun Jaitely had provided for a scheme in name of The Indirect Tax Dispute Resolution Scheme, 2016 in the Finance Bill, 2016, presented before the house of people on 29/02/2016, for bringing down the disputes/litigation pending before Commissioner (Appeals). In this article I am not going to discuss on the provisions of the scheme. Our focus is to determine the benefits/usefulness of this scheme w.r.t. Service Tax cases.

The Scheme provides –

1. Only applicable to cases pending before Commissioner (Appeals) on 01/03/2016.
2. A Person shall submit a declaration before a designated authority.
3. Pays off the Service Tax along with Interest & Penalty equivalent to 25% of penalty imposed in the order.
4. He shall get immunity from all the proceedings under the Act.

However certain class of assesse shall not be eligible for the benefit as mentioned therein the scheme.

Now the questions comes to my mind –

 (i)  Is there any benefit for Service Tax assesse?

(ii) Would the scheme result in decrease in litigation?

As per the writer, the first question is of utmost importance, as it will decide that whether assesse will go for the scheme or not. So we discuss on the first question i.e., is there any benefit for Service Tax assesse?

As per the opinion of the writer, the scheme is of less importance for assesses covered under the provision of The Finance Act, 1994 ( in short ‘the Act’) or in other words a limited period offer to extend the 30 days’ time provided under the proviso clause of Section 76 & 78 of the Act.

Both the Section 76 & 78 provides for payment of reduced penalty of 25% of penalty imposed by the adjudicating officer in case service tax is paid along with interest & reduced penalty, within a period of 30 days from serving of the order.

Basically till date I had not seen any SCN for normal period i.e., extended period had not been invoked. In all the cases SCN’s are issued for extended period and penalty is invoked under section 77 & 78 basically. The main concern is of penalty under section 78. In case, where the case is on merits, all the assesse fights till the last resort. However, where assesse had no case on merits it is always advisable to pay Service Tax along with interest & grab the benefit of reduced penalty. Thus the assesse who had no case would have already paid the amount along with interest either after issue of SCN or after order of adjudicating authority.

Since as per above discussion, it is clear that an assesse fights till last resort or he would have already paid the amount, the scheme is less beneficial for assesse. The scheme could be fruitful only for assesse, against whom the department can institute prosecution proceedings as the proviso clause of section 78 does not provides for any immunity from the said proceedings.

Thus the scheme is useful for only handful of assesses, basically for big tax defaulters.

Now we move on to the other question i.e., would the scheme result in decrease in litigation?

The writer is of opinion that in case of Service Tax the Scheme would have a very low impact or a very low decrease in litigation pending. As the scheme is less beneficial as compared to scheme that was previously announced by the Government, basically called as Service Tax Amnesty Scheme, in which there was complete waiver of Interest & penalty also. Further as the scheme is only for a less number of Service Tax assesses.

Thus the writer appreciates the efforts of our Finance Minister, however writer is of view that FM would had announced certain better method of bring down litigation.  The writer expects that the FM bring in a mechanism for speedy disposal of cases, which would certainly results in decreasing pending litigation.