THE INDIRECT TAX DISPUTE RESOLUTION SCHEME, 2016

[Mr. M. GOVINDARAJAN]

Chapter XI of Finance Bill, 2016 (‘Bill’ for short) deals with the Indirect Tax Dispute Resolution, Scheme, 2016 which shall come into force with effect from 01.06.2016.  This scheme is applicable to the declarations made up to 31.12.2016. 

The ‘indirect tax dispute’ is defined under clause 210 (g) as a dispute in respect of any of the provisions of the Act which is pending before the Commissioner (Appeals) as an appeal against the impugned order as on 01.03.2016.  This scheme will not be applicable to the appeals pending before Tribunal or High Court.

Applicability

The scheme is applicable only to the disputes relating to Customs Act, 1962, or Central Excise Act, 1944 or Chapter V of Finance Act, 1994

Non application

Clause 212 of the Bill provides that the provisions of this scheme shall not apply, if-

• The impugned order is in respect of search and seizure proceeding; or
• Prosecution for any offence punishable under the Act has been instituted before 01.06.2016; or
• The impugned order is in respect of narcotic drugs or other prohibited goods; or
• The impugned order is in respect of offences punishable under the Indian Penal Code, the Narcotic and Psychotropic Substances Act, 1985 or the Prevention of Corruption Act; or
• Any detention order has been passed under the Conservation of Foreign Exchange and Prevention and smuggling Act, 1974.

Declaration

Clause 211 provides for the procedure for making declaration.  According to this clause a person may make a declaration to the designated authority (an officer not below the rank of Assistant Commissioner who is authorized to act as Assistant Commissioner by the Commissioner for the purposes of this scheme) on or before 31.12.2016 in such form and manner as may be prescribed. 

On receipt of the declaration the designated authority shall acknowledge the receipt of the declaration in the prescribed form. The declarant shall pay tax due along with interest at the specified rate and penalty equivalent to 25% of the penalty imposed in the impugned order within 15 days of the receipt of the acknowledgement. The payment details should be intimated within seven days to the designated authority along with the proof for making payment.

On receipt of the payment details with proof from the declarant, the designated authority shall pass an order of discharge of dues within 15 days from the date of receipt of such proof.

Immunity

Clause 213 of the Bill gives immunity to the declarant from other proceedings under the respect Act. Clause 213 (1) provides that notwithstanding anything contained in any provision of the Act, upon the passing of an order by the designated authority, an appeal pending before the Commissioner (Appeals) shall stand disposed of and the declarant shall get immunity from all proceedings under the Act, in respect of the Indirect tax dispute for which the declaration has been made under this scheme.

Clause 213(2) provides that a declaration made by the declarant shall become conclusive upon the issuance of an order and no matter relating to the impugned order shall be reopened thereafter in any proceedings under the Act before any authority or court.

Consequences

Clause 214 of the Bill provides that any amount paid in pursuance of the declaration shall not be refunded to the declarant. Any order passed by the designated authority shall not be deemed to be an order on merits and has no binding effect.  The explanation to this clause declares that nothing contained in this scheme shall be construed as conferring any benefit, concession or immunity on the declarant other than the benefit, concession or immunity granted under Clause 213.

Powers of Central Government

Clause 215 gives powers to the Central Government to make rules. Clause 215 (1) provides that the Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this scheme in respect of the following matters-

• The form and the manner  in which a declaration may be made under Clause 211(1);
• The form and the manner of acknowledging the declaration under Clause 211(2);
• The form and manner of issuing an order of discharge under Clause 211 (4);
• Any other matter which is to be, or may be, prescribed, or in respect of which provision is to be made, by rules.

Clause 215 (3) provides that every rule made under this scheme shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of 30 days which may be comprised in one session or in two more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under this rule.

Discussions to this article

[vasudevan unnikrishnan]

Well analysed article. However, it will be worth that we compare the salient features of the scheme proposed by CBDT and CBEC.

(i) DRS for Indirect taxes managed by the CBEC has closed end till Dec, 2016.whereas the CBDT scheme is open ended from 1/6/2016

(ii) The salient features of CBEC are that the scheme comes into force on 1 st day of June 2016; the declarations are to be made up to the 31 st December 2016; the ‘indirect tax dispute' means the dispute which is pending before the Commissioner (A) as an appeal against the impugned order as on the 1 st March 2016.

(iii) The declarant is required to pay tax due along with the interest thereon and penalty equivalent to twenty-five per cent of the penalty imposed in the impugned order, within fifteen days of the receipt of the acknowledgment and intimate the designated authority within seven days of making such payment. On payment of tax, interest and penalty, the designated authority shall within fifteen days of the receipt of such proof, pass an order of discharge of dues.

From the above, it will be evident that the CBEC has drafted the scheme in an indifferent manner, not to make it attractive as much as possible. The Designated authority is proposed to be an officer not below the rank of Assistant Commissioner[authorized by the Commissioner for this purpose] as against the Commissioner for Direct taxes. It is pertinent to note that appeals against orders of JC and ADC will be pending before Com (appeals).

The declarant is required to work out and pay the tax due with interest as per the impugned order along with 25% of the penalty imposed within Fifteen days of acknowledgement of the declaration [as against 30 days for Direct tax dues] and inform within Seven days after the payment with documentary proof. Then the Designated authority will pass a discharge of dues order within Fifteen days.

On the other hand, in Income tax matters, on filing the declaration the amount payable will be calculated and intimated by the Commissioner to the declarant and he gets time of Thirty days to pay the same. There is no penalty payable in all cases below Rs Ten lakhs and the interest upto the date of impugned order of assessment only is payable.

Admittedly, for any appellant in the Indirect taxes, there will be penalties imposed under various sections like sec 76,77 and 78 of Finance Act,1994 for service tax; under section 11AC, and various Rules of CERs,2002/ CCRs,2004 etc. for central excise etc. The computation of tax would have denied the Cum Tax benefit in cases where no tax was collected. Then, to avail the benefit of the scheme,[which is mere waiver of penalties in excess of 25%],the appellant is bound to make the payment of the entire amount of tax demanded till the date of payment plus 25% of the penalties. When the appeal is disposed on merits allowing the statutory claim of Cum tax benefit,the tax get reduced along with penalties, then again the penalty of 25% only will have to be paid in terms of the new provisions on penalties introduced in 2015.

From the above, it is evident that the CBEC has made an insincere approach in working out the nuances of the noble DRS envisioned by the FM.In the present scheme of things,there will be no takers for the DRS in Indirect taxes, unless some positive changes at least on the lines of Direct Taxes for interest and penalties are notified for Indirect taxes as well.

Unnikrishnan.v ,cochin