TAX DISPUTE RESOLUTION – BETTER LATE THAN NEVER

[Dr. Sanjiv Agarwal]

Union Budget 2016-17 tax proposals hinges on nine thrust areas which inter alia, include reducing litigation & providing certainty in taxation and simplification and rationalization of taxation. This applies to both, direct and indirect taxation. To clean up the tax system, Finance Bill, 2016 provides one more opportunity to direct and indirect tax defaulters to declare evaded income through a limited period compliance window.

Finance Bill, 2016 also addresses comprehensively the issue of pending disputes and litigation before the first appellate forum, i.e., appeal before Commissioner (Appeals).

Budget speech states that litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the Government. There are about 3 lakh tax cases pending with the 1st Appellate Authority with disputed amount being 5.5 lakh crores. In order to reduce the number of appeals, a new dispute resolution scheme is proposed, both in direct and indirect taxes.

Dispute Resolution Measures in Budget

• Dispute resolution scheme in Income Tax
• Dispute resolution scheme in Central Excise and Service Tax
• Commitment not to resort to retrospective amendments
• One time dispute resolution scheme for past cases under retrospective amendment by paying only the tax arrears and interest; penalty to be waived
• Time limit of one year for disposing petitions of tax payers seeking waiver of interest and penalty
• Mandatory pre-deposit @15 percent in direct taxes (on line of indirect taxes)
• Monetary limit for deciding appeals by single member bench in ITAT enhanced from present ₹ 15 lakh to ₹ 50 lakhs
• For clearance of back log of pending cases in Indirect Tax Tribunal (CESTAT), eleven new benches (presently 12) to come up
• Rationalization of cenvat credit rules in indirect taxation to reduce compliance burden and associated litigation
• 13 cesses to be abolished to avoid multiplicity of taxes and associated tax cascading
• Rationalization of TDS provisions to ease case flow of assessees.
• Monetary limit for launching prosecution and arrests increased to ₹ 2 crore

Dispute Resolution Schemes

For the first time, Government has focused on reducing the tax litigation as well as tax disputes. For dispute resolution, dispute resolution schemes have been announced for both, direct and indirect taxes.

A taxpayer who has an appeal pending as of today before the Commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. No penalty in respect of Income-tax cases with disputed tax up to ₹ 10 lakh will be levied. Cases with disputed tax exceeding ₹ 10 lakh will be subjected to only 25% of the minimum of the imposable penalty for both direct and indirect taxes. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty. Certain categories of persons including those who are charged with criminal offences under specific Acts are proposed to be barred from availing this scheme.

Direct Tax Dispute Resolution Scheme

Chapter X (Clause 197 to 208) the Finance Bill, 2016 have inserted Direct Tax Dispute Resolution Scheme, 2016.

The Scheme is proposed to come in force from 1st June, 2016 and be open for declaration made up to a date to be notified by the Central Government in the Official Gazette.

The new Chapter, inter alia, provides––

1. the definition of certain expressions relating to 'declarant', 'designated authority', 'disputed income', 'disputed tax', 'disputed wealth', 'specified tax' and 'tax arrear';
2. the proviso relating to the declaration of tax payable under this Scheme by the declarant;
3.  the provisions relating to the particulars to be furnished in the form of declaration;
4. the provisions relating to the time and manner of payment;
5. the provisions relating to granting of immunity from initiation of proceedings in respect of an offence and imposition of penalty in certain cases;
6. the provisions relating to no refund of amount paid under the Scheme;
7. the provisions relating to other benefit, concession or immunity not to apply in other proceedings;
8. the provisions relating to non-applicability of the Tax Dispute Resolution Scheme, 2016 in certain cases;
9. the provisions relating to the power of the Central Government to issue directions; and
10. the provisions relating to the power to remove difficulties in giving effect to the provisions of the Direct Tax Dispute Resolution Scheme, 2016.

Indirect Tax Dispute Resolution Scheme

Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in respect of cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain specified type of cases.

Chapter XI (Clause 209 to 215) of Finance Bill, 2016 have inserted provision for indirect taxes dispute resolution scheme, 2016 w.e.f. 01.06.2016.

The said scheme provides for settlement of the disputes pending before the Commissioner (Appeals) as on the 1^st March, 2016, on payment of tax dues along with interest and twenty-five percent of the penalty imposed by the impugned order. The said scheme is applicable to the declarations made upto the 31^st day of December, 2016.

Impact

It is hoped that with all the aforesaid provisions and proposals, the pending litigation between the taxpayers and the tax collectors should reduce significantly. It is for the taxpayers to use this scheme keeping in mind the time, money and energy spent on pursuing the litigation and the associated cost, risks and uncertainly attached with it. Tax disputes may also come down in future. At the same time, it is expected that revenue authorities will also implement the scheme and other provisions keeping the legislative intention in mind.