Challenges faced by revenue authorities at lower levels, based on interpretation of evolving laws, which implemented in a routine manner, have contributed to this surge. A slew of notices issued at the end of the fiscal year to avoid period of limitation and protect revenues is an example of such mechanical implementation leading to protracted litigation. This case gets complicated when tribunals and courts come up with conflicting judgments.
As per a CAG report on compliance audit for central excise and service tax in August 2013, R54,172 crore worth of excise cases and R73,274 crore worth of service tax cases were pending before various authorities as of March 31, 2012. These are significant numbers considering the fact that these do not include customs and are a cause of serious concern for both revenue and industry. In its recently released report, the TARC alludes to several of these realities on the ground. Briefly, some of the sticky issues are:
*The lack of time-bound disposal of cases at most levels;
*The unrealistic revenue collection targets, leading to the taxman resorting to arbitrary/routine notices to create demands;
*Multiple audits by various agencies, invoking extended periods alleging suppression;
*The lack of a proper process to scrutinise merits for appeals in higher judicial forums;
*Legislative ambiguity leading to inconsistency of interpretation due to lack of clear and timely guidelines;
*Rejection of service tax refunds/rebates and;
*Conflicting judgments at various judicial forums.
Once a notice is issued, the process of litigation becomes protracted since relief in majority of such cases is obtained only at the level of CESTAT which can take up to 5-6 years. This is alluded to by the fact that the TARC cites in its report that the volume of cases filed at the CESTAT level is increasing with over 62,000 cases pending as of FY13.
Even where one obtains relief at the level of CESTAT, the taxman tends to appeal to the High Court or the Supreme Court, depending on the nature of dispute, prolonging the litigation by 7-10 years. In the interim, the taxpayer faces issues like coercive demands in the absence of stay and pre-deposits. This leads to loss of confidence and increases the cost of doing business in India, creating a negative sentiment. Businesses look for certainty and would prefer to avoid litigation.
Recent court judgments have complicated the issue. The Fiat case is an example. Though CBEC has issued a circular after much delay clarifying their stand on the issue including the period for invoking the jurisprudence, it would be best settled by amending the law to avoid future disputes. This issue has an impact across manufacturing and we hope that the Budget will address this.
Fair, transparent and efficient dispute resolution system is the hallmark of a good revenue administration. As business models and laws evolve, disputes around interpretation will rise but the manner in which these are dealt with right from issue of notice to its final resolution timely is what we urgently need to put in place.
An environment of trust and transparency between the taxpayer and revenue must be created. There has to be accountability on the quality of disputes raised, and this would arrest the routine nature of initiating disputes. Both these require the will at the level of executive followed by clear communication to the officers to discharge their duties without any fear. There has to be a clear message to appellate officers within revenue to discharge their duties in a time-bound manner and dispose cases based on merits. Earlier, appellate officers used to rule in favour of the taxpayer based on the merits of each case. Now, even in cases where the law favours the taxpayer, the appellate authorities prefer to play safe.
Another measure would be to increase the number of CESTAT benches. While these have been announced, their quick implementation is important to reduce pendency. The executive too needs to play a role; in cases where the judgment goes in favour of taxpayer, appeals should be lodged only after close scrutiny to arrest protracted litigation.
Forums like the Authority for Advance Rulings (AAR) need more benches and their scope needs to be widened to cover domestic ongoing transactions. And forums like the Settlement Commissions need to be given wider scope for early dispute resolutions. The TARC report alludes to several of these thoughts and is a good starting point for the government to initiate a change to foster a positive tax environment.
The author is partner & national leader, Indirect Tax, EY. Views are personal