The government’s indirect tax collection has been growing steadily over the years. Indirect taxes accounted for 5.2% of GDP and 48.8% of gross tax revenue in FY16. Even though government may be gaining ground in terms of what accrues from indirect taxes, tax-related litigations still remain a major concern. Apart from increasing service tax rates, the government has taken a lot of measures to widen the tax base, but a lot of its problems follow from stuck cases and rejected appeals.
Budget data highlights that the amounts under dispute for indirect taxes (customs, union excise and service tax) was `1,05,463 crore at the end of reporting year FY16. The latest CAG report on indirect taxes (central excise) highlights that in FY16 cases involving revenue of `1,88,986 crore were pending in appeals at various levels out of which `92,162 crore pertained to central excise.
The performance of the Central Board of Excise and Customs (CBEC) has been on the lacking side in handling litigation is clear from the fact that the success ratio of department’s appeal against adjudication order had dropped from 32.69% in FY14 to 26.81% in FY16. Moreover, the success ratio registered a steep decline when the department went in appeal to High Court (from 34% in FY14 to 18% in FY16) and to Supreme Court (from 19% in FY14 to 11% in FY16).
Besides an analysis of upheld and rejected appeals for Custom Excise & Service Tax Appellate Tribunal (CESTAT) shows that number of cases have gone up here too. The CESTAT cases were 3,256 in the upheld category in FY15, which increased to 5,413 in FY17. But the department got more cases rejected at the CESTAT level than it got upheld for the same period. The number of rejected cases increased from 6,256 in FY15 to 12,320 in FY17.
With the goods and services tax (GST) now proposed to be come into force from July 1, the government would do well by clearing the pending indirect tax cases quickly, as central excise and service tax would get integrated in the new national tax framework. On its part, the CBEC is taking steps to handle these cases, especially at the department level in a time bound manner. But, it also requires to devise a strategy for reducing excise and service tax cases at the appellate and the court level.