In a rare instance of owning up, the Central Board of Excise and Customs (CBEC) has conceded that frivolous litigation, indiscriminate appealing and a ?play safe? approach on its part has resulted in cases piling up in courts and tribunals. In a candid assessment of the way it has been functioning, the revenue department points out that filing appeals indiscriminately has meant focus shifting from its core functions.
In the process, the tax department has ended up missing its tax collection targets. The amount locked up in indirect tax litigation at the end of March 2012 was a staggering R86,034 crore across 100,000 cases. The government?s revenues from indirect taxes in 2011-12 were R3.92 lakh crore, an increase of 14% over the previous year.
?It has been noticed that many times appeals are filed as a play safe approach to avoid any possible repercussions,? a note circulated during the annual conference of chief commissioners and directors general of customs, central excise and service tax read. In another statement that shows the department has realised that too much litigation is hurting, the note says, “To err on the side of revenue is the basic philosophy which is seen to be a major cause leading to fruitless litigation.?
The revenue department has also cautioned that retrospective tax amendments and the General Anti Avoidance Rules (GAAR), aimed at checking tax evasion and boosting revenue, are in fact negatively affecting the investment climate, hurting the department?s ability to mobilise higher revenues.
?The concerns raised by the department should taken into consideration while reforming tax policies and procedures because the situation is alarming,? said a government official privy to the revenue department’s paper.
The department has admitted that the low success rate of appeals reflects the poor quality of appeals being filed in the tribunal and courts. In the last three years, the success rate in the tribunals has been a very low 10-20%; in contrast, the success rate of appeals filed by the affected parties was as high as 50%.
Of the total number of cases being heard, 70% are stuck in the tribunals, an alarmingly higher number. The department has had even less success in the Supreme Court, where it has won just 10% of the cases. The department admits its attempts to change the ways aren?t yet working. The note observes, ?..it is evident that the desired goal of curbing frivolous and petty litigation is still not achieved?.
As a consequence, the department now wants national tax tribunals to be equipped with powers of high courts so that cases can be settled quickly. It also wants changes in rules that facilitate out of court settlements.
