Budget 2019| Is Sabka Vishwas scheme for all? Not all taxpayers dilemma will find respite

July 10, 2019 5:54 PM

India Budget 2019-20: Towards the final few minutes, the finance minister introduced a Legacy Dispute Resolution Scheme by the name Sabka Vishwas.

Budget 2019-20: 49.77 % growth in Centre's net tax receiptsBudget 2019-20: Nirmala Sitharaman presented her maiden budget on 5 July. 
  • By Sandeep Sachdeva and Aditya Shrivastava

Union Budget 2019: On 5 July 2019, the Hon’ble Minister of Finance, Nirmala Sitharaman presented her first budget under newly formed Modi 2.0 Government. While she addressed a number of issues anticipated by various taxpayers across the country, towards the final few minutes she introduced Legacy Dispute Resolution Scheme pertaining to Central Indirect Taxes, such as pending disputes under the erstwhile Central Excise Act, 1944, Finance Act, 1994 by the name of Sabka Vishwas (Legal Dispute Resolution) Scheme, 2019 (in short “The Scheme”).

In fact, this scheme seems to be broadly on the same line as recently introduced by the states of Maharashtra, Karnataka, West Bengal and Gujarat to conclude matters related to VAT.

This Scheme aims at faster resolution of all the pending litigation as on 30 June 2019 which are carried forward from the pre-GST regime and pending right up to the Supreme Court. While the rules related to the scheme will only be effectuated once the bill receives the President’s assent, the scheme aims to conclude the pending litigation as on 30 June 2019.

Without getting into the nitty-gritty of the scheme, since the Finance Bill is yet to be passed in the Parliament and to receive President’s assent and lot of details which is generally inbuilt in the rules are to be notified at later date, broadly the scheme provides the huge relief to the Industry by providing substantial waiver of tax dues apart
from waiving the interest and penalty in case the declarant makes the payment of the tax dues as determined under this scheme in cash (without utilizing the credit) subject to certain terms and conditions as detailed out in the scheme including the condition of not to avail Input Tax Credit post such payment. That apart, the declarant would also be immune from any kind of prosecution and such matter shall not be reopened under any proceeding.

While on the face of it, it seems that the scheme provides a huge relief to the industry, however, the said scheme has certainly left a lot of room for various taxpayers to ponder upon, in the days to come. Hence, what needs to be analyzed is that which category of pending litigation should be concluded by the way of this scheme.

The most important parameter to assess is whether the ongoing litigation is likely to be in favour of the declarant or the department. There might be a case, where the declarant might have a very good case and on winning the same, he can avoid subsequent periodical notices on the same issue under the pre and post GST regime. However, once the declarant opts for this scheme, it will not automatically take away the rights of the revenue to issue demand
notices for the subsequent period involving a similar issue. Depending upon this very parameter, one should assess whether the said scheme can be beneficial or just be a mechanism to recover pending revenue from the taxpayers. It is very evident from the speech of the Finance Minister that the true intent of bringing this scheme is to unblock the revenue which is stuck in the litigation process, apart from allowing the businesses to move on from the
legacy issues.

It is surely a win-win position for both the industry and the government at large. While it is high time that the industry lets go of the legacy litigation and especially one-time issue where the chances to win the matter are not very high and explore the new avenues in the changing regulatory framework. GST itself has opened a lot of avenues for the business re-structuring, supply chain rationalization and various schemes like Make in India, Digital India, etc. launched by the Government of India has created much more opportunities for the businesses. Hence it is an apt opportunity for the businesses to spare their existing bandwidth to explore such opportunities and also to make sure that they are fully equipped not only to comply with the GST regime but to extract maximum benefit from this regime.

It is an equally winning proposition for the Government as it would spare its huge capacity to manage the uphill task of adjudication in the GST as the Industry is going to file the first Annual Return and the Audit Report in a couple of months. It would also pave the way for the Government to spare the existing Tribunal Members which
would be needed in the upcoming Tribunal Benches to be formed in each state. On top of it, the Government would recover the substantial past tax dues without incurring any additional operational cost in virtually no time. Hence both from the Government as well as from the Industry point of view, it is winning proposition to explore the benefit of this scheme.

However, one can also not avoid the challenge posed by the scheme. It is no mystery that GST is an amalgamation of all the previous taxes. Accepting a certain position in the erstwhile regime and paying dues under this scheme might also result in having a waterfall effect in the new GST regime and pave way for further legacy litigation. This
undoubtedly means that there will be an added burden on the taxpayers and create a never-ending vicious cycle. Hence the Industry needs to be watchful in selecting the cases in respect of which the scheme to be applied and it should not lead to a scenario which will create endless litigation in GST regime.

The only rationale that a taxpayer needs to reason out is, whether the taxpayers want to wrap up the legacy litigation via this scheme in a briefcase to be opened for a subsequent period or litigate and wrap the bahi khata, once for all.

  • Sandeep Sachdeva is Partner, Lakshmikumaran and Sridharan and Aditya Shrivastava is Associate, Lakshmikumaran and Sridharan. Views are the authors’ own.

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