For faster tax-dispute resolution

A large number of cases have been pending in the Indian courts for years, and they include cases on tax disputes as well. This has had an adverse effect on the Indian economy as it leads to legal uncertainties. As a result, foreign investors and businesses are not able to take informed decisions on investments, consequently adversely affecting the FDI inflows. This undue delay also creates a perception of unfairness and uneasiness in the minds of foreign investors, who often find the long pendency of disputes with Indian tax authorities notoriously tedious. On the other hand, these disputes also affect the revenue and the government’s ability to fund public services and invest in infrastructure.

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To the credit of the government, various steps have been taken in the recent past to reduce the pendency of tax litigation across the country. The government had introduced generous amnesty schemes such as the Vivad se Vishwas Scheme (VSV Scheme) and Sabka Vishwas Scheme (SVS) to settle litigations with the taxpayers. Further, the government has also raised the monetary limits across the board for departments’ appeal in tax matters. However, despite the huge success of these steps, there is still considerable pendency before the courts at all levels. To bring the pendency to a manageable level, quick disposal of disputes pending before the Supreme Court is required. The binding ratio of the SC judgments has a trickle-down effect on the cases pending at the high courts and lower judiciary.

In this regard, the chief justice of India’s recent constitution of dedicated and exclusive benches to decide tax matters assumes great significance. It is important to mention here that dedicated tax benches are not regular. In the recent past, we have seen that the benches where tax cases are listed also have matters pertaining to other fields of law, and therefore, the disposal of cases on tax disputes has not been to the extent that it would have any positive effect on the perception of investors or on the economy as such. In 2005, a tax bench consisting of Justice AK Sikri and Justice Rohinton Nariman was constituted to hear indirect tax cases. The bench took up regular hearing cases from Monday to Friday and was disposing of almost 12-15 cases a day. It is estimated that the bench, during that period, was able to dispose of almost 800 cases. This disposal laid down the law, and as a result, the system was unclogged to a great extent and also infused a huge amount of money into the economy.

What is remarkable is that the SC has again constituted another dedicated tax bench, presided over by Justice MR Shah, to hear pending disputes in direct tax. It is anticipated that another dedicated bench will be constituted to hear indirect tax cases as well. If these two benches are able to replicate the success of the earlier tax benches, then it would dramatically reduce the long pendency of legacy issues and bring in the certainty of law thereby helping to bring in more FDI into the country.

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Specialised tax benches in SC can be useful for addressing complex tax issues that require a high level of expertise. Tax law issues can be very complex and technical. Therefore, benches constituted with judges who have specialised knowledge and experience in tax law can help ensure that cases are decided accurately and efficiently. The tax bench is typically composed of a group of judges who have expertise in tax law and are designated by the chief justice to hear and decide these cases. Specialised tax benches may also be able to handle a higher volume of tax cases as they would be better equipped to understand and resolve the issues involved. In addition, tax benches may be able to provide more consistent and predictable decisions, as the judges on the bench would have a deeper understanding of tax law principles and precedence.

Legacy tax issues are likely to be in focus for these benches, with special emphasis on batch matters and all-industry issues affecting several taxpayers. Certain key issues such as transfer pricing adjustments in case of excessive advertisement, marketing, and promotional (AMP) expenses, valuation disputes under excise and customs, and treaty interpretation issues under the Double Tax Avoidance Agreement (DTAA) are matters which have been pending for long and if these issues are decided it would help to clear up backlog cases pending on these issues before different forums and give rest to these age-old controversies.

Once the apex court decides these issues, several such disputes pending before various high courts and benches of tribunals such as the Income Tax Appellate Tribunal (ITAT) and Customs Excise & Service Tax Appellate Tribunal (CESTAT) are likely to be disposed of. Further, the judicial guidance results in a revisit of corporate structures, relooking at traditional tax choices, and deeply affecting tax planning and M&A outlook.

The tax benches will play an important role in shaping tax jurisprudence and policy. The judgments shall help ensure that tax laws are applied consistently and fairly across the country. Reduction in judicial pendency will practically lead to rewriting the exchequer’s balance sheet of recoverable and simultaneously due refunds to the taxpayers. Further, the government often gets a cue from judicial reflections, which results in course correction and better finesse in fiscal laws. The areas of improvement pointed out in the decisions often result in long-lasting tax and related administrative reforms, benefiting the nation as a whole.

We hope that the constitution of the designated tax benches will give the desired results and benefit the economy of the country immensely.

(Respectively, senior advocate, Supreme Court, and partner, BMR Legal)