How to tackle legacy indirect tax disputes

March 05, 2020 6:15 AM

Pendency before specific non-mainstream adjudicating authorities must be targeted by deploying intelligent tax analytics solutions

indirect tax disputes, finance minister, Supreme Court, Central Sales Tax Appellate Authority, CBIC, tax department, GST, Central Excise and Service Tax lawsThe tax-administration may also revisit the reasons that have had bearing upon the taxpayers who chose not to accept the Scheme.

By Tarun Jain

There is a need to unload this baggage and allow business to move on.” Thus introduced the finance minister, an Indirect Tax Legacy Dispute Resolution Scheme last year, imploring trade and business to avail the opportunity, and be free from legacy litigations. Media reports vary on the number of disputes settled under the Scheme. However, there is unanimity that the Scheme has been a grand success, and a large number of disputes have indeed been settled. How does one ensure that the disputes under the erstwhile indirect tax laws continue to dissipate, instead of the remaining ones piling up for decades, waiting for their turn in judicial fora? The time is ripe now for proactive policy action by the tax-administration. The next course should be to analyse the remaining disputes and segregate them into intelligent baskets so as to arrive at pragmatic solutions.

One way to do this is to target pendency before specific non-mainstream authorities. Take, for illustration, the Central Sales Tax Appellate Authority, which determines a specific species of disputes relating to branch-transfer versus inter-state sale. This Authority, which was constituted upon the directions of the Supreme Court (SC), was dysfunctional even years before GST was introduced. Nonetheless, a large number of disputes continue to remain pending before it. The government will do well to invite all stakeholders and expedite resolution under this Authority by way of a fast-track system. A scheme akin to lok adalats to summarily dispose of all cases could also be devised. A similar approach can also be applied, as another illustration, to matters pending before the Advance Ruling Authority for Central Excise and Service Tax matters, as well as the Settlement Commission. Closure of such disputes in these fora will permit time and resources to focus on mainstream fora, such as the Tribunal, High Courts, and the SC.

As regards such fora, two pressing and intertwined agendas need to be pursued: (a) deploying intelligent tax-analytic solutions, and (b) encouraging stakeholder participation in liquidating pendency. The former would, inter alia, require the Central Board of Indirect Taxes & Customs (CBIC) making public its internal tax disputes monitoring portal. The legal section of CBIC maintains huge databases to track the disputes before various fora, alongside the issues involved in each case. These include both the cases where the orders have been accepted by the tax-administration, and those pending in various fora. There is no public access to such database, which, if allowed, can have multiple positive effects. Firstly, where a particular order has been accepted by the department, it can be relied upon by the tax-department, and the taxpayer in similar cases to foreclose the issue. Currently, the situation is that even where the department has accepted an order in case of one taxpayer, owing to lack of knowledge, litigation, on the same issue, continues for other taxpayers. Secondly, where the order has not been accepted by the department and an appeal is pending before a particular forum, appropriate steps can be taken to club all similar matters such that they can be decided together. Alternatively, at least adjudication/appeals in other matters can wait for decisions in the lead matter. This will save time and resources on account of multiple parallel proceedings. Thirdly, the officers at the ground level—who have the responsibility to examine the order, and decide whether a proposal is to be made to challenge orders by way of appeal—will be better equipped to decide upon the suitability of filing an appeal by browsing through the fate of similar orders and past decisions.

Besides, it is time for the research wing of the CBIC to get cracking. It must proactively examine the major litigation issues in their order of priority—say, the top-30 issues in every batch, and undertake a three-pronged analysis. First, cases where the taxpayer’s stand is acceptable to the department can be immediately withdrawn. Second, where the taxpayers are correct in their premise, but their stand cannot be accepted due to technical reasons or legislative design, relaxations or clarifications may be considered to dilute the rigours of the law, and extend benefit to genuine cases. A few such examples exist where, in 2019, the CBIC issued clarificatory circulars vindicating the stand of the taxpayers. Such avenues to resolve legacy disputes should be proactively explored. Third, where there is indeed a need for judicial intervention, appropriate applications may be filed in the courts, seeking their expedited determination. This will ensure that important matters get urgent redress, and unclog the judicial system. An attempt must be made to fast-track those batch of cases which involve multiple taxpayers such that the number of disputing taxpayers declines progressively.

The tax-administration may also revisit the reasons that have had bearing upon the taxpayers who chose not to accept the Scheme. Most such taxpayers refused even the option of paying only 30% or 50% of the tax demand (depending upon whether the issue was below `5mn or above), feeling strongly that this was too onerous a condition of settlement, and instead choose to continue with litigation. A dissection of such cases would reveal, inter alia, the following causes: (i) favourable judicial precedent, (ii) frivolous proceedings, (iii) refusal of field officers to follow binding instructions, (iv) inconsistent judicial rulings, etc. It must be recalled that most cases where the department indeed had an upper hand—such as those relating to outright evasion, opportunistic tax-manoeuvre, clandestine removals, and unreported supplies, etc—were permitted to be settled on payment of a portion of the tax demand and penalties, with immunity from prosecution. If, indeed, the tax-administration is antagonistic to the moral turpitude or profile of the errant taxpayers while extending the benefit of the Scheme, there is no reason why the taxpayers contesting honest difference of opinion should not be given extra indulgence. Such cases must be revisited, and the tax-administration must shed its bravado approach to undertake corrective action.

It must be noted that the limitation (or look-back) period under the erstwhile laws continues to run. For illustration, cases under Central Excise and Service Tax laws can be booked up to five years from the relevant date. Thus, cases for 2017 can continue to be initiated up to 2022, if not beyond. In order to ensure that new cases are not initiated under legacy laws, there is an impelling need to take cue from the FM’s intent, and work towards ensuring that there is complete and time-bound closure of all litigation under laws replaced by GST.

The author is Partner, BMR Legal

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