MARCH 03, 2016

By Sujit Kumar Sinha, Adv.

THE Finance Minister in his budget proposals aims at reducing litigation and providing certainty in taxation. Indeed these are the two central concerns for nearly all taxpayers. The vast majority of taxpayers are not evaders and disputes arise due to lack of clarity in law. Huge number of cases are pending at different levels of the Tax Administration of Central Excise and Service Tax which is worrisome for both the department and tax payers. One needs to critically examine whether the Budget has done enough.

The Finance Minister has announced a one-time measure titled "Indirect Tax Dispute Resolution Scheme, 2016", wherein an assessee who has a case pending before the Commissioner can seek a closure of his case without subjecting himself to adjudication proceedings by paying the duty, the interest thereon and an amount towards penalty equivalent to 25% of the duty amount. Not only the case will be closed but the assessee will get immunity from prosecution.

The provisions of this scheme have been placed in Chapter XI of the Finance Bill, 2016 and it runs from section 209 to section 215. An indirect tax dispute has been defined as one which is pending before the Commissioner (Appeals) as on 1 st day of March 2016. An assessee whose case is pending before the Commissioner (Appeals) is required to make a declaration to the designated authority on or before 31/12/2016. The assessee who makes this declaration, termed the ‘declarant', is required to pay the tax due along with interest and penalty equivalent to 25% of the penalty imposed in the impugned order within 15 days of the receipt of acknowledgement of his declaration. Section 211 (4) commands the designated authority to act within 15 days of the receipt of proof of payment and thereafter pass an order to discharge the assessee of dues. This would free the assessee from any concern in relation to that pending adjudication. Section 212 puts all cases booked through search and seizure proceedings outside the scope of this scheme. Any settlement made under the scheme is final and assessee cannot claim a refund.

The dispute resolution scheme takes the indirect tax laws one step ahead in the arena of settlement of cases. The Settlement Commission has no jurisdiction in matters which have been adjudicated upon and, therefore, cases which were pending before the appellate authorities could not currently be settled. The Government has taken the first tentative step in finding a resolution of those cases that are pending before appellate authorities. It is, therefore, not surprising that the scheme is not adequately bold. Today, a very large number of technical cases get booked by preventive formations. The demands are worked out on the basis of statutory records. However by virtue of section 212 all such cases would fall outside the scope of the dispute resolution. This provision is going to severely limit the scope of the scheme in settling disputes relating to service tax. Secondly, junior officers tend to impose very high penalties in order to appear correct. The offer of resolving such cases on payment of 25% of the penalty imposed may not be found attractive enough by many assessees. This aspect of the quantum of penalty will need to be kept under a scanner for possible future revision.

The success of the Indirect Tax Dispute Resolution Scheme would depend to a great extent on the manner in which the departmental officers communicate the advantages of the scheme to the assessees. Tax lawyers would also need to play a supportive role and give correct advice to assessees in all such cases where the confirmation of demand by the original adjudicating authority appears to be within the framework of law. With whatever shortcomings, the new scheme is welcome and I hope the Government will build upon this edifice to make alternative dispute resolution more effective in future.

The Service Tax Rules have been amended and a new rule 7B(2) has been inserted that permits a service tax assessee to revise his return within a period of one month from the date on which he filed his annual return. This provision is likely to give great relief to the assessees whose clerks inadvertently make mistakes and possibly inform the range superintendent about it, but this nevertheless results in issuance of a show cause notice to the assessee. This provision should help build better understanding between the department and assessees.

The CESTAT is burdened with very large number of appeals where individuals have filed petitions for waiving penalty imposed on them in such cases where the person liable to pay central excise duty have been concluded in respect of duty interest and penalty. Rule 26 of the Central Excise Rules 2002 has been amended and in such cases the proceeding for imposition of a penalty would be treated as having been concluded. The text of the amended rule leaves a great deal of ambiguity because it does not say that the penalties imposed on other persons would be treated as having been dropped. It would be quite inequitable if appellate authorities begin to reject their appeals for grant of relief from imposition of penalty as not maintainable on the basis of the new amended rule 26. The government would need to clarify what exactly is import of this provision.

The air may have become somewhat easier for taxpayers to breathe but the government would have to take stronger and more proactive steps to reform the tax administration and make a mark for themselves. In this budget, there is at least one provision which is clearly retrograde from viewpoint of administrative reforms. Departmental officers have been raising demands on extended period even though all the information is available on the legal records of the assessee. These officers take the view that assessees, who do not pay taxes, and for which reason they do not file a declaration of the tax for which demand has been raised, have deliberately suppressed facts and therefore arrears of taxes for the past 5 years should be recovered from them, instead of raising demand for the normal period of one year. The logic used by them assumes that there is no scope for a tax dispute and that the assessees must necessarily understand the text of the statute in exactly the same manner as the departmental officers. This view is an absurdity because in most of the cases the interpretation taken by departmental officers is not borne by the words used in a statute. It must be suggested to the government that they should amend the law so that instances in which the department raises demand on the basis of legal records maintained by the assessee are not regarded as cases where the assessees have deliberately suppressed facts. If the government were to do that, a very large number of appeals would get settled and the assessees would not mind if the normal period of limitation is increased. The government has failed to come to grips with this problem and they have not brought about any measure to limit the manner in which officers keep invoking the extended period clause in their show cause notices. In a very retrograde manner, the government has increased the normal period of limitation without restraining the trigger-happy manner in which limitation law is being misused by the department. If the Finance Minister had set an objective for himself to make life easier for taxpayers, he has failed in this respect.

Seen on the larger canvass, the Government has moved right and one hopes they will move fast too.

(The author is Ex-Chief Commissioner of Customs and Central Excise, Advocate, Hari Global Advisory Services.)