MARCH 04, 2016

By Unnikrishnan V, Superintendent (Retd.)

FM in his Budget speech said:-

"There are three lakh tax cases pending with the 1st Appellate Authority with disputed amount being 5.5 lakh crores. In order to reduce this number, new dispute ResolutionScheme (DRS) is launched."

2. The Scheme is applicable for both Direct and Indirect Taxes.While clauses 197 to 208 under chapter X of the Finance Bill,2016 contain the details of "The Direct Tax Dispute Resolution Scheme,2016”, the clauses 209 to 215 under chapter XI formulates "The Indirect Tax Dispute Resolution Scheme,2016”.

3.Both schemes are optional to the appellants before the 1^st appellate authority viz. Commissioner (Appeals).The rationale of restricting the scheme only to appeals before Commissioner(Appeals),excluding CESTAT or ITAT is beyond comprehension. Certain categories of persons including those who are charged with criminal offences underspecific Acts are barred from availing this scheme. Any amount paid under the scheme shall not be refundable in both Direct and Indirect tax cases.Provisions have been made to notify the rules and procedures for implementation of the Scheme.

4. Following are highlights of "The Direct Tax dispute resolution scheme":

++ A taxpayer who has an appeal pending as of today before the Commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. 

++ No penalty in respect of Income-tax cases with disputed tax up to Rs. 10 lakh will be levied. 

++Cases with disputed tax exceeding Rs. 10 lakhs will be subjected to only 25% of the minimum of the imposable penalty. 

++ Any pending appeal only against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty. In addition,”in the case of specified tax,only the amount of such tax so determined” is to be paid.

5. Once the declaration is filed,the designated authority[not below the rank of Commissioner of Income tax notified by the Principal Commissioner for the Scheme],will within SIXTY days, determine the amount payable and grant a certificate intimating the details of tax payable; the amount shall be paid within THIRTY days and intimate with proof of payment;Thereafter the designated authority will grant immunity from further proceedings in respect of the proceedings.Where the declarant violates the conditions of the scheme,it shall be presumed as if the declaration was never made and the pending proceedings/appeal shall be deemed to have been revived.

6. With special reference to Government's assurance of not to create retrospective tax liability, FM reiterated this commitment to provide a stable and predictable taxation regime. He proposed one-time scheme of Dispute Resolution for past cases ongoing under retrospective amendment. One can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived. This is subject to agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc. under BIPA. 

7. Having understood the broad features proposed by CBDT, let us see the salient features of the scheme proposed by CBEC.

(i) Indirect Tax Dispute Resolution Scheme for Indirect taxes managed by the CBEC makes its appearance in Clauses 209 to 215 of the Finance Bill, 2016.

(ii) The salient features, to name a few, are that the scheme comes into force on 1 st day of June 2016; the declarations are to be made up to the 31 st December 2016; the ‘indirect tax dispute' means the dispute which is pending before the Commissioner (A) as an appeal against the impugned order as on the 1 st March 2016.

(iii) The declarant is required to pay tax due along with the interest thereon and penalty equivalent to twenty-five per cent of the penaltyimposed in the impugned order, within fifteen days of the receipt of the acknowledgment and intimate the designated authority within seven days of making such payment. On payment of tax, interest and penalty, the designated authority shall within fifteen days of the receipt of such proof, pass an order of discharge of dues.

8. From the above, it will be evident that the CBEC has drafted the scheme in an indifferent manner,not to make it attractive as much as possible.The Designated authority is proposed to be an officer not below the rank of Assistant Commissioner[authorized by the Commissioner for this purpose] as against the Commissioner for Direct taxes.

The declarant is required to work out and pay the tax due with interest as per the impugned order along with 25% of the penalty imposed within Fifteen days of acknowledgement of the declaration [as against 30 days for Direct tax dues] and inform within Seven days after the payment with documentary proof.Then the Designated authority will pass a discharge of dues order within Fifteen days.

10. On the other hand, in Income tax matters, on filing the declaration the amount payable will be calculated and intimated by the Commissioner to the declarant and he gets time of Thirty days to pay the same. There is no penalty payable in all cases below Rs Ten lakhs and the interest upto the date of impugned order of assessment only is payable.

11. Admittedly, for any appellant in the Indirect taxes, there will be penalties imposed under various sections like sec 76,77 and 78 of Finance Act,1994 for service tax; under section 11AC, and various Rules of CERs,2002/ CCRs,2004 etc. for central excise etc.The computation of tax would have denied the Cum Tax benefit in cases where no tax was collected. Then, to avail the benefit of the scheme,[which is mere waiver of penalties in excess of 25%],the appellant is bound to make the payment of the entire amount of tax demanded till the date of payment plus 25% of the penalties.When the appeal is disposed on merits allowing the statutory claim of Cum tax benefit,the tax get reduced alongwithpenalties, then again the penalty of 25% only will have to be paid in terms of the new provisions on penalties introduced in 2015.

From the above, it is evident that the CBEC has made an insincere approach in working out the nuances of the noble DRS envisioned by the FM.In the present scheme of things,there will be no takers for the DRS in Indirect taxes, unless some positive changes at least on the lines of Direct Taxes for interest and penalties are notified for Indirect taxes as well.

12. Before parting,let me reproduce the following lines, which the undersigned had put forth as one among the pre budget suggestion in the columns of the esteemed portal TIOL.

"Now that it is certain to go for the GST regime, it may be worth considering to announce a One time Amnesty scheme in all pending cases before the various levels of SCN, Adjudication, appeals both before Commissioner (Appeals) and CESTAT etc including High Court and Supreme Court to settle all such cases. The fact that there are over ONE Lakh cases pending before the various benches of CESTAT, almost equal or before the various Commissioner(Appeals), and the few lakhs of SCNs pending before the adjudicating authority should be an eye opener for the CBEC to adopt some drastic steps to wipe off this alarming pendency. The time is proper now to have an amnesty scheme to allow to settle all such cases on payment of admitted liability of tax/duties and absolve them from all other penal provisions. The lacuna in the last VCES, 2013 was that it had restricted the scope only for cases of pre SCN stages, including audit. The new scheme should leave it open to all."

13. Let us hope the stake holders and the Members of Parliament follow up these vital issues on interest and penalties payable under the DRS at the appropriate level.