JANUARY 16, 2018

By Madhukar N Hiregange, CA & K S Naveen Kumar, Adv.

A. Prelude:

There are many disputes relating to earlier regime of indirect tax laws (both Central and State laws), which are pending at various stages viz., adjudication or appellate level. The adjudicating/appellate authorities, Courts and Tribunal are over burdened with the pending cases. This article seeks to analyse whether the Government should find ways and means to resolve and put an end to these disputes given the fact that GST has been implemented. A possibility of introducing a dispute settlement scheme on the lines of Kar Vivad Samadhan Scheme is also discussed, which would enable the litigants to resolve many matters. In fact some of the States like Karnataka introduced a scheme last year to resolve past disputes half-heartedly, which has driven the litigants to Courts challenging the scheme as discriminatory.

B. Dispute Pendency :

There are many disputes, which are pending at various stages viz., investigation, audit, adjudication/re-assessment, appeal/writs. The moot question would be whether these disputes should be allowed to continue post introduction of GST or should the Government find ways and means to resolve the disputes so that the baggage is not carried forward too far in the GST regime.

C. Need for resolving disputes:

The tax disputes, which have arisen under the pre-GST tax laws (whether involving Union or State levies), have been subsumed in GST would not have any precedent value in the context of GST. Further if the disputes are not resolved or settled quickly at this stage, it would burden the authorities, tribunals and courts and they would take many years to resolve those disputes. Consequently, they would not be able to decide matters and render timely justice when GST disputes arise.

D. Nature of disputes to be covered:

(i) Disputes arising during investigation/audit:

The matters may still be under investigation or audit. Till the investigation or audit is complete no show cause notice would be issued. This would lead to a situation where notices are issued during GST regime in respect of past tax disputes.

(ii) Matters pending before the authorities/officers in adjudication/re-assessment/revision/review proceedings:

The matters may be pending before the authorities/officers. The noticee (tax payer) would have received the notice but not filed a reply. In some cases reply would have been filed but hearing might not have been conducted. Further in some matters hearing might have been conducted earlier but orders would be passed post introduction of GST.

(iii) Matters where orders have been passed by the officers/authorities but appeals not filed:

There may be instances where orders might have been passed in adjudication, re-assessment, revision, review or appellate proceedings but the time limit to file an appeal/application/petition would still be available and the aggrieved person would file an appeal/application/petition before the appropriate forum/authority after introduction of GST.

(iv) Matters pending before the appellate authorities/forums (including Courts) including departmental appeals/petitions:

Appeals would have been filed but not taken up for hearing. In some cases, hearing would have been conducted but orders would not have been passed.

(v) Writ petitions/Writ appeals/SLPs pending before the High Court or Supreme Court:

The tax payers might have directly filed a writ petition challenging the notice as the issues involved may relate to constitutional validity, jurisdiction, violation of principles of natural justice, rules or other forms of delegated legislation being ultra vires the Act, illegality of provisions of Act or Rules etc. These disputes should also be resolved.

E. Scheme for settling disputes:

a. A suitable dispute resolution scheme should be offered in the Union and State Budgets for 2018-19 to resolve tax disputes, which are pending at various stages, where the disputes have commenced by way of issuance of notice. The dispute resolution scheme should provide for an option to pay 50% tax liability with interest within three months of opting for the scheme. Subject to such payment the balance adjudication levies should be deemed to be waived and immunity from prosecution should be given. If any prosecution proceedings are pending or contemplated then upon submission of evidence of opting for dispute resolution scheme, the prosecution proceedings should be withdrawn or dropped by the Department.

b. In case the dispute relates to refund/rebate the dispute resolution scheme should provide for an option to withdraw the claims and take credit equivalent to the refund/rebate amounts claimed earlier.

c. The dispute resolution scheme should also apply to all matters pending before the Courts including writ petitions/appeals/special leave petitions.

d. In case where the notice is not yet issued, the assessee should be given an option of paying the admitted liability with interest and the matter would be treated as concluded to that extent. As far as the balance liability is concerned a show cause notice could be issued in terms of section 174 of the CGST/SGST Act read with section 6 of the General Clauses Act, 1897. To avoid discrimination, the noticee should be given an opportunity to opt for dispute resolution scheme within thirty days from the date of issue of notice as a last opportunity. The dispute resolution scheme should contain a suitable clause to this effect with legislative backing.

e. The pre-deposits or payments of taxes made already should be automatically adjusted towards the payment due under the dispute resolution scheme. The excess amount (if any) should be refunded back within 30 days of completion of the scheme.

f. Additional Benches of Tribunal (CESTAT) need to be constituted and vacancies should be filled up expeditiously, to decide the pending appeals.

g. The States should bring out a State Litigation Policy on the lines of National Litigation Policy and ensure that the policy is applied to all pending matters. The Government Advocates/Counsels/Representatives should be instructed to withdraw the pending appeals based on the litigation policy limits.

h. In case where the litigant is any Government Department (Centre/State) or Public Sector Undertaking or State Government undertaking, the matter should be referred to a Common Dispute Redressal Committee in each State, comprising of representatives from both the Centre and State in each State, which would decide whether the matter should be withdrawn or agitated based on criteria like precedent value, stakes involved and other implications.

i. The monetary limits in National Litigation Policy have to be increased and it should encompass even departmental appeals, which are pending before the Commissioner (Appeals).

j. The Litigation Policy should be made applicable to all pending disputes irrespective of the date of filing of the appeals/petitions.

k. Another initiative could be to include a specific provision in the GST law prescribing a sunset clause of say two or three years to issue a show cause notice in respect of the past demands. After expiry of the said period there should not be any initiation of fresh proceedings in respect of pre-GST tax disputes.

F. Advantages of Dispute Settlement:

a. As it would an optional scheme to give substantial waiver of tax/duty and interest and complete waiver of penalties apart from offering immunity from prosecution, many litigants would opt for it to buy peace with the department and avoid litigation. Many matters, which are pending before various forums involve issues where only penalties are contested. Such matters could be put to rest under the scheme.

b. This would reduce the number of disputes pending before the authorities,courts and tribunals.

c. Government would realise substantial revenue within a short duration, which would take care of the initial hiccups faced in revenue collection in GST regime.

d. If National and State Litigation Policies are properly implemented many departmental appeals could be dismissed. Further the Government would shed its image as the largest litigant in tax matters.

e. It would certainly lead to ‘ease of doing business', which would benefit the industry and business community.

G. Conclusion:

As discussed above, if the past disputes are allowed to continue then the adjudicating/appellate authorities and Courts/Tribunals would be pre-occupied and burdened with old cases and would not have time to resolve any issues/disputes cropping up under GST law. That apart no tax payer would like to continue in GST regime with huge litigated tax demands and penalties staring at them. We have already seen many writ petitions flooding the High Courts in GST regime. When GST audits/investigation commences, we may see a spate of litigation particularly relating to transition credits, multi-stage classification disputes at manufacturer, distributor and retailer levels and many other issues. GST is a new law and would take some time to settle down. The time is now ripe for introduction of a scheme by Centre and States to settle past disputes.