JULY 16, 2019

By Dr G Gokul Kishore

LEGACY dispute resolution scheme under catchy title 'Sabka Vishwas' (Trusted by everyone) to resolve pending excise and service tax disputes is the topic of the day. The demand has been raised for quite some time now and this year's Union Budget seeks to introduce the same. The time is apt for discussing the rationale to introduce the settlement mechanism in GST and this 46th part intends to use such opportunity.

Settlement Commission under GST - Idea is not new

In November, 2016, model GST law was floated in public domain for comments and feedback from stake-holders. In the model IGST law, Chapter XII containing provisions for establishment of Settlement Commission and settlement of cases was proposed. This document had an opening paragraph to convey that there was no consensus on these provisions (referring to settlement of cases) as States were not in favour of the same on the ground such scheme was not desirable, not workable in States and IGST involved State tax component as well. It further stated that the Central Government was of the view that settlement was an effective alternative dispute resolution scheme to expedite finalization of disputes. It is significant to note that the model CGST law did not provide for settlement of cases thus freeing the States from offering taxpayers the option to settle issues relating to intra-State supplies. Even when the same was sought to be introduced in IGST law only, it could not gain acceptance from the States.

In the first model GST law (September, 2015), it was stated that in the Empowered Committee meeting held on 22nd and 23rd July, 2015, majority of States were of the view that settlement provisions may not be required in GST regime as they were perceived as 'discriminatory'. Odisha, UP and Kerala were the only States which had such provision in VAT regime. The issue was mentioned as 'can be revisited later'.

After implementation of GST, Maharashtra, Gujarat, West Bengal, Kerala, Tamil Nadu and J&K are some of the States to come up with amnesty scheme to settle pending VAT cases. If States feel that legacy cases cast a heavy burden and they should be offloaded, then there can hardly be any rationale to take an adverse view to extension of the otherwise established mechanism of settlement under the Central direct and indirect taxes, to GST.

Settlement - Advantageous to all stake-holders

Settlement Commission under Income Tax law was established way back in 1976. In Central Excise and Customs, the same was introduced in 1999 and later Service Tax also came under its ambit in the year 2012. Around 1000 cases were being filed before Customs, Central Excise and Service Tax Settlement Commission till the year 2017. As per official reports, till November, 2017, 19352 applications were filed and an amount of Rs. 5638 crores of duty was recovered through such settlement. The mechanism is not that attractive as it is not an institutionalised amnesty scheme but a statutory alternative dispute resolution scheme. The idea is to provide an opportunity to come clean to the otherwise normally compliant taxpayer. The lapse may not have genesis in deliberate design to fraudulently avail a benefit which is not legally available but may be due to adoption of different interpretation.

The rationale for such mechanism was better explained by Wanchoo Committee - "This, however, does not mean that the door for compromise with an errant tax payer should forever remain closed. In the administration of fiscal laws, whose primary objective is to raise revenue, there has to be room for compromise and settlement. A rigid attitude would not only inhibit a one-time tax evader or an un-intending defaulter from making a clean breast of his affairs, but also unnecessarily strain the investigational resources of the Department in cases of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections".

Settlement of cases can be a win-win for all - for the taxpayer, it provides waiver of penalty and immunity from prosecution, for the government, it ensures higher revenue as settlement mechanism requires admission of additional liability and for the tax administration, the resources are efficiently used in other cases where full-fledged investigations are required. GST Council Secretariat should include a discussion on the pending point of settlement of cases in the agenda for the meeting of GST Council. The Centre should make the State Governments see the merits of the scheme and bring them around in accepting introduction of such mechanism and institution. Apprehensions of the States should be addressed by proposing adequate safeguards in such mechanism under GST like returns should have been filed and additional liability should be accepted for an applicant to be eligible to use the same.

Settlement is different from amnesty scheme

Amnesty schemes in taxation are generally perceived as encouraging the non-compliant taxpayer as he gets away with lesser tax demand, lesser or no penalty and gets immunity from prosecution. A taxpayer who is always compliant is compelled to pay tax dues in full and penalty is invariably imposed. The evading taxpayer can wait to get the benefit of amnesty scheme and till then, enjoy fruits of evasion. If amnesty scheme is not announced, he can remain off the radar till the time he is netted by the department. Therefore, amnesty schemes tend to reward non-compliant taxpayers as compared to those who choose to abide by law always. Viewed from this perspective, amnesty schemes are inherently discriminatory.

Amnesty schemes have another negative factor which is related to adverse impact on compliance behaviour. They should not be frequent or permanent. If they are frequent, then expectation of announcement will encourage non-compliance. Amnesty can never be permanent as law is required to be enforced strictly and delinquency is to be penalised without any scope of eternal condonation or waiver of wrong-doings. Settlement of cases as a mechanism is not an amnesty scheme but it is statutory mediation or arbitration where the full and true disclosure and admission of additional liability may lead to some relief in respect of penalties and prosecution. By providing finality to the case which is settled, the adversarial position adopted vis-à-vis the relevant matter / case also comes to a closure. Compared to the huge litigation pending in indirect taxes (cases running in lakhs at various levels), in the past almost twenty years, the number of cases which have been settled is very modest. Therefore, any notion that settlement mechanism will encourage evasion or delinquency should get dispelled by experience of the past.

The experiences gained through settlement of cases under both direct and indirect tax laws should provide sufficient guidance and valuable lessons for improving the mechanism when it is implemented for resolution of disputes under GST. It is time to revisit, deliberate and settle this pending issue.

[…To be continued]

[The author is an Advocate. Views expressed are strictly personal]

See Part 45