FEBRUARY 21, 2011

Budget 2011 – Time to simplify procedures in Indirect Tax Regime

By Santosh Harwar

EVERY year in the days and months preceding the presentation of Budget by the Finance Minister on 28 th of February, there will be hectic parleys in the Finance Ministry to fine tune the budget proposals in consultation with all the stakeholders. This year is no different. By now various industry associations and subject experts have come up with their pre-budget memorandums for the consideration of the Finance Minister.

While there are persistent demands to focus on various macro economic aspects like reigning in fiscal deficit, inflation, reduction of subsidies, rationalization of direct and indirect tax rates, the draftsmen of budget proposals should also focus on easing procedural hassles for tax paying assessees.

In this regard, some of the procedural aspects in indirect tax legislations which need some fine tuning are suggested below for the consideration of TRU:

++ Since the legislations for a pan India GST is still in the pipeline (which is getting longer and longer), the Government may at least consider merging Central Excise Rules, 2002 and Service Tax Rules, 1994 to streamline and bring in uniformity in the procedural matters of Central Excise and Service Tax domains like registration, payment of duty/tax, filing of returns etc.

++ Reduce the maze of returns to be filed by the Central Excise and Service Tax assessees. Instead introduce one common monthly return for both the Central Excise assessee and Service Tax assessee which provides for details of only monthly turnover, details of input credit and tax/duty paid and one comprehensive annual return which provides for all the requisite information from an assessee under Central Excise or Service Tax.

++ Introduce mandatory annual assessments of the monthly and annual returns for both Central Excise and Service Tax assessees (which is already in vogue for VAT assessees across the country). The small scale industries and small service providers may be kept out of this assessment mechanism and they may be subjected to assessments only after evaluating risk parameters set up for this purpose.

++ Simplify the input tax mechanism for both Central Excise and Service Tax assessees to provide for credit of all indirect taxes and duties paid for all inputs, capital goods and input services availed by the assessees in connection with their business and the costs of such inputs/capital goods/input services are included in the final products and output services.

++ Integrate the appeal mechanism for both Central Excise and Service Tax assessees and abolish the committee based recommendations for filing of such appeals before quasi judicial forums like Commissioner (Appeals) and CESTAT. After all it is common knowledge that this mechanism is reduced to a farce by these so called committees. It should also be kept in mind that appeals to High Courts and Supreme Courts are filed only based on the recommendations of the jurisdictional Commissioner.

++ Introduce a provision in Finance Bill 2011 (to be enacted into Finance Act, 2011) to provide for withdrawing all appeals filed in pursuance of revisionary orders passed by the Commissioners in terms of Section 84 of Finance Act, 1994 as it existed prior to the amendment in 2009, where the revisionary orders were passes solely for the purpose of enhancing or levying penalties. It must be noted by the honchos in TRU that a majority of appeals filed in the CESTAT are related to this aspect.

++ Specify monetary limits for filing appeals in indirect tax domain to avoid frivolous appeals by the department (recently CBDT has made an upward revision of monetary limits for filing appeals in ITAT/High Courts and Supreme Court – CBDT Instruction No. 3/2011 dated February 9, 2011). CBEC may go one step ahead and instruct field offices to withdraw appeals already filed below the prescribed monetary limits to unclog the appellate forums. Such withdrawal may be a one time move which will save litigation costs to both the assessees and the department.

++ And lastly abolish the Settlement Commission which has become a parking lot for retired officers and instead bring in an annual settlement scheme for all the assessees involved in disputes with the department (which are pending in various stages of quasi judicial proceedings) and who are willing to pay the duty/tax dues with a penalty of twenty five percent. Such assessees should be exempted from payment of interest and in case of allegations involving serious tax evasion they should be exempted from prosecution as well. This settlement scheme should be extended to all assessees without any strings attached i.e. refrain from investigating into any further allegations during the periods for which they have voluntarily come out and paid the tax with penalty. This scheme may pinch honest tax payers but they should note that pending litigations involving such assessees are clogging the appellate forums which harm their genuine interests as well.