Despite Government‘s attempts to simplify the tax regime, India still witnesses a complex multi-tier and multi-rate system of transaction taxes levied both by the Federal and State Government.
Puneet Bansal & Saurabh Agarwal
BMR & Associates
Despite Government’s attempts to simplify the tax regime, India still witnesses a complex multi-tier and multi-rate system of transaction taxes levied both by the Federal and State Government.
The already complex structure of transaction taxes becomes more difficult for taxpayers due to frequent changes in legislations both at the Federal and State level. While many changes are introduced by the Government in Federal taxes in past with a noble intent and are welcomed by the industry at large, disputes often arise at the stage of their implementation.
With the high pace of legislative changes, the Government and taxpayers have, in recent times, seen litigating on a large number of issues due to difference in interpretation. As a result, significant amount of time, money and efforts get deployed both by taxpayers as well as the Government in long-drawn litigations coupled with retrospective / prospective tax amendments. Above all, it creates uncertainty both for the taxpayers and the Government with regard to tax liability of a transaction and adds to the growing perception that India is a difficult place to do business.
Another reason for the increase in number of tax disputes and litigation is an under-staffed administration, and in some cases, inexperienced in tackling the rapidly changing indirect tax laws and issues arising there under. This coupled with the fact that the same adjudication authorities simultaneously carry the additional burden of tax collection (to meet the revenue targets set by the Government).
Regularly, we read figures of thousands of crores of Rupees stuck in tax litigations but Government must ponder as to how much of such litigations will actually be decided in its favor. This is evident from a low success rate of Government in tax litigations eventually.
Also, lots of demand notices are issued by the department based on the objections of the audit authorities / CAG without examining the legality of the issue in entirety.
Under this economic scenario, the taxpayers look forward to a few path breaking amendments in Indirect Tax laws that make tax laws certain and reduce the disputes & litigations.
As a first step, the Government can consider widening the scope of Advance Ruling which is presently restricted only to non-residents / Public Sector Companies and that too for proposed transactions. The scope may be widened to provide an opportunity to the domestic private industry & existing transactions as well to have certainty of taxes by seeking an Advance Ruling on vexed issues.
Also, strict timelines may be introduced for adjudication of notices / appeals by the departmental officers / Courts to reduce the pendency of litigations and to expedite the dispute resolution.
Further, the Government may consider separating the adjudication officers from the jurisdictional field formations. This step may ensure that the show cause notices are adjudicated judiciously thereby lowering the number of cases that enter the main stream litigation.
While the above measures may lead to dispute resolution going forward, the need of this hour is to settle the huge pendency of indirect tax litigations pending at various tax forums. The government may introduce an Alternate Dispute Resolution Panel for decision on pending litigations.
The above measures would go a long way in ensuring that the much sought after reform of the Government in the form of introduction of Goods and Services Tax (GST) could be implemented in true spirits with least burden on the revenue authorities and the tax payers with respect to pending unsettled litigations of the old regime. Also, such an approach will go a long way in reducing the litigations in the upcoming GST regime.
The increasing number of disputes and litigations in the recent past added to the existing pain for the industry already suffering from the hard hit recession. The industry expects reforms to be brought by the Government in the current budget which would bring down the disputes and litigations in future. However, whether this budget would fulfill such expectations, is a thing to watch out for?