Panel to have tri-pronged approach to tax row: Jayant Sinha

The state FM said that the panel will also look into other important tax rows such as the Cairn or Nokia cases, which “impinge on India’s tax regime” and whose resolution was important from an economic perspective.

In the same interview, revenue secretary Shaktikanta Das said that government would wait for the report of the Shah panel, whose terms of reference will be issued shortly, before moving on MAT.

“The panel will give its recommendations as soon as possible. We are keen on settling tax issues quickly,” he said.

Below is the transcript of the interview on CNBC-TV18.

Surabhi: The Finance Minister announcing in Rajya Sabha the setting up of this special panel, can you give us any more details on to what will be the mandate of this panel, why is this panel being setup?

Sinha: What I will say upfront is that our position on this matter has been very explicit and very clear right from the outset. Shaktikanta Das who is the revenue secretary clarified many of these matters, in fact almost all of them when he first spoke to the press almost two weeks ago. Subsequently we had a conference call with many FIIs and market participants where we clarified matters again.

Then of course you must understand Parliament is in session right now and when Parliament is in session, we have to make sure that most of the policy discussions we have and the clarifications that we do have to be done in parliament as well which is what we have done.

So, while we have been very clear right from the outset that we are dealing with all these matters prospectively which is what we can do from a policy perspective, the retrospective matters are sub-judice and are part of the judicial process where our ability from a policy point of view to do anything is extremely limited.

There what we are trying to do is to expedite these matters as quickly as possible and that is what we have tried to do with the case that is in the Supreme Court right now.

Even as that is in the Supreme Court right now what we are trying to do as the honourable Finance Minister said in Parliament today -- which he had also written about in the Financial Times not so long ago -- that a committee would be put together and this committee will be led by Justice AP Shah, he is going to look into all these matters related to these legacy tax cases and try and ascertain whether it is possible for us to do any kind of intervention on the policy side or whether there is a way even from a judicial perspective to try and expedite all these matters.

So, that is what the honourable Finance Minister announced today.

Nayantara: Could you share with us what the terms of reference are? Is this panel going to look mainly for example at direct taxation? The Finance Minister’s stance, you have said this repeatedly as well that you will not touch upon any retrospective cases. So, I just want to try and understand that when this committee is going to be looking at these retrospective cases, what is the idea because you have provided prospective relief, you have said there is relief available under the DTAA. So, what exactly is this committee supposed to do?

Sinha: The terms of reference are I think quite clear. The idea of the committee is to be able to do a review largely from a judicial perspective, as to what can be done to expedite and resolve all of these tax cases as soon as possible.

Now what does that mean? What that means is if indeed there are ways in which the rulings can be tightly and narrowly interpreted to be able to resolve them quickly, that is one aspect of it. If there are judicial processes that can be expedited or there are things that we can do to make things easier to ensure that the process is expeditiously resolved, we will certainly look at that.

Then the third aspect we could consider is whether there are in fact any policy interventions that are possible that will enable us to resolve the judicial matters quickly. Those are the kinds of issues that the committee is going to get into. Again as the honourable Finance Minister said in the Rajya Sabha today, we very much believe in a simple predictable, fair tax regime.

These are legacy matters that we have inherited where there was in fact a ruling from the authority which we had to respect because it was in fact a judicial process that the ruling initiates. So, recognising that the executive branch of government has to work under the direction of the judicial branch when in fact it is a judicial proceeding and recognising our constitutional responsibilities we have tried to resolve this as expeditiously as possible.

Surabhi: Since you are saying that this new panel will also be looking at the possibility of expediting the judicial process how should one understand, will these two processes happen simultaneously because there are already ongoing cases, the Supreme Court case that you referred to, the Aberdeen case and a couple of other cases here in the Bombay High Court. So, how will this panel then look at the ongoing judicial and the legal processes which are already underway in different courts?

Sinha: We have already shown that in the Supreme Court case where the Attorney General said that its should be heard as quickly as possible. We expressed the governments position on it and hopefully that will result in the court bringing up this case as quickly as possible. So, if those kind of interventions are possible as far as the judicial matters are concerned we will naturally endeavour to be able to do that.

Nayantara: Is this panel going to be looking at specific cases for example the high profile Cairn tax or the Nokia case something that we have seen senior cabinet members also talk about. Is that also a possibility?

Sinha: We are going to be looking at all of the legacy cases and try to resolve them as quickly and as expeditiously and as fairly as possible.

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Surabhi: It does seem -- and I don’t know if I am interpreting this right or not -- but it does seem that the government has a slightly more conciliatory approach to the scheme of things now which perhaps would be really welcome by market participants.

A: I would not agree with that at all. As I have said all along we have been following very much a consistent process through all of this. Since we believe in having a simple, predictable, fair tax regime prospectively, in the Budget itself we have resolved it and we have made it very clear and after the Budget was presented in parliament we got several representations and further clarifications that were required which are now in the Finance Bill.

So, we are in fact very open, we are very responsive to all good suggestions and we are trying to incorporate those as best as we can. However I would request all market participants to recognise that there are limitations and there are responsibilities which are constitutional responsibilities that we have in terms of how we can intervene and how we can resolve some of these matters.

Whether it is India, whether it is United States, UK, Singapore any important market, it is very important for all market participants to know that we have a sovereign that is rule-based, that is based on the law and that should in fact give people a lot of confidence that we are proceeding in a very deliberate, measured manner.

We made our objectives very clear but we are respecting the law, we are respecting the process and we are trying to be as open and transparent about it as possible. I think that should give people a lot of confidence and comfort. We fully understand all of these issues.

Nayantara: Have you prioritised what would be the more important tax legacy cases that this panel should first look at?

Sinha: That is for the committee to decide. There are very many important cases that are pending. Many of them also revolve around very substantial and very important matters that in fact impinge on both India’s overall tax regime, our sovereignty in terms of certainty of these cases and are very deeply significant both from an economic perspective and from a tax perspective.

So, these are not straightforward matters in most case, these are very complicated matters and as I said they intertwine judicial aspects, parliamentary sovereignty and the conduct of what Parliament can do through taxes, obviously economic consequences.

So, as I am trying to explain to you these are not simple straightforward matters. If they were they would have been taken care off a long time ago. So, we are trying to figure out what is the best way and which is why this committee can play such an important role to go through all of these very complicated cases to understand what is the right combination of things we can do from a judicial perspective, from a policy perspective to be able to resolve these.

Surabhi: As this panel is setup and starts looking at some of these extremely complex issues what about the notices that were still being sent out to portfolio investors, is that a separate process? Will notices keep being sent out?

Sinha: That is our constitutional responsibility. When a court says, when the authority on Advanced Ruling says that tax is liable, we are constitutionally obligated to follow what the court is asking us to do. So, we have to do that, that is required. It is absolutely then the responsibility or in fact it is the right that the assessee has at that point, the tax payer has at that point to challenge that.

We have to follow through on our constitutional responsibility and then the tax payer has to challenge that and say as they are doing in the courts that we don’t agree with this. That is exactly how a democratic constitutional law respecting government and a system works and that is exactly how it is working.

Nayantara: There was already a committee that had been setup earlier, now we have a new committee that has coming up. Are the two of them going to work together?

A: I am not sure which committee you are referring to. As the honourable Finance Minister said in parliament today we have just constituted the AP Shah committee that is going to look into these legacy cases. So, I don’t know which is the other committee that you are referring to.

Nayantara: Can you tell me what will be the specific terms of reference for this panel and which are some of the more other high profile cases this panel is going to look at outside of minimum alternate tax (MAT)?

Das: First of all, let me mention with reference to your query. You just made a reference to two committees. Perhaps you are referring to the high level committee which was announced in July 2014 Budget with regards to this retrospective amendment that was done in respect of indirect transfer. You know, cases like Vodafone, etc.

Now, that committee deals with individual cases. New cases, fresh cases, cases which are already in litigation in arbitration or where action has been initiated, that is different, they are in various stages of judicial process. That committee was announced to deal with any new case or a fresh case coming up which is affected by this provision of retrospective amendment on indirect transfers, that committee was to deal with only such cases.

Now the committee with the finance minister has announced today, the detailed terms of reference of the committee will be issued today very shortly. But one issue which is immediately being referred to that committee is the levy of MAT on FIIs. 

Now with regard to the levy of MAT on FIIs when the Budget preparation, that whole process was on this difficulty of FIIs were brought to the notice of the government. The government provided an them exemption with immediate effect. Now, with immediate effect means it has effect for the future period, it has a prospective effect.

The government could not, it was not possible for the government to provide a retrospective exemption because there was a ruling given by the authority for advanced ruling which was in favour of the revenue and which said that MAT is liable, they have to pay the MAT. So, therefore it was not possible for the government to provide retrospective exemption.

Now, thereafter a number of representations have been received in the finance ministry, a number of representations have been made to the finance minister based on all these representations and after examining the whole issue, the government has taken two decisions. Number one, when the affected company moves the Supreme Court about a week ago for early hearing. From government’s side, it was conveyed that government has no objection for an early hearing because the government is also interested and keen that the Supreme Court decides and settles this issue. This issue will have therefore effect for the prior period also.

Now, the second thing that has been done by the government is what the finance minister has announced today. A committee headed by Justice A P Shah who is currently the chairman of the law commission, this committee will go into the policy aspect, go into the judicial aspect of this levy of MAT on the FIIs and the committee will be requested to give its recommendation as quickly as possible. Once the recommendations are received in the government, the government will consider and take a decision in the matter.

Surabhi: A quick clarification then. Since this new committee has now been set up and we also have certain parallel legal processes that have been initiated, certain portfolio investors challenging the notices in court, what happens now? What is the government’s stand point? The last numbers that we were aware of was the total demand raised was around Rs 600 crore and about 60 odd notices had been sent out. Have more notices been sent out since then and is the department going to continue with the process of sending out these tax notices, the claims?

A: I do not have the statistics of the notices being issued because it is issued from various assessment jurisdiction. But yes. so far as the cases that the assessment have been completed, there the tax liability is about Rs 600 crore which was informed in reply to a question in the Parliament. Now, with regards to issuance of new notices, etc, if a case is getting time barred, naturally the assessing officer will have to follow the due process of law. And to avoid that time-barring, he has to probably issue the notice.

But now the matter is referred to this committee headed by Justice A P Shah, so the government will wait for the recommendations of the committee and after that the government will take a decision in the matter.

May I also add one more sentence? The statement which the finance minister made in the Parliament today, in the Rajya Sabha today, the last paragraph of that statement, the concluding remarks of the Finance Minister is very important.

The FM has reiterated the government’s commitment to have certainty in taxation, to avoid retrospectivity in taxation and the commitment of the government to provide an enabling environment for business and industry and investors to operate in the Indian economy. So, these are not only reassuring words, these are words to which the government is committed.