The Tax Administrative Reform Commission (TARC) issued its first report on May 30, 2014. It is a detailed report of almost 400 pages with another 150-plus pages of appendices and deals with a variety of issues—structure and governance, customer focus, people function, dispute management, key internal processes, and ICT. In relation to dispute management, the focus is in relation to recommendations on prevention, reduction and resolution of disputes. In relation to dispute resolution, there are several recommendations, including on Alternative Dispute Resolution mechanism (ADR), modification of existing ones and recommendation of new ones.
The situation on both direct and indirect taxes on dispute resolution is alarming. Taxpayers in general, and especially international investors, often ask the time-frame for dispute resolution and one very often has to give the embarrassing answer “probably never”. Let us look at the ground reality: it takes 4-5 years from the end of the financial year (direct taxes) and 1-2 years after the relevant year (indirect taxes). The commissioner (appeals) could take between 1-3 years, the tribunal between 2-4 years, the High Court between 3-5 years and the Supreme Court between 4-7 years; the minimum, therefore, would be about 15 years (and probably 20-25 years). The problem becomes extremely acute when there are repetitive matters, which causes significant uncertainty and cash flow issues.
There are several existing dispute resolution mechanisms, but most do not work adequately. Current resolution mechanisms (direct taxes) include the Authority for Advance Ruling (AAR), Settlement Commission, Advance Pricing Arrangement (APA), Mutual Agreement Procedure (MAP) and Dispute Resolution Panel (DRP).
In the last few years, significant delays and conflicting decisions have diluted the attractiveness of the AAR as an ADR forum. Also, the AAR is accessible only to non-resident taxpayers, PSUs and certain resident taxpayers having transactions with non-residents. Also, there is only one bench of the AAR and that is in Delhi. In this context, the TARC has recommended that the AAR mechanism should be accessible to all corporates on proposed transactions in direct and indirect taxes, and that several more benches of the AAR should be constituted.
There is also reference to adherence to the time-frame for passing orders; one might add (although not mentioned by the TARC) that even the time-frame of six months is too long in the current context and the “advance” part of the AAR would itself become a question mark. As such, the period should be reduced to 3 months—it