Tax caFE: Budget must fix indirect tax administration

Jun 27 2014, 01:36 IST
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SummaryFor this, it should limit the scope for differing interpretations of the indirect tax laws. Case in point, the SC judgment in the Fiat case

Budget 2014 will be announced against the backdrop of a major change in the political scenario in India. With the BJP and its allies having an absolute majority in the Lok Sabha, the expectation is for a bold, business-friendly Budget.

On the indirect tax front, industry does not expect or see the need for big-ticket tax reforms or policy changes in this Budget (leaving aside the demand for a speedy implementation of GST). However, Narendra Modi has a reputation of providing efficient administration and business-friendly policies. It is in this aspect that industry would have high expectations of things changing for the better. The present scenario on the indirect administration front is quite bleak. Industry has been subjected to a relatively harsh and confrontational indirect tax regime. This means that taxpayers have had to contend with a large number of queries/notices, audits and summons. These eventually convert into tax demands, which, in turn, are disputed by industry. Taxpayers typically file appeals, which drag on for years, going up to the tribunals and high courts. A disturbing fact was pointed out by the CAG, that approximately 80% of cases at the tribunals are won by the taxpayer. This indicates that a majority of the tax demands raised by the authorities are not raised on a sound legal basis.

Against this backdrop, we have the Union Budget 2014. The signal which this Budget should provide is that the administration would be balanced and not confrontational. Indirect tax laws have been simplified and streamlined over the years, resulting in fewer ambiguities in the law. When the law is largely not capable of differing interpretations, there is less scope for the authorities to raise large tax demands. It would be difficult to see how the current confrontational attitude can be changed, but a change is what is required by industry.

Other than the change in attitude, broadly there are a limited number of issues that require amendment to the law. For example, the dispute that was the subject matter of landmark judgment by the Supreme Court in Fiat India (P) Ltd, wherein a well settled and generally followed principle of valuation based on transaction value under central excise has been rejected to include notional value to levy tax.

The Fiat decision has created uncertainty on the amount of tax that should be paid as excise duty by the manufacturer. It is not that the excise duty burden has

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