While the high profile cases of direct tax, transfer-pricing, etc, have cornered headlines and dampened investor sentiment, a surge in indirect tax litigation in the recent years, both for central and state levies, has contributed to the erosion of fairness and objectivity of our revenue administration.
Challenges faced by revenue authorities at lower levels, based on interpretation of evolving laws, which implemented in a routine manner, have contributed to this surge. A slew of notices issued at the end of the fiscal year to avoid period of limitation and protect revenues is an example of such mechanical implementation leading to protracted litigation. This case gets complicated when tribunals and courts come up with conflicting judgments.
As per a CAG report on compliance audit for central excise and service tax in August 2013, R54,172 crore worth of excise cases and R73,274 crore worth of service tax cases were pending before various authorities as of March 31, 2012. These are significant numbers considering the fact that these do not include customs and are a cause of serious concern for both revenue and industry. In its recently released report, the TARC alludes to several of these realities on the ground. Briefly, some of the sticky issues are:
*The lack of time-bound disposal of cases at most levels;
*The unrealistic revenue collection targets, leading to the taxman resorting to arbitrary/routine notices to create demands;
*Multiple audits by various agencies, invoking extended periods alleging suppression;
*The lack of a proper process to scrutinise merits for appeals in higher judicial forums;
*Legislative ambiguity leading to inconsistency of interpretation due to lack of clear and timely guidelines;
*Rejection of service tax refunds/rebates and;
*Conflicting judgments at various judicial forums.
Once a notice is issued, the process of litigation becomes protracted since relief in majority of such cases is obtained only at the level of CESTAT which can take up to 5-6 years. This is alluded to by the fact that the TARC cites in its report that the volume of cases filed at the CESTAT level is increasing with over 62,000 cases pending as of FY13.
Even where one obtains relief at the level of CESTAT, the taxman tends to appeal to the High Court or the Supreme Court, depending on the nature of dispute, prolonging the litigation by 7-10 years. In the interim, the taxpayer faces issues like coercive demands in the absence of stay and pre-deposits. This leads to loss of confidence and increases the cost