The finance minister has set up two panels, one each for direct and indirect taxes, to draw up a road map to reduce rising litigation, asking them to submit a report within a month.
The recommendations of these committees could find place in the architecture of the proposed goods and services tax, or GST, and the direct taxes code, the far-reaching reforms in the indirect and direct taxes regimes, respectively. The focus in both is on low tax rates and a taxpayer-friendly tax regime aimed at improving compliance.
More than 1.78 lakh appeals were pending with commissioner appeals (income tax) as on February 1, 2010, with amounts locked up running into several thousands of crores. The total outstanding tax demand against companies alone stood at `75,509 crore, out of which only `9,748 crore was recovered in 2009-10.
Mr Mukherjee had earlier asked the Central Board of Direct Taxes to create a mechanism to decide cases on merit before resorting to litigation in higher courts. Miffed at the delay in creating such a mechanism, the finance minister decided to set up these committees himself and asked for a quick recommendation. In fact, Mr Mukherjee in his note has pointed at laxity on part of the board in creating such a mechanism despite his directive. The CBDT is in the process of setting up a national judicial system for tracking the entire life cycle of appeals to ensure expeditious settlement.
The committee will look at systemic causes of litigation, suggest a road map to reduce existing litigation and avoid future ones and also act as a standing mechanism to reduce litigation, a finance ministry official said. The committee will include board members dealing with audit, judiciary, personnel and vigilance, director general of income tax (legal and research), and one representative of the law ministry.
The issue of litigation had prominently figured at a recent conference of the chief commissioners and director generals, which concluded that due importance should be given to litigation handling.