From Courts to Consensus: The Promise of ADR in resolving Tax Disputes

ABSTRACT

Alternative Dispute Resolution has been emerging as the predominant and most effective dispute resolution mechanism in the recent times, whilst the taxation litigation system is perhaps its opposite, in that it is outdated and polluted with backlog from numerous appeals and also suffers from dearth of judges with tax specialisation. This beckons the question of what would happen if ADR mechanisms were used to remedy the Taxation field off of its problem, and how can it be done so? This paper elucidates how setting up of Arbitral Tribunals and Mediation and Conciliation centres for resolution of tax disputes is the golden goose that the Taxation litigation framework desperately needs. Moreover, the paper not only goes into the speculative part of bringing this ADR mechanisms to the country but also gives a few suggestions about changes which can be made to the existing Arbitration, Mediation, and Conciliation systems and statutes, so as to not only facilitate the introduction of tax disputes into its folds but also streamline the procedure therein.

KEYWORDS – Taxation, Arbitration, Dispute Resolution, Amendments, Arbitral Tribunal.

From Courts to Consensus: The Promise of ADR in resolving Tax Disputes

A paradigm shift in the landscape of tax dispute resolution with the inculcation of ADR mechanisms is the inevitable future; with hefty expenses, longstanding backlogs, and judges who are not specialised in the field of taxation, the present experience of dispute resolution in cases of taxation is extremely unpleasant and very daunting. This paper seeks to provide ideas and models to implement and introduce Alternative Dispute Resolution Mechanisms into the taxation side of disputes. Although the paper primarily discusses implementation of ADR mechanisms in the Indian taxation landscape, the idea is to provide for a generally applicable structure, and some ideas founded on common legal principles, to make the dispute resolution process a pleasant experience, at least as pleasant as dealing with tax authorities can be!

With about 5.6% of the then GDP of India, or about 7.6 lakh crores stuck in taxation disputes at the end of FY 2020-21[1], and about 5 lakh tax appeals pending before the first appeal authority[2] as of the beginning of this financial year, it is evident that swifter and more efficient forms of dispute resolution are required to ensure timely disposal of the same. By introducing proper alternative dispute resolution (hereinafter mentioned as ADR) mechanisms, this predicament can be effectively remedied. This need has been further exacerbated in light of the abolition of the Settlement Commission with effect from 01/02/2021. This, however, is not a novel endeavour, since in forms of the temporary voluntary disclosure schemes, such as the Voluntary Disclosure of Income Scheme[3], Pradhan Mantri Garib Kalyan Yojana 2016[4], and dispute resolution schemes such as, The Direct Tax Vivad se Vishwas Act, 2020[5], the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019[6], the government has tried to resolve the issue of pendency through various alternative dispute resolution mechanisms.

That said, these were all either temporary, or if permanent, such as Section 139(8A) of the Income Tax Act[7] and the erstwhile Settlement Commission, existed only at a pre-assessment stage, and hence did not provide a permanent remedy to the backlog poisoning our legal system. Therefore, the introduction of permanent and robust legal machinery providing for facilitating ADR mechanisms would be a new addition.

This paper engages with the India’s need for ADR mechanisms from both the taxpayer’s and the government’s view. Moreover, it also goes into the method facilitating them in our current Judicial framework in the form of setting up of new Taxation Alternative Dispute Resolution Centres (referred to as TADRC hereinafter), which would consist of Mediation and Conciliation centres and the Arbitral Tribunal for Taxation Disputes (referred to as ATTD hereinafter). This paper also addresses nuances such as that of the government’s negative view towards arbitration of taxation matters, and arrangements which would facilitate the government’s concerns. Lastly, it shall offer some suggestions with regards to making amendments to existing statutes such as the Arbitration and Conciliation Act 1996 (hereinafter referred to as ‘The Act’ or Arbitration Act).

1. Need for ADR mechanisms in resolution of taxation disputes:

It is often assumed that it is the taxpayers who stand to gain from the establishment of ADR mechanisms vis-à-vis taxation disputes, however, such a claim cannot be any more ill-founded, although it might ostensibly appear otherwise, the government stands to gain just as much if not more from the establishment of such centres and tribunals.

The most common question that one would come across is that, if the government can get the entire sum of money after the litigation, why would it then sacrifice its revenue and enter into any form of ADR. There are two reasons for that. Firstly, there exists a concept called the time value of money in economics, which states that the value of a certain sum of money is greater currently than it would be in the future, considering potential revenue to be made off of it, and the inflation rates accounted for. So, if the government chooses to settle for a form of a ‘haircut’ today, it still gains in terms of value. For example, if the taxpayer owes a sum of ‘100’, and then comes to a settlement with the government at a sum of ‘80’, then the simple question to be asked is whether the ‘80’ of today is worth more than the ‘100’ after 5 years, in my opinion, yes, the 80 is of greater value. Moving on from the qualitative aspect, i.e., the value of money, to the quantitative aspect, as mentioned above, the courts presently are operating under severe backlog, with final hearings of matters from over 10 years ago still pending and over 80% of all income tax appeals stuck at the CIT stage[8], it can be said that the rate at which the government is churning money out as a result of these appeals is rather slow. By introducing the ADR mechanisms, which prioritise swift resolution, the government will start seeing more revenue much quicker, and hence it is standing to gain in all aspects, financially speaking.

Furthermore, if properly implemented, after the Second Appeal at the Income Tax Appellate Tribunal (hereinafter referred to as ITAT) stage, a huge chunk of appeals can be taken care of by the newly set up TADRCs. This would not only give much needed breathing space to the constitutional courts, i.e., the High Courts and the Supreme Court, but also allow them to focus on matters of greater importance. Moreover, in the context of GST, as things stand on the 1^st of July 2024, though there exist the AAR and the AAAR authorities, there is no functioning GST tribunal. There are provisions for the Goods and Service Tax Appellate Tribunal (hereinafter referred to as GSTAT), but the same has not begun functioning yet, despite 7 years having passed since the GST acts were notified, making things even more dire and cumbersome for GST-related disputes. Furthermore, the AAR and AAAR only act as authorities for adjudicating disputes at a pre-litigation stage, meaning that once the assessee and government enter into a lawsuit, the parties can only approach the Supreme court and High courts for decisive relief, an action which is not only lengthy and cumbersome for them but also bogs up the system with cases which otherwise would be dealt with by the specialised tribunal. Therefore, the TADRC is even more required in this regard.

From the taxpayer’s perspective, this will provide them with a desperately needed second option to mainstream litigation. The present status quo is rather dire, in that, either the taxpayer must forgo litigation and face certain payment of the tax amount, along with the penalties and interests levied there upon, or enter into costly and lengthy litigation to try and mitigate this amount, with no certainty of the same. This lack of alternate options is almost entirely the reason for the myriad of cases plaguing the system, as when faced with no other choice, all the taxpayers have to go through all the appeals at the courts. I would like to quote my version of the rather famous saying, “There are only three certainties in life; death, taxes and tax litigation”.

With regards to a scarcity of qualified and specialised judges to adjudicate on the taxation disputes, both the taxpayers and the government’s interests align. As it stands, the judges who specialise in the field of taxation are few and far between, in fact, learned judges specialising in other fields of law have the burden of adjudicating taxable disputes thrust onto them. By introducing the ADR mechanisms, albeit properly, persons truly specialising in the field of taxation can be chosen to act as arbitrators, especially if appropriate criteria for qualification are prescribed by the government with respect to the arbitrators.

Moreover, this would also give rise to a new group of specialised counsels and professionals, similar to the roles played by the Resolution Professionals under the IBC Act, therein providing not only lawyers but also CAs and CSes newer pathways to perform their professional duties.

2. The government’s view on arbitration in tax matters:

Although there are seemingly several benefits to introducing ADR mechanisms in the field of taxation, the incumbent policy of the Indian government is not in the favour of its introduction.[9] At the 2014 G20 summit, Nirmala Sitharaman, the Finance Minister of India, issued a statement replied to Organisation for Economic Co-operation and Development (OECD), stating that introduction of arbitration into matters concerning taxation not only impeded the carrying out of the sovereign functions of the state but also hindered the implementation of domestic tax laws on non-residents and foreign companies.[10]

Additionally, even in the international setting India has often displayed an anti-arbitration view, whether it be in the Enrica Lexie Incident, wherein India alleged that the Permanent Court of Arbitration (hereinafter mentioned as PCA) had no jurisdiction over the matter[11], or be it in the Indus river waters treaty case, wherein India declined to participate in the proceedings by not appearing, and yet again challenging the jurisdiction of the PCA[12]. Although it may seem far-fetched it is important to note that the Indian government considers arbitration as a private domain and has been wary of the same. Furthermore, it should also be considered that serial tax offenders, or persons convicted of tax crimes of high magnitude may avail of such mechanisms as potential escapes, making the government averse to adoption of the same.

Moreover, it must be noted that ADR mechanisms are founded in a consensual agreement between both the parties to enter into the same. The government is no different from any other party in this context, and therefore, appropriate measures must be taken when implementing the ADR mechanisms, so as to ensure that the government would consent to the same.

Therefore, providing the government with a conditional VETO power would probably be ideal, wherein it could deny entering into ADR proceedings, if the other party fits the criteria for prescribed persons, such as being a habitual offender or such. In such cases, and rightfully so, the government should have a right to deal with the person through the judiciary system.

Keeping this in mind, it would seem rather far-fetched to assume that the government would just give up its control over a part of the revenue legal system and ‘privatise’ justice thereunder.

Therefore, a mechanism must be so established that it facilitates the ADR methods whilst also not taking away from the sovereign functions of the government, or forcing it to agree to unreasonable conditions, which is discussed under.

3. Suggested Amendments to the existing statutory regime to efficaciously inculcate ADR mechanisms into Taxation:

3.1 Fiscal Statutes-

As it stands today, Taxing statutes such as, the Income-tax Act, 1961, and the Goods and Services Tax Act, 2017, presently stand outside the ambit of the Arbitration Act, alongside other fiscal statutes such as the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016. Under the taxing statutes all disputes are between the government and a private party, whilst under the other two, although majority of disputes are amongst private parties, certain cases also involve a dispute involving the government as a party. The aforesaid fiscal statutes have special mechanisms for –

• Assessment / Adjudication;
• Appeals;
• Recovery of dues;
• Other allied aspects.

As previously mentioned, there exists a huge pendency of cases arising out of such fiscal statues, and since they lack alternative dispute resolution (ADR) options, the only option available to the parties is to compulsorily follow the cumbersome and time-consuming process of appeal. By broadening the range of the Alternative Dispute Resolution (ADR) framework to include fiscal statutes, parties would be able to circumvent the lengthy appeals process and choose arbitration instead, so accelerating the resolution of disputes.

The proposed revisions would guarantee that the right to arbitration is inherent in fiscal statutes, making arbitration an optional yet easily accessible method for resolving disputes. The mere absence of an ‘arbitration agreement’ under Section 7 should not affect the rights of the parties to opt for arbitration.

Implementing monetary limitations for arbitration eligibility would strike a balance between accessibility and practicality, enabling parties to choose for arbitration in cases when the disputed amount exceeds specific financial restrictions. Initially, such limits may be prescribed on the higher side, say for example Rs. 5/10 crores.

Furthermore, if a party chooses arbitration to settle a disagreement and the dispute is resolved, then for the rest of the years, as long as the issue is identical, the arrangement agreed upon should be continued so as to ensure principles of consistency are complied with.

Integrating arbitration into taxes dispute resolution has significant advantages. Arbitration provides a faster way to resolve disputes compared to traditional methods of appealing court decisions. This allows for quicker tax collection and reduces the government expenditure on appeals and the process of recovering funds. Furthermore, it simplifies the process of resolving disputes, eliminating the necessity for government-led settlement programmes such as the “Vivaad se Vishwas scheme, 2020.”

Nevertheless, the implementation of arbitration gives rise to apprehensions over the utilisation of prior cases as a guiding principle, as arbitration procedures may not conform to established legal doctrines, therefore requiring a reassessment of previously resolved matters. However, the effectiveness and efficiency provided by arbitration in settling taxation issues highlight its potential as a significant contribution to the conflict resolution framework of fiscal regulations.

3.2 The Arbitration Act and the operational efficiency thereof:

3.2.1 Arbitral Tribunal and Arbitral Institutions under Government control:

Currently, the Government does not have regulations in place for both “Arbitral Tribunal” and “Arbitral Institutions” under the existing Act. The Eighth schedule of the Act specifies the “qualifications” and “experience” required for Arbitrators and any individual who meets the requirements outlined in the mentioned schedule is eligible to serve as an “arbitrator”. To enhance the efficacy of the Act and expand the choices available to the parties involved in selecting an arbitrator, it is proposed that the Government regulate both the “Arbitral Tribunal” and “Arbitral Institutions.” This would also solve the government’s biggest concern that employing ADR mechanisms in taxation would take away from its performing of sovereign functions, as by making Arbitral Tribunals and Institutions managed by the government in general, its effectively acting as the government’s limbs.

3.2.1.1 Procedure for Implementation:

The government should be vested with the authority to oversee and control the operations of both the “Arbitral Tribunal” and the “Arbitral Institutions”, and provide appropriate infrastructure, organised by zones or in any other reasonable manner, that would encompass the following services in a centralised location:

1. Premises for Arbitral Tribunals and Arbitral Institutions.

2. Facilities for conducting hearings.

3. Office equipment.

4. Support staff.

The following Tribunals must be established:

1) Tribunal with permanent jurisdiction, i.e., a permanent tribunal, wherein, the composition of the arbitrators should consist of retired judges from either the Civil Courts, High Courts, and/or Supreme Court.

2) Arbitral Tribunal (for international commercial arbitration), wherein the composition of the panel should consist of retired judges from either the High Courts or the Supreme Court, or a qualified foreign national, if one of the parties so desires, as suggested above.

3) Arbitral Tribunal (for domestic arbitration), wherein the composition of the panel should consist of retired judges from either the Civil Court, High Courts, and/or Supreme Court.

When considering the formation of the mentioned “Tribunals,” the following points should be considered:

It is proposed to establish a “Permanent Tribunal” for the purposes of following sections of the Act:

• Section 9[13];
• Section 11[14];
• Section 14(2)[15];
• Section 29A(4)[16]
• Section 29B(5)[17]
• Section 43[18].

For all of the above, a comprehensive list, including thorough profiles, of the “Arbitrators” may be made available on the official website created exclusively for the Act’s objectives, alongside which the Government may establish fees for utilising the infrastructure.

When the Government regulates the “Arbitral Tribunal” and “Arbitral Institutions” it can assemble specialists from different professions in one place. The parties will be required to pay merely the “prescribed fees” for utilising the infrastructure established by the Government. Therefore, there will be no need to make particular arrangements for each occasion, such as the location of the hearing, office equipment, stenographer, support staff, etc. This will lead to a significant decrease in expenses. An in-depth profile of the arbitrators will assist individuals in choosing the most suitable arbitration for their needs. Efficiency will be enhanced by utilising the skills of specialists from diverse sectors. The entire system will exhibit enhanced transparency and will instill confidence in the involved parties.

However, if proper precautions are not followed, it is possible that over time, the “Arbitral Tribunal” and “Arbitral Institutions” regulated by the Government may become highly ineffective.

3.3 Conciliation and Mediation:

It is recommended that rather than creating a new Act specifically for “Mediation,” the existing Act should be amended to include elements related to “Mediation.” It is suggested to alter the name of the current Act to “Alternate Dispute Resolution Act, 2020” in a suitable manner. Therefore, it is suggested that the following should be included in the remit of the revised Act:

• Arbitration,
• Mediation, and
• Conciliation.

Currently, under the existing legislation, the process of “Conciliation” or “Mediation” is purely discretionary. When considering the current judicial system, including the backlog of cases and the average time it takes to resolve them, it becomes evident that attempting “conciliation” or “mediation” before engaging in a lengthy legal battle in court is always worthwhile.  During court hearings, it is common for things to be referred to a “Mediation cell” in order to provide the parties with the chance to resolve their dispute through mediation. Oftentimes, conflicts are resolved by mediation, but there are other instances where mediation fails to yield any positive outcome, leading the parties to engage in a protracted legal battle once again.

To enhance the efficiency of the legal system, it may be necessary to mandate the use of “Mediation” / “Conciliation” before resorting to arbitration, in suitable instances. Even if there is no provision for “Mediation” or “Conciliation” in an “Arbitration agreement”, it should be mandatory in suitable situations.

3.3.1 Procedure:

Suitable amendments may be implemented for the following:

• Implementing mandatory “Conciliation and Mediation” in suitable instances.
• Said implementation should be done before choosing arbitration as an option.
• A specific time frame may be established for making decisions in matters resolved using the methods of “Conciliation” and “Mediation”.
• “Conciliation cells” or “mediation cells should be established.

3.3.1.1 Provisions may also be created for the following elements of “Conciliation cells” / “Mediation cells”:

• The qualifications, terms, and conditions of employment for the “Presiding Officer” and “Staff” of the “Conciliation Cells” or “Mediation Cells”.
• Approaching Mediation / Conciliation cells,
• Filing statements of claim/defence/counter claim,
• Conducting hearing,
• Time frame for deciding the matters,
• Any other allied administration issue.

It is very much possible that many disputes can be sorted out amicably through mediation and conciliation. Where differences are not reconciled through conciliation and mediation, the parties would opt for other remedies. Thereafter, the Arbitrator can straightaway proceed further in accordance with law without having the need to refer the dispute to “Conciliation cells” / “Mediation cells”.

That said, the mandatory adherence to the “Conciliation and Mediation” process before choosing “Arbitration” can be a lengthy procedure and end up just as time consuming. Due to the poor relationships between the parties involved in the dispute, it is quite likely that Conciliation and Mediation will not be useful in achieving any meaningful outcome.

3.4 Designation of a Recovery Officer

As per section 36 dealing with “Enforcement”, an “arbitral award” shall be enforced in accordance with the provisions of the CPC in the same manner as if it were a decree of the Court. Thus, a person needs to approach “Court” [as defined under section 2(1)(e)[19]] for enforcement of arbitral award. Owing to tremendous litigation coupled with shortage of judges, pendency of cases before the Courts is increasing day by day. It may also not be out of place to mention that the “Courts” are supposed to deal with all types of cases arising out of large number of laws in force. In order to reduce the burden of “Courts”, it is suggested to provide for “Recovery Officer” (here-in-after referred to as the “RO” for the sake of brevity) who shall exclusively deal with the tasks of –

• Enforcement of Arbitral awards;
• Recoveries pertaining to arbitral awards;

3.4.1 Procedure for Implementation:

Suitable amendments may be made for providing for “RO” who shall look after the enforcement of arbitral awards and recoveries pertaining to arbitral awards. For administrative convenience, the office of the RO may be a part of the infrastructure created by the Government for regulation of “Arbitral Tribunal” and “Arbitral Institutions”. Detailed procedure for recovery may be prescribed; At this stage, attention is invited to the following fiscal statutes:

• The Income-tax Act, 1961[20]:

– Sections 220 to 234 provides for provisions w.r.t. “Collection and Recovery”[21];

– Section 2(44)[22] defines “Tax Recovery Officer” (“TRO” for short) who is responsible for recoveries;

– The Second Schedule provides the “Procedure for recovery of tax;

– The Third Schedule provides the “Procedure for distraint by Assessing Officer / TRO;

• The Recovery of Debts due to banks and financial institutions Act[23], 1993:

– Sections 25 to 29 provides for provisions w.r.t. “Recovery of debt determined by Tribunal”[24];

– Section 29[25] provides that the provisions of the Second and Third schedule of The Income-tax Act, 1961 and The Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of the Income-tax;

– Section 2(k)[26] defines “Recovery Officer” who is responsible for recoveries;

• The Central Goods and Services Tax Act, 2017[27]:

– Sections 78 to 84 provides for the provisions pertaining to “Recovery of tax”[28];

– Section 2(91)[29] defines the “Proper Officer” who is responsible for recoveries;

Perusal of the above referred provisions would make it crystal clear that not only have various fiscal statutes have specifically provided for the “provisions relating to recovery” and a “separate wing” is created under the concerned statute which is assigned the task of recovery but also that the “Courts” have not at all been burdened with the task of “recovery”. Therefore, similar provisions if added to the existing scheme of Alternative dispute resolution laws would certainly help in a more efficacious functioning thereof.

In view of the above, it is suggested that –

– “Provisions pertaining to recovery” may be specifically prescribed for the Act;

– Alternatively, reference may be made to the relevant provisions of recovery under The Income-tax Act, 1961 (i.e. The Second and Third Schedule), as has been done under The Recovery of Debts due to banks and financial institutions Act, 1993;

– Suitable amendments may be made for continuous monitoring of the functioning of RO or else, the very purpose of creating the post of RO will be defeated;

– In case any party is aggrieved with the functioning or order passed by the RO, then suitable amendment may be made such that the aggrieved party has a right to challenge the action / order of RO before the “Arbitral Tribunal” / “Arbitral Institution” passing the underlying “Arbitral award”;

The setting up a dedicated wing for “enforcement of arbitral awards” and “recoveries” through the office of the RO within the premises of the infrastructure created by the Government will ensure smooth administrative functioning. Furthermore, staff of such dedicated wing will be specialised in recoveries, and hence, effective recoveries can be made, resultantly, the burden of the Courts shall be reduced to a great extent. That said if due care is not taken, then it may so happen that with the passage of time, functioning of the office of “RO” may become extremely inefficient.

4. Composition of the Taxation Alternative Dispute Resolution Centres and its place in the present legal landscape:

Firstly, it must be clarified that the TADRC is not an alternative to the first or second appeals for Income Tax related disputes and would come into the picture only after the ITAT. The rationale behind this is rather simple, firstly, the ITAT is a specialised forum with its own technical members, existing only to resolve income tax disputes, and hence its value in the appeal system cannot be overlooked. Furthermore, one of the purposes of the TADRC forming its cornerstone is that its goal would be to reduce the burden of the pending cases on the courts and allow for permanent resolution of the backlog. The ITAT, overburdened with appeals as may be, is not the target of this centre, rather it is to help the courts in dealing with the myriad of appeals. By making the ADR mechanism a follow-up to the ITAT appeal, substantial traffic of cases shall be diverted from their original route, which would have been the High court. Thus, the courts can focus more on constitutional matters instead of being bogged down by all sorts of tax appeals.

As mentioned above in the need for TADRC section, this holds true even more so in cases of GST disputes, wherein, there is no functioning GSTAT. This means that all GST disputes find their way to the high court, and given its nascent stage, there is bound to be voluminous litigation, which further burdens the courts.

With regards to the composition of the panel of arbitrators in the TADRC, arbitrators must be from both, the IT department, and retired judges or leading lawyers or CAs of repute. Moreover, committees consisting of the same should be constituted so as to ensure fairness in the hearing and the competence of the arbitrators. This would in turn make the TADRC into a properly balanced forum with wide powers to strike a balance between interest of both the sides, as envisaged.

5. National Arbitration Tribunals for Tax Disputes – Appellate and Original Jurisdiction:

Alongside the TADRCs, at least 3 National Arbitration Tribunals for Tax Disputes (NATTD), should be set up to deal with matters of higher thresholds, or those needing urgent hearing, such as in the case of an Emergency Arbitration, alongside those mentioned under its capacity as an “Appellate Forum” below. The 3 centres, in my opinion, should be located in Delhi, Mumbai, and Chennai, and must have panels of arbitrators of the Highest Threshold, constituting only of retired High Court or Supreme Court justices or eminent persons of impeccable reputation. Following up on the monetary threshold prescribed earlier, to approach NATTD for its original jurisdiction, either the threshold of the dispute in fiscal terms must be over Rs. 50 crores, or it should be a matter of Emergency Arbitration. This ensures that only those matters wherein a substantial sum of money is in dispute or where there is a dire urgency are heard by expert arbitrators, in a swift manner.

That said, although one of the core principles of Arbitration is that of ‘finality’ or simply put, ‘no appeal’, at least in Indian Jurisdiction, this does not mean that the courts are not faced with the burden of appellate nature stemming from Arbitration proceedings. An “Application under section 34” or an “appeal under section 37” would lie before a “Court”, as defined under section 2(1)(e) of the Act. Owing to tremendous litigation coupled with shortage of judges, pendency of cases before the Courts is increasing day by day. It may also not be out of place to mention that the “Courts” are supposed to deal with all types of cases arising out of large number of laws in force. Therefore, in order to reduce the burden of “Courts”, it is suggested that such matters also be handled by the NATTD. Therefore, NATTD, would have 2 different types of jurisdiction, firstly, it will have original jurisdiction over matters as prescribed above, and appellate jurisdiction in accordance with the subsequently mentioned procedure.

5.1 Procedure:

– A dedicated “Appellate Forum” may be established which shall have exclusive jurisdiction to deal with the following types of matters:

– Application for setting aside the arbitral award (S.34)[30];

– Appeals against arbitral award (S.37)[31];

– Appeals against foreign awards (S.50)[32];

– Appeals against foreign awards (S.59)[33];

– Any order passed by the Arbitral Tribunal / Arbitral Institutions;

– All other matters which, under the existing Act, would be heard by a “Court”, as defined u/s 2(1)(e)[34];

– It is also proposed to make suitable amendment such that matters, which were hitherto taken up by “Courts”, shall be taken up by appropriate forum (Arbitral Tribunal / Recovery Officer / Appellate Tribunal).

Orders passed by the “NATTD” can be challenged before “Supreme Court”. A suitable date may be specified for transfer of all the “Applications for setting aside arbitral award u/s 34”, “appeals u/s 37” and other allied matters from “Courts” to the newly established “NATTD”. Whilst the establishment of NATTD would lead to emergence of newly specialised counsels and members, who shall be adept at handling high stakes, urgent and appellate matters, it should also be considered that if due care is not taken, then the NATTD would end up falling victim to the same problem it was created to remedy, turning into an overburdened, clogged, and inefficient system.

6. Addressing the crisis of confidence for foreign residents exposed to domestic Tax Litigation:

Entering into litigation in any foreign jurisdiction is a tedious process, and often times is accompanied with a feeling of being an outsider in a hostile system. In light of the rising global nationalist trends, such a feeling of being discriminated against and the apprehension thereof is bound to increase. In fact, the residual effects of the globalization culture are pretty evident in this aspect, wherein up until recently, foreign investors and skilled persons were invited to countries on ‘red carpets’; however, a polar opposite view can be seen when it came to the resolution of a dispute. Upon entering into the dispute resolution process, these same people are treated as second-class citizens, and a strong feeling of being an outsider resonates among them. Thereafter, this experience would always act as a disincentive against entering into business relations with the host country or its residents.

Hence, in order to make the dispute resolution process a more pleasant experience for residents and non-residents, it is proposed that in the process of selection of the arbitrator, an option be provided to the foreign party, to appoint the qualified arbitrators from their own nations, so long as the competence of the same can be verified. This will not only ensure that the feeling of discrimination or ‘outsider-ness’ goes away, but also in turn induce more foreign investment and trade, alongside fostering an international community of arbitration professionals familiar with the Indian legal landscape.

7. Conclusion –

The hallmarks of any robust taxation system are the three Cs; Consistency, Certainty and Clarity. As it stands, the Indian system lacks all three. The alternative dispute resolution is not a panacea which will cure any and every defect in the present legal system vis-à-vis tax, especially in that, it cannot provide for certainty, which is something only the parliament possessing law-making power can do. That said, if properly implemented, the alternative dispute mechanisms can definitely provide for consistency and clarity. To conclude this paper, I would like to state that, as things stand, India faces a severe need for not only setting up ADR mechanisms but also amending existing ones, so as to cure its legal system of the pendency and backlog poisoning it, which are both addressed by this paper. In fact, it is paramount to first fix its existing legal framework for functioning of ADR mechanisms, before moving onto setting up the same for resolving taxation disputes. However, given the dynamic nature of the present legal atmosphere, it is almost certain that some changes will be made to the existing legal framework, especially considering how the government plans to make the second appeal for income tax disputes faceless as well. That said, it is not only India which must make a move towards inculcating ADR mechanisms into the blend of its legal system, several legal systems across the globe can also combat problems within their own systems in a targeted manner by leveraging ADR mechanisms. That said, it all depends on how the alternative dispute resolution apparatus is actually implemented, and its efficacy would certainly vary from place to place, however, the ADR mechanisms are certainly worth seriously considering.

[1] Shalini Mathur, ‘Budget Has to Fix Indian Taxpayers’ Nagging Dispute Management Issue for Real’ The Economic Times (7 January 2023) <https://economictimes.indiatimes.com/news/economy/policy/budget-has-to-fix-indian-taxpayers-nagging-dispute-management-issue-for-real/articleshow/96808764.cms> accessed 10 April 2024.

[2] ‘60 Appellate Authorities Functional to Clear Pending Tax Appeals: CBDT’ (1 February 2024) <https://www.fortuneindia.com/macro/60-appellate-authorities-functional-to-clear-pending-tax-appeals-cbdt/115704> accessed 10 April 2024.

[3] Finance Act 1997, s 62-78.

[4] Income Disclosure Scheme 2016

[5] The Direct Tax Vivad se Vishwas Act 2020

[6] Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019.

[7] Income Tax Act 1961, s 139(8A)

[8] Shalini Mathur, ‘Budget Has to Fix Indian Taxpayers’ Nagging Dispute Management Issue for Real’ The Economic Times (7 January 2023) <https://economictimes.indiatimes.com/news/economy/policy/budget-has-to-fix-indian-taxpayers-nagging-dispute-management-issue-for-real/articleshow/96808764.cms> accessed 10 April 2024.

[9] Tarun Jain, ‘Tax Arbitration in India: Scope and Trends’ [2024] SCC Times.

[10] Remya Nair, ‘India Opposes Global Plan to Make Tax Arbitration Binding’ (mint, 23 September 2014) <https://www.livemint.com/Politics/rutMHggqQOm2htzcrI9K7I/India-opposes-global-plan-to-make-tax-arbitration-binding.html> accessed 10 April 2024.

[11] The ‘Enrica Lexie’ Incident (Italy v India)(2000).

[12] ‘Revisiting the Indus Waters Treaty: PCA Reasserts Competence’ (Kluwer Arbitration Blog, 30 November 2023) <https://arbitrationblog.kluwerarbitration.com/2023/11/30/revisiting-the-indus-waters-treaty-pca-reasserts-competence/> accessed 10 April 2024.

[13] The Arbitration and Conciliation Act 1996 s 9.

[14] The Arbitration and Conciliation Act 1996 s 11.

[15] The Arbitration and Conciliation Act 1996 s 14(2).

[16] The Arbitration and Conciliation Act 1996 s 29A(4).

[17] The Arbitration and Conciliation Act 1996 s 29B(5).

[18] The Arbitration and Conciliation Act 1996 s 43.

[19] The Arbitration and Conciliation Act 1996, s 2(1)(e).

[20] Income Tax Act 1961.

[21] Income Tax Act 1961, s 220-234.

[22] Income Tax Act 1961, s 2(44).

[23] Recovery of Debts Due to Banks and Financial Institutions Act 1993.

[24] Recovery of Debts Due to Banks and Financial Institutions Act 1993, s S25-29.

[25] Recovery of Debts Due to Banks and Financial Institutions Act 1993, s 29.

[26] Recovery of Debts Due to Banks and Financial Institutions Act 1993, s 2(k).

[27] Central Goods and Service Tax Act 2017.

[28] Central Goods and Service Tax Act 2017, s 78-84.

[29] Central Goods and Service Tax Act 2017, s 2(91).

[30] The Arbitration and Conciliation Act 1996 s 34

[31] The Arbitration and Conciliation Act 1996 s 37

[32] The Arbitration and Conciliation Act 1996 s 50

[33] The Arbitration and Conciliation Act 1996 s 59

[34] The Arbitration and Conciliation Act 1996 s 2(1)(e)