THE INTRODUCTION TO THE SCENARIO
The fostering of the economic growth and development have been assured and accounted in the hands of the government. The reliance for assuring the same is based on funding. The programs to provide the health, education, infrastructure and services are the bridge to achieve the unanimous goal of functional, orderly and prosperous society. The major means available with the government for providing the funds are by collecting the tax from the people who uses the resources of India, for betterment of the economy. The rates and laws regarding taxation are decided by one wing of the law i.e. legislature and the second wing of the law have the responsibility of collecting the tax i.e. executive. The third wing comes into picture when there is dilemma regarding the payment to be made in form of tax.
In year 2015, the then Chief Justice of India H.L. Dattu constituted a bench remotely for solving the tax disputes and dispose of the case at a fast pace. It was done keeping in mind the effect on the economy by the reducing the pile of cases. Unlike other cases, the tax disputes have funds as the subject matter which can be utilized by the government for betterment of the economy. The tax disputes were piling up and the funds of the government were not received by them. The tax received from the government is the means of funding for running the economy. The bench was constituted due to the necessity of resolving the link between the economic growth and tangled Indian tax legislations.
The ongoing tax disputes have started becoming the burden on the judiciary and the other adjudicating authority due to prolonged continuation of tax dispute. This has resulted into straining the adjudication as well as judicial system, which is already burdened with the unresolved cases. The increases in disputes exacerbates the issues and deprives the business, government and the economy. It is the government who looks after the trade, commerce and economy in country but if such situations exists then the efficiency of the department may reduce. As they might be using some part of their efficiency in rattling with the disputes and there are even cases where the revenue that the government owe to receive as tax collected are stuck due to tax dispute and hence non-recoverable.
The tax system should therefore shift to the alternate dispute mechanism in realm of taxation too. The mechanism should be followed instead of taking the litigation as the recourse available. The need of an hour is to have a reform with an aim of curbing to resort to the practice and procedure, which turns the dispute into prolongation of tax dispute. The VIDS can be proved to be successful method of collecting the tax amount by giving immunity to the defaulter, resulting into collection of tax amount and using it in betterment of economy. It is one of the best good governance policy that the government can adopt as it helps in collection of tax amount which is further used for running the wheels of economy.
1. TAX OBLIGING DUTIES AND POWERS
The tax is the key ingredient for the social contract between the citizens and the economy. The theory of charging tax have been found and followed by the ancestors since very long. The kings also charged tax from the people of their kingdom for using the sources of the kingdom. The charging of tax from the citizens have been based on the simple theory. The theory states that:
“You owe the environment, the economy and the society for doing you a favor in form of letting you use them. You are obliged to repay the administrators to restore the productivity of the environment, the economy and the society; and work towards sustainable development. This imposes a social contract between you and economy and hence obliging you to pay the remuneration in form of tax, which is a predetermined price from your profit earned using the resources of the economy.”
The above explanation, states the duty of the citizen to pay tax. It is not only the citizens who should comply with the necessity to pay tax. The people who are not the citizens but use the resources of India also ought to pay tax to the Indian authorities. Henceforth, the “taxpayers” will be the term used for all. The taxpayers are bound by paying the amount of tax but in ample circumstance they pick up the loophole in the legislation and avoid paying tax. This practice have been very widely used by the taxpayers and hence the legislation imposes hefty penalty on such acts. The judgements have held that tax planning1 and tax management is not unconstitutional. Whereas, the tax avoidance and tax evasions are deemed to be unconstitutional and not covered within the ambit of tax management.
The Indian legislature have provisions like GAAR, Transfer Pricing Agreements and DTAA ensuring that the Income of the tax payer is taxed accordingly. The taxpayers are required to pay direct and indirect tax separately. The income of the taxpayer cannot be taxed twice and the reliance for making it on mark has been given to the executives. The authorities in DT and IDT (henceforth referred as ‘authorities’) have been given the responsibility to tax the income of the taxpayer. The responsibilities come with powers, duties and recourse mechanisms.
The authorities have been given the duty to perform the righteous collection of the tax amount from every taxpayer who comes within the tax brackets. They are allowed to call the taxpayers for reconfirming the tax amount to be paid. They have been given the power of investigating, issuing notices, conducting audits and giving out orders. The authorities have been given the powers to pass the orders which are of appealable nature. The matters related to tax have been routed this way and the authorities have power similar to the lower courts. This intermingle of powers between the executives and the judiciary shows the interdependence of the powers amongst the wings.
As mentioned above the Judiciary has the role of interpreting the laws and order the specific path to be followed. The judiciary are the torch-holders for the people who get into the maze of the tax law complication. The Supreme Court is the apex court for all the matters. The tax related disputes are appealed before Supreme Court and High Court if the dispute involves the question of law. The question of fact in the dispute is decided by the authorities. The authorities have been given the powers attached with the duties of being amicable, reason to believe2, reasonable while applying minds3, clear4 in their minds with their reasoning, it being bonafide5 and independently acting on the information to reach to a conclusion6.
The authorities have been entrusted with many powers which are monitored by the judiciary. The judiciary have the power to reverse the act of commission or omission by the authorities when the powers bestowed upon the latter is misused or not within the ambit of the authority. The authorities have been misusing their powers and over charging the tax on taxpayers and torturing the taxpayers instead of acting amicably. It is well said that “where comes powers, there comes arbitrariness.” The accountability given to the government encourages the effective administration of tax revenues and sound public financial management.7
2. HIKE IN TAX DISPUTES IN INDIA
The tax brackets determines the amount of tax that a taxpayer has to pay. The taxpayers ought to pay tax as per the tax rules but they dodge paying the correct amount of tax in order to increase the amount of savings. The tax disputes arises due to nonpayment of the tax or non-disclosing of the income or assets. The taxpayer generally tend to evade the burden of tax due to high tax rates. The tax rates should be set up at a reasonable level which would end up developing the private sector and formalizing businesses. The reasonable tax rates are important for the small or medium-sized enterprises in order to contribute to the economic growth and employment. Adopting the reasonable or low tax brackets may not help the revenue in collecting enough tax revenue to manage the proper administration of the country. The amount collected through tax revenue is the major source of revenue to the government in order to accelerate the smooth running of the nation.
The tax department tries to collect as much revenue as it can in order to raise the amount of collection in their account. Adoption of low tax rates would not significantly add to the tax revenue.8 The tussle between the revenue and the taxpayer is ongoing, where the motive of the both the parties is to score the disputed tax amount in their funds. There have been instances where the taxpayer was at mistake and few cases where the revenue department was at mistake. The innumerous and unreasonable disputes have led to forming pile of tax disputes before the High Court and Supreme Court. It is not only High Court or Supreme Court who is being tackling numerous tax cases every years but also the tax adjudicating department. The increase in number of cases have lowered the productivity and efficiency of the adjudicating authorities and judiciary.
2.1. TAXPAYERS BEING AT FAULT
As per the recent survey9 conducted by World Bank for 147 economies to consider the effect of the tax rate on the taxpayers, it was found that the economies score better on when the tax rate is moderate and hence the government should design the tax compliance system that encourages the taxpayers to participate. The survey also witnessed that the taxpayers and firms consider the tax rate as one amongst the top five constraints to determine and process their operation. The survey also acknowledged that the economies having the better ease of doing business focuses on having a better tax rates and tax administration as a cake on cherry on cake rather than being obstacle to business.
The above condition persists when the tax rates are moderate for the business and taxpayers. If the government will start leving the tax rate at this basis then the revenue of the government might see a downfall. The downfall will tend to have the direct impact on the other wheels of the society. Therefore the government happen to come-up with the tax bracket that help the government to collect the adequate funds and giving the second thought in mind of the taxpayers, in terms of evading the tax payment. This also leads to parking the profits in tax heaven, no tax jurisdiction or low tax jurisdiction.
The mentality of human mind is to gather and grasp till infinity when it comes upon saving the tax on profit. The legislation always consists of grey matter, which let the taxpayer mold the transaction in a way that the law do not overrule the act and that makes them successful at opting loophole rather than the legit law structure. The big giant industries, firms and taxpayers aim at maximizing their profit and hence design their business model to evade tax. The so designed business model go parallel to laws i.e. it looks like a legit transaction and fails the tax authority. The situations like digital taxation, DAPE, etc are few of the recent examples.
The provisions like GAAR, SAAR, DTAA, MLI, EL, etc are being brought into force in order to determine the true commercial nature of a transaction. The above mentioned measures vouch for considering the principle of value creation and prefers the concept of substance over form. The following measures are being taken to catch the taxpayer out of shell and make him liable to pay the righteous tax in India. The taxpayers chooses the route of evading the tax, and with the help of the improved government and legislative mechanism, get recognized by the respective authorities. They are issued the notice by the respective department and such notices are generally opposed by the taxpayers, which in turn leads to piling up of the cases.
2.2. TAX AUTHORITIES BEING AT FAULT
The inception of ample prolonged continued issues starts from the lowest adjudicating authority. The DT and IDT have different procedure and authorities for hearing and handling the tax dispute. The paper focuses on the grave issue hence would not state the hierarchy of the authority. The cases in both the realm starts from the very root level and can go till Supreme Court based on circumstances. It has been supposed and affirmed that the taxpayer’s interest lies in the hands of government and hence it is duty of the revenue to be responsible and reasonable with the tax payers and tax disputes respectively.
The authority, who are claimed to be the torch bearer, themselves lacks in exercising their duties of being reasonable, independent, clear, bonafide, etc. while passing the orders in tax related disputes. There are various reasons that sets up the whole duty role into a reverse gear, making the authorities responsible for increasing the tax related dispute. In some cases the under staffed and an inexperienced tax authority results into failing in adapting the rapidly changing tax laws and issues arising thereby.
The government sets the revenue collection bars which has to be meet by the authority for using it further in betterment of the economy i.e. using for infrastructure, relief funds in case of natural calamities, government schemes, road, etc. This shows that there is direct nexus of revenue collection by the authority and the economy, fiscal deficit, etc. In order to compete with the benchmarked collection bars the authorities unreasonably imposes tax liability upon the taxpayer increasing the tax cases thereby. The adjudicating authorities also supports the authorities in order to shrug off the burden of the department to collect the remaining benchmarked tax. This leaves many bonafide and clean taxpayers to opt for the litigation stream in order to prove their innocence.
2.3. OTHER FACTORS
> Lack of clarity: The tax law is a complex statue making it a composed of extreme complexities in This attribute makes the tax law to have lack of clarity in interpretation. Sometimes it’s the taxpayers and sometimes it’s the authorities who get hooked up with the wrong interpretation of the highly tangled tax statute. This factors makes it responsible to multiple interpretation of the statute and its provisions. The multiple interpretation gives birth to multiple cases, thereby hiking the tax disputes which ought not to exist.
> Multiple appellate levels: As stated above the DT and IDT separately have the hierarchy of raising the voice against the notice and findings by the authorities. There are various bodies setup for deciding the issues and these appellate forum at every level often have the conflicting opinion and result into the multiplicity proceeding. These multiple proceeding happens to be the main reason for thousands of prolonged tax disputes.
THE ALTERNATE DISPUTE RESOLUTION MECHANISM
The tax revenue with the government can be maximized by effective and timely resolution. In trail with the existing litigation system, there also exist the alternate dispute mechanism to lighten-up the burden on the courts and adjudicating authorities. This also ensures that the tax legislation is correctly applied and interpreted by appointing the experts in the tax field as the deciding authorities. The need of the alternate dispute resolution was felt when the courts were extremely overflowed with the tax dispute and one of the reason being non- availability of ADRM. The evolution of the ADRM was witnessed during period ranging from 2015 onwards.
Although the India have a keenly developed alternate dispute mechanism, the existing mechanism need a shift in its operation to make it more effective and free of hassles and focus at imparting
> Fairness
> Certainty
> Timeliness
> Impartiality
> Cost-effectiveness
1. THE NEED OF ALTERNATE DISPUTE RESOLUTION MECHANISM
The Centre for Monitoring Indian Economy (CMIE) reported that as per their research database, the Indian companies is strangled in the situation where the handsome money belonging to the company have been stuck in the tax disputes of the country. As per the said report concerning the financial year 2011-2012, the BSE faced the loss as 30 companies had money locked up in the tax dispute which was increased by 27% as compared with the last financial year status10.
1.1. Dispute in Direct Tax
In the month of April 201211, the then Minister of State for Finance, Mr. S.S. Palanimanickam, in reply to Lok Sabha mentioned that 30,213 and 5,943 cases were pending in High Court and Supreme Court respectively. The minister stated that the total disputed amount at various level of income tax dissolution resolution system was calculated to be Rs. 4, 36,741 crores. The amount stated by the minister was double the amount stated in year 2010. The Minister made the report of the pending cases as per as per year 2012 and came to a conclusion that the ADRM should not only be adopted, but also should be practiced at large. It was after this, the authorities tried to use ADRM at large and educated the people through campaigns and other means. The calculated amount of pending case before various appellate forums and amount of dispute are as follows:
| Sr. No. | Cases pending before | No. of cases | Amount disputed (Rs. Crore) |
| 1. | Commissioner of Income Tax (Appeals) | 1,93,525 | 2,52,846 |
| 2. | Income Tax Tribunal | 29,842 | 1,21,559 |
| 3. | High Court | 30,213 | 58,033 |
| 4. | Supreme Court | 5,943 | 4,303 |
| Total | 2,59,523 | 4,36,741 |
1.2. Dispute in Indirect Tax
The number of tax disputes in indirect tax and the period along with the amount stuck in the forums are indicated below, as per the report:
| Sr. No. | Cases pending at adjudication level | No. of cases | Amount pending in disputes (Rs. Crore) |
| 1. | Customs | 17.800 | 7,400 |
| 2. | Central Excise | 19,800 | 21,450 |
| Total | 37,600 | 28,850 |
As per the table, out of 17,800 cases pending in customs, approximately 6,300 cases worth revenue Rs. 1080 crore have been pending to conclude with the decision between 1 to 3 years and more than 2,800 custom cases have been in prolonged dispute for over 3 years for proper adjudication. The similar case existed for Central Excise. The report also calculated the statics for the successful departmental litigation for indirect tax in Courts and Tribunal as per the given table below12:
| Sr. No | Year | Supreme Court | High Court | Cestat |
| 1. | 2008-2009 | 9.81% | 29.6% | 10.0% |
| 2. | 2009-2010 | 7.85% | 35.10% | 18.2% |
| 3. | 2010-2011 | 5.5% | 27.8% | 17.2% |
| 4. | 2011-2012 | 10.64% | 29.85% | 19.7% |
The table shows that the success rate of the departmental appeal at Tribunal level. It can be seen that the success rate varied from 10% to 20% and more than 80% of the cases were not accepted by the Tribunal due to the ill view and belief of the department and the grounds for making demands were not sound. This report help in depicting that the authority do not adopt the real analysis of merits while dealing with cases and constantly carry the fear of loss of revenue.
The annual conference of Chief Commissioner and Directors General of Customs, Central Excise and Service Tax made the government to come to a conclusion regarding the hike in number of cases due to tax authorities. It was witnessed that the tax appeals are filed on a routine basis with the motive of passing on the responsibility of deciding the issue to the appellate forum in order to avoid the internal repercussions.13
The above statics were based on the reports for year 2012 and it was after these analysis the government tried to come up with the effective and efficient ADRM which aims at removing the burden of the judiciary. The government tried to convince people to resort for ADRM by lurking them with the incentives on choosing ADRM for solving the dispute instead of the adding the piles of cases in judiciary. The government have been trying hard to lower the amount of disputes in taxation. The living example of the same can be spotted by the Sabka Vishwas Scheme (SVS) implemented by government for IDT. The success of SVS made the budget 2020 to come up with the idea of Vivaad Se Vishwas Scheme (VSVS) for solving disputes in DT.
2. THE EXISTING ALTERNATE DISPUTE RESOLUTION MECHANISM
The Indian Tax Regime have following existing ADRM in order to help the economy bloom by having less cases to be adjudicated and prolonged before the adjudicating authorities and SC and HC. The existence of these ADRM aims at speedy disposal of tax disputes, involving less expenses, fast an easy collection of tax revenue by the government and using the same for the sustainable development and administration of the economy.
I. THE SETTLEMENT COMMISSION
The statutory body is created under the Act in order to deal with the disputes having attributes of undisclosed income with the motive of facilitating speedy settlement of the cases. The taxpayer has the recourse to approach to the settlement commission at any stage of proceeding and are subjected to certain conditions. The taxpayer needs to file the application along with depositing the amount of additional tax and interest thereon.
The commission have been granted the power to bestow immunity from facing any prosecution of the offences under ITA, WTA, IPC or any other Central Act and penalties under ITA. The immunity can be granted to the taxpayer only in cases where the taxpayers make true and full disclosure of the income and comply with required prescribed condition14. The cases solved by the Settlement Committee cannot be appealed and hence it is mascot of attaining speedy resolution.
II. AUTHORITY FOR ADVANCE RULINGS
It was constituted to facilitate the ascertainment of income tax liability in advance. The arrangement is for the transactions were the non-residents and resident together enter into a business and aiming to ascertain the tax treatment of the transaction undertaken by them. It is exercised in order to enable them in planning their respective income tax affairs before entering into dispute due to confusion in interpreting the provision and avoid the expensive and prolonged litigation.
The non-resident and specified category can resort to the rulings from the authority arising out of the transaction that they desire to take. The ruling of AAR are binding on the parties. It is having a mandatorily binding force upon income tax authorities, indirect tax authorities, ITAT, IDT appellate bodies. The rulings can be challenged only in SC and HC. Generally the rulings of AAR are accepted by the parties hence the cases that appear before HC and SC tend to lower down. The AAR is obliged to issue the ruling within 6 months and becoming the speedy and reasonable resolution.
III. DISPUTE RESOLUTION PANEL
The mechanism of DRP was introduced vide Finance Act, 2009 with the aim of promoting speedy resolution of disputes for certain specified assesses. The DRP is the collegium comprised of three Commissioners/ Directors of Income tax and looks over the matter of the Indian companies, in respect of which the tax authorities have proposed to make an adjustment in the calculation of arm’s length price. This involves the transactions which have the concept of calculating the arm’s length price.
The foreign companies are also covered under the ambit of DRP, only if they are assessed in India for getting subjected to the tax implication. The DRP level can be resorted from the assessment stage, it being the time bound alternative to appellate route of CIT (A). The DRP orders are binding upon the Assessing officer based on which the final order is passed within 9 months of draft order sent by DRP to Assessing officer.
IV. MUTUAL AGREEMENT PROCEDURE
The MAP clause in included in the DTAA entered between India and other country. The clause allows the competent authorities in the contracting state to interact with the government for resolving the tax disputes. The MAP covers the disputes relating to the DTAA. The MAP cases arises where the individual or entity is not clear upon the interpretation of the law and faces continuous inconsistency. The MAP do not compel the competent authority to resolve the tax dispute. They only imparts the best endeavors to reach an agreement.
V. ADVANCE PRICING AGREEMENT
The finance act introduced the framework of APA to be entered with specified assessee. It is the agreement between the taxing authority and the taxpayer determining the appropriate transfer pricing methodology for a transaction to happen in future. APA mentions the validity period in the agreement and should not exceed its implication for five consecutive tax years.
The change of law may not have the binding effect of APA. Hence it can be said that the APA is valid and effective for the transactions that are covered under the agreement with the conditions prevailing in the economy and same provisions of law as mentioned under the agreement. The APA mechanism is the nascent approach and hence taxpayers should have more exposure of APA in their transactions.
VI. VOLUNTARY INCOME DISCLOSURE SCHEME
The government have been continuously coming up with some VDIS with the aim of collecting taxes in case of undisclosed and escaped income. The taxpayers opting the VIDS schemes are given the immunity from attraction of penalty and charges for offences under laws, which they would otherwise be subjected to. The 1st VIDS was adopted by the government in year 1997, which provided the Income-tax defaulter to use the opportunity and disclose their income to the government and resorting to the protection of immunity from major laws relating to economic offence.
The taxpayers were given the chance to resort to the VIDS and attain immunity from prosecution under ITA, FERA, WTA and CA. The scheme was operational from 1st July 1997 to 31st December 1997 for the eligible person under the scheme. The VIDS proved to be successful measure in contributing to the Indian economic policy and ensured that the defaulter do not get attracted to the economic offences. The report of the Comptroller and Auditor General of India stated that the scheme attracted 475,477 declarants which included 77,107 as new assessee and resulted in payment of Rs. 9,729 crore as tax amount15.
THE SABKA VISHWAS SCHEME
The Sabka Vishwas Scheme was introduced through the Budget 2019 for resolving the disputes in IDT and unloading the baggage of the tax litigation and also paving the way for economic development by allowing business to move on and depositing the amount of tax in the funds of government. The Legacy Dispute Resolution scheme is the by-product of VIDS which was introduced by the Finance Minister in order to settle the IDT litigation related to matter before implementation and introduction of GST in Indian tax system.
The scheme was extended till 15th January 2020 after seeing the number of taxpayer that availed the scheme. The government quoted the SVS as “never before never again scheme” for engaging more number of the taxpayer within the ambit of the scheme. The scheme turned out to be fruitful and resulted in higher collection of tax by the revenue.
The scheme have many applicants but the quantum of litigation that was resolved by the mechanism did not reached the benchmark. Although SVS helped government in collection of the tax amount and helped the taxpayer get relief by resorting to the immunity granted on adopting the scheme, the scheme somewhere disappointed the government with the number of the cases that were finally resolved.
1. NEVER BEFORE, NEVER AFTER?
The key feature of SVS made the government term it as never before, never after scheme. The scheme offers full waiver of interest, fines, penalties and amnesty from prosecution proceedings. The government offered the scheme to the taxpayers with the option whether to avail or not the scheme. The taxpayer considered various factors before availing the scheme after interpreting the rules and estimating the chances of winning 50:50. The taxpayer considered it as the 50:50 winning due to non-imposition of penalties, interest, fines, etc. The quantum of demand, cost of litigation, merits of case, availability of evidence or document are the key attributes that the taxpayer considered before adopting the method.
The scheme is based on the cost basis analysis. The difference in the amount of the tax with additional amount that the taxpayer ought to pay without opting the scheme and the amount ought to be deposited with government after availing the benefits of the scheme turns on the taxpayer to opt and get covered within the scheme. The authorities mentioned that the amount owed to the department by the taxpayer was lessened to a large extent when the taxpayer opted for the scheme. They also noticed that there were many cases which involved the trivial issue and were not able to get resolve due to the fear of taxpayer of paying hefty amount. When the government introduced the SVS, such taxpayers were all ready to pay the amount of tax and it helped the department and taxpayer to get rid of dispute involving trivial issues and collecting the tax amount, thereby increasing the government revenue.
2. THE NITTY GRITTY OF SVS
The SVS is one time measure for putting an end to the past disputes relating to Central Excise and Service Tax and ensure that the taxpayers disclose the unpaid taxes to the government. The SVS came with the validity of four months i.e. starting from 1st September 2019 to 31st December 2019 and got extended till 15th January 2020 so that more taxpayer register them in the scheme. The scheme can be availed only by the eligible taxpayers to declare their tax dues to the government and pay the same as per the provisions of the scheme.
The scheme has the condition of availment and in few circumstances the scheme cannot be availed. The cases in respect of which the scheme can be availed are as follows:
> Cases where no appeal has been filed by the tax payer before expiry of time period
> Any tax dispute which has attained the finality before any appellate
> The tax liability has been admitted by the taxpayer through filing a return before 30th of June 2019
The above mentioned are the situation which are to be complied with before opting for the SVS. The scheme official draft also mentions the condition in which the taxpayer cannot avail the benefit of scheme. The taxpayer needs to make the declaration under section 125 for opting under the scheme before 31st December 2019.
The taxpayer are given the relief differently in the different case. The scheme covers the following cases:
> A show cause notice or appeals arising out of a show cause notice pending as on the 30th day of June, 2019
> An amount in arrears
> An enquiry, investigation or audit where the amount is quantified on or before the 30th day of June, 2019
> A voluntary disclosure
The relief can be granted to the taxpayer under four circumstances accordingly, mentioned under the draft. The taxpayer has to pay tax dues in relative to the four circumstance mentioned under the draft. The taxpayer while paying the amount of tax dispute has been restricted to make the payment through the input credit account.
THE VIVAAD SE VISHWAS SCHEME
As said trust can change the world. We don’t know about the world, but it has been definitely changing the tax dispute mechanism. It was the last budget, when the government introduced ‘Sabka Vishwas Scheme’ in the realm of indirect taxation. The scheme has been the rocking solution to the taxpayers, which solved over 1, 89,000 disputes of indirect tax. The government, this year has brought the similar scheme in realm of direct tax which is burdened up with the tax litigation.
The government has brought the new scheme for eradicating the vexatious tax litigations. The scheme is on similar lines with the Sabka Vishwas Scheme, which has been a successful story with the government. The nascent scheme is promoting the voluntary disclosure and on-going tax litigation. The government have come up with the scheme assuring the taxpayers the tax relief by waiving off the interest and penalties otherwise laid on them, in return of trust and honesty. It has been already mentioned by the FM in her speeches, that she want the taxpayers to not to think tax a burden but a duty. The scheme can be sign of the toddler move where the government is infusing the trust within the taxpayer for an easy and less burdened alternate dispute resolution.
1. TAX SCHEME OR TRUST SCHEME
The Finance Minister Nirmala Sitaraman presented the Union Budget for 2020-2021 on 1st February which also included the proposal for having a dispute resolution scheme in the realm of DT. The government witnessed the success story of SVS and decided to follow the same in case of DT after making modifications and eradicating the loopholes of SVS. The Scheme was based on trust to be developed by the taxpayer on the government and therefore named it “No Dispute but Trust Scheme”. The government assures that the scheme adopted is a new and effective version of SVS and will have greater success rate than SVS.
The government based the scheme on building the trust upon the government. The government aimed at doing do because in SVS it was reported that many taxpayers did not believed the intentions and mechanism of scheme and hence did not availed the scheme. The governed drafted and planned the VSVS carefully, so that it may cover all the aspects and ends up being successful at resolving all the disputes. The government felt the need of following this path due to the amount of tax trapped in the tax disputes. The government noticed that the disputed tax arrears in year 2019 amounted INR 9,320 billion which was less than the tax collected in financial year 2018-2019, it being INR 11, 370 billion.
The reason of arrears in collection was the pending tax disputes at various forums. The government felt the necessity to solve the dispute and reduce the burden from judiciary in order to pace up their efficacy. The FM therefore introduced the VSVS in order to loosen up the ties of cases from the judiciary by shifting it to the authorities under VSVS.
2. NEED OF VSVS: A GOOD GOVERNANCE ACT
It is undoubtedly known that the government runs the economy by the amount of tax that it receives from the taxpayers. The taxpayers have been resorting to ample business models which lower or minimizes their tax liability, resulting into tax evasion and tax avoidance. The amount that the taxpayer evades or avoids do not the government. The remaining amount which ought to be received by the government are never received in full. This happens because the taxpayers tangles the transaction with getting engaged in the tax dispute. The tax dispute have become very tedious and complex litigation, which occupies enough time of the judiciary.
Apart from time consuming, it makes the righteous amount of the tax, which is owed to government, stuck with the dispute for prolonged period of time. The dispute takes more than 3 years to get solved and that causes deficit of funds with the government. The wheels of economy are interdependent and hence the deficit in the funds results into poor governance by the government.
The tax amount is used by the government for betterment of the society and meeting with the day-to-day need of India. The DT are of more importance than IDT, to the government due to the way of collection. The DT is directly received by the government and hence forms the primary basis of funds for the government. The existence of lumpsum cases in DT is more worrisome for the government as the direct way of collecting the funds gets stuck by the stumbling stone. The government knows this logic very well hence tries to resolve the tax dispute related to DT at earliest by finding one or different measure. The VSVS is one of such measures where government believes at winning 50:50 and granting huge immunity. By adapting such measures, the taxpayer will avail the tax schemes and it will directly affect the funds with government and facilitating good governance.
3. PROCESSING OF VSVS
The government have made it crystalline to have belief in their scheme. They have been successful in implementing the Sabka Vishwas Scheme and have the same expectations from the scheme which aims at “no dispute but trust” and therefore have nomenclature it “Vivaad se Vishwas Scheme”.
The nascent scheme will be running on the parallel line to Sabka Vishwas Scheme. The direct tax has more than 4, 83,000 tax litigation pending at every level. The current scheme might be similar to the earlier scheme but the government have laid out the deadline for accessing the nascent scheme. The taxpayers can opt for the scheme over their ongoing tax litigation or apply for new dispute under the realm of direct tax till 30th June 2020. The taxpayer will not only be spared from the vexatious litigation, but will also be able to avoid the interest and penalties.
The above said penalties and interests can be waived off only if the taxpayer applies to the said scheme before 31st March 2020, which will make him end up paying the disputed amount only. The taxpayers who applies to the scheme after 31st March 2020 but before 30th June will also be relieved from the penalties and the interest but will have to pay some additional amount along with the disputed amount.
The core of the Amnesty Scheme ‘Vivaad se Vishwas Scheme’ for direct taxpayers is to settle appeals pending at various forums. The Sabka Vishwas Scheme was introduced within the same line. It was a dispute resolution scheme to settle the on-going the litigation against payment of reduced tax demand and a chance for the taxpayers to voluntarily disclose and pay the taxes to be paid by them.
The Sabka Vishwas Scheme covered the pending litigation from the base level, i.e. show cause notice stage till Supreme Court. The Scheme aimed at covering the tax litigation at large. The current scheme will be running on the same track. The nascent scheme will also be covering the pending the litigation from show-cause notice till Supreme Court appeals. The Sabka Vishwas Scheme included the following matters:-
1. a show cause notice or an appeal where the final hearing has not concluded on or before June 30, 2019;
2. amount in arrears e. tax demand upheld vide an order in appeal against which no appeal has been preferred and the limitation period has expired; or an order in appeal which has attained finality;
3. an enquiry, investigation or audit where the tax amount is quantified and communicated to the taxpayer on or before June 30, 2019; and
4. a voluntary disclosure
It excluded cases for which the taxpayer were convicted under the erstwhile indirect tax laws cases involving refunds or erroneous refunds, cases pending before the Settlement Commission and cases involving tobacco and specified petroleum products.
CONCLUSION TO THE PAPER
The scheme is not only fruitful to the taxpayers as it will be waiving off the interest and the penalty amount, but also will be a successful action taken by the government, thereby increasing their revenue. Many cases have been pending in the court for the long time, and in a few cases the taxpayers have been seen purposely dragging the case for long time in order to avoid paying taxes to the government.
The only drawback of the scheme is the government has not stated the maximum limit of the additional amount that will be paid to the government by the taxpayers in case they apply for the scheme after 31st March. This can be a scenario for arbitrary and unreasonable imposition of additional penalty. The government is trusting the public for coming clean and is expecting the taxpayers too, to have trust on authorities and settle down the disputes. The author is in support of scheme, it believes building relations on trust, which is the punchline of the scheme.
The DT is the primary source of gathering fund for the government and therefore government pays special attention when it comes upon collecting tax from the taxpayer. The funds collected by the government is used for the development of the economy and is a move of good governance. The Government is required to take certain initiatives to ensure that the good governance. The author believes that the introduction of VSVS is a good governance measure. The government has asked the public to build trust and avail the scheme, the actual situation will be revealed after the result of scheme. But it can be said that the government picked up this scheme as a much needed good governance measure.
Notes:-
1 McDowell and Co Ltd. v. Commercial Tax Officer [1985] 154 ITR 148/22 Taxman 11 (SC).
2 Krown Agro Foods (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle 5(1), New Delhi [2015] 57 taxmann.com 355 (Delhi)
3 Sarthak Securities Co. (P.) Ltd.* v. Income-tax Officer-Ward 7(3) [2010] 195 Taxman 262 (Delhi); Principal Commissioner of Income-tax v. RMG Polyvinyl (I) Ltd. [2017] 83 taxmann.com 348 (Delhi)
4 Commissioner of Income-tax, IV v. Insecticides (India) Ltd [2013] 38 taxmann.com 403 (Delhi)
5 Oriental Insurance Co. v. Commissioner of Income-tax, Delhi [2015] 63 taxmann.com 171 (Delhi)
6 Commissioner of Income-tax v. Sfil Stock Broking Ltd. [2010] 325 ITR 285 (Delhi)
7 “Taxation as State Building: Reforming Tax Systems for Political Stability and Sustainable Economic Growth.” World Bank Group, Washington, DC. FIAS (2009).
8 Hibbs, Douglas A., and Violeta Piculescu, “Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy.” American Journal of Political Science 54 (1): 18– 33 (2010).
9 World Bank Enterprise Surveys (http://www.enterprisesurveys.org).
10 Business Today article dated 24 December 2012
11 As per reply made on 27 April 2012 in the Lok Sabha to question No.3734 raised by Shri N Cheluvaraya Swamy Swamygowda
12 Source: Unstarred Question No. 3966 answered in Lok Sabha, Ministry of Finance on 5.9.2012 http://164.100.47.132/LssNew/psearch/QResult15.aspx?qref=129095
13 Source: Article dated Jun 15 2012 in The Indian Express
14 Section 245H of the Act
15 Source: www.cag.gov.in
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