Indirect Tax Dispute Resolution Sche me, 2016 – will this really result in reduction of litigation? : 01-03-2016

By S Sivakumar, LL.B., FCA, FCS, ACSI, MBA, Advocate

THE FM has announced the Indirect Tax Dispute Resolution Scheme, 2016 in the Finance Bill, 2016, in terms of which, in respect of appeals pending before the First Appellate Authority, i.e the
Commissioner (Appeals), the appellant, on submitting a declaration with the designated authority,
shall get immunity from all proceedings if he pays the service tax along with interest and penalty up
to 25% of the penalty imposed in the adjudication order.

One would wonder as to the efficacy of this proposal in reducing overall litigation, especially given the fact, that the tax liability would be less than Rs. 50 lakhs in respect of appeals filed before the
Commissioner (Appeals). As is known, a vast majority of demands raised on assessees would run into crores of rupees, necessitating adjudication by the Commissioners and these are not covered under the Scheme. Even for appellants who have filed appeals before the First Appellate Authority, it may not make sense to opt for the scheme, as in 99 out of 100 cases, the service tax demand itself would be frivolous and unsustainable and can be successfully fought at the level of the CESTAT.

Moreover, it remains to be seen as to how this scheme would compete with Sections 76 and 78 of the Finance Act, 1994, in terms of which, the assessee is allowed to pay a reduced penalty of 25% of the penalty imposed by the Adjudicating Officer, along with interest and tax, within 30 days of the
adjudication order. Of course, there is no specific mention of prosecution related proceedings being
dropped under Section 78.

While the intention of the Government seems laudable, one really wonders whether this scheme
would be a success, at the ground level. Had the Government provided for the complete waiver of
interest and penalty, many litigants would have opted for this Scheme.

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