Tax Dispute Resolution Woes in India: The Tax Compliance Perspective
Certainty in Indian taxation is a luxury, and adherence to it is absolute if one is looking for ease of tax compliance in India. The current and future need of the hour is that taxation law should be simple and its wording unambiguous, leaving no room for varied interpretations, even by the most competent tax experts.
Adjudication, both quasi-judicial and judicial, of taxation disputes helps clarify and settle the interpretation of the provisions of taxation laws. It thereby enhances certainty. Therefore, adjudicatory issues assume particular importance in the context of the ease of tax compliance.
Enhancing Certainty for Taxpayers
In taxation disputes, especially those concerning indirect taxes, a judgment regarding an assessee holds significant implications. Even a ruling by a single-member bench of CESTAT (Customs, Excise and Service Tax Appellate Tribunal) can directly affect similarly situated assessees across India.
The ramifications of such decisions extend beyond individual litigants to encompass a broader scope of stakeholders while dealing with tax compliance in India.
Thus, conflicting decisions by CESTAT/ High Courts or their split verdicts unsettle the law, create confusion, and increase uncertainty for assessees nationwide. Such uncertainty and confusion are worsened when the Supreme Court sets aside its earlier judgments or renders split verdicts.
Indeed, even the mere admission of a review petition by the Supreme Court creates uncertainty.
Indeed, even a mere admission of a review petition by the Supreme Court causes uncertainty. Assessees’ agony caused by such uncertainty and confusion is further aggravated.
How? As there are pending resolutions created by the conflicting/ split verdicts, the department starts issuing periodical show-cause notices. These are selectively based on the interpretations favourable to it, which are then kept pending in the so-called call book awaiting the final resolution.
SNAPSHOTS
1. The role of adjudication, both quasi-judicial and judicial, in resolving taxation disputes and the tax litigation in India is pivotal in achieving this desired certainty. It serves as the lighthouse, guiding the interpretation of tax provisions.
2. Judicial indiscipline is another adjudicatory issue which adds to the woes of the assesses concerning tax compliance in India. Settled principles of law are routinely ignored with impunity.
3. It goes without saying that given the dynamic nature of law, the diverse and changing nature of the economy and such a vast country as ours necessitating several benches of CESTAT and several High Courts.
Need for Clarity in Tax Compliance in India
The GST law prescribes the period within which the primary adjudication shall be completed. This contrasts with the Central Excise or Service Tax laws that specify the time limit for issuing show cause notice and not for completing primary adjudication.
This calls for the incorporation of a provision in the Goods and Services Tax Act to exclude the period when a case is put on hold or “cold-stored” in the call book should not count. When a case is put on hold like this, it is because there is already a decision made by a higher authority, like a court, Appellate Authority, or the Appellate Tribunal, that might not be good for the government’s revenue. While this decision is being challenged in another court, the time should not be counted towards the overall time limit for resolving the case under the tax compliance in India.
The net result is that the assessee is hanging on the ever-torturous sword of periodical show-cause notices. The regulation leaves them with two choices. First, pay tax under protest, thereby reserving the right to seek a refund (which, if granted, will be without interest). Second, wait for the final resolution of the conflict.
The second choice seldom entails the risk of the interest burden. This also comes in addition to the unlikelihood of being able to recover the tax from the customers if the decision goes in favour of the department. In short, in either scenario, it is the hapless assessee who bears the brunt.
The most helpless situation for an assessee arises when the apex court reverses its earlier decision, often after several years. This results in unexpected liability for the past ‘normal’ period. Customers do not deserve the passing on of this burden. Or worse, in loss of the amount paid as tax in the interval years in the wake of the earlier (subsequently reversed) decision because the refund, and that too without interest, can be claimed only for one year.
It can, and indeed does typically, take several years for the conflicting/split judgments to resolve. The assessee faces uncertainty and the associated adverse financial implications. These, at times, can be so grave as to prove fatal (or nearly so) for the small/ fledgling businesses.
Challenges and Implications of the Judicial Adjudication Process
Judicial indiscipline is yet another adjudicatory issue which adds to the woes of the assessees concerning tax compliance in India. We see ignorance of settled principles of law.
Allegations of suppression or misstatement of facts are sometimes made in show cause notices, often to address challenges or inefficiencies that officers face.
These allegations can lead to demands for extended periods of limitation and heavier penalties, which departmental adjudicating officers, including Commissioners, with few exceptions, frequently uphold.
Officers exercising judgment to drop such demands may face potential scrutiny rather than appreciation for their discernment, contributing to a reluctance among assesses to trust the adjudication process fully.
This perception has unfortunately led to many assesses resigning themselves to accepting the adjudication process as somewhat absurd, undermining the credibility of the department.
Even high-ranking officials acknowledge the problem, with a finance minister attributing the declining respect for the indirect tax department to what they describe as a “near absence” of judicious adjudication, particularly up to the level of the Commissioner.
Impacts on Tax Compliance in India
It goes without saying that in such a vast country as ours and given the dynamic nature of law, the diverse and changing nature of the economy necessitates several benches of CESTAT and several High Courts. Taxpayers expect that sometimes there shall be divergence in the interpretation of law by CESTAT benches/High Courts. There shall also be split judgements with consideration that even the Supreme Court can fall into error. As a remedial measure, setting aside its own (earlier) orders by the Supreme Court will be a welcome change.
Therefore, a certain amount of compliance complications due to the adjudicatory process is inevitable.
What is unacceptable, though, is
(i) the prevalent revenue bias leading to injudicious primary adjudication orders and
(ii) the prolonged travails caused to the assessees by the undue delay in the disposal of appeals and the resolution of the uncertainties engendered by conflicting/split verdicts.
As regards the possible argument that such delays and adjudicatory issues are not unique to taxation cases, we must appreciate that. As already stated, unlike other types of cases, the delays in taxation cases do not add to the pain of the litigating assesses alone.
They add to the dismay of all the similarly situated assesses across the country. They thereby cause irreversible harm to the economy at large. Therefore, there exists a compelling case for giving top priority to the quick resolution of the taxation disputes and the uncertainties caused by the conflicting/split verdicts.
The narration of the adjudicatory issues, the resultant laborious effort of the assesses, and the unfavourable impact on the economy and the tax compliance in India are all very well.
But is there a, or what is the way out? It is not rocket science, however. Even if it was, India is capable of handling that, too, Chandrayaan being only the latest proof of that.
The Solution to Improved Judicial Compliance
Given below are the suggestions which, though not eliminating the said pains of the assessees, will significantly reduce them. This will thereby result in improving tax compliance in India and reducing the cost thereof.
(I) For the reasons mentioned earlier, it is of utmost importance and in the public interest that
(a) hearing all appeals in the taxation matters and disposing them expeditiously at all levels,
(b) more importantly, the disposal of cases involving interpretational differences and split verdicts nearly immediately and
(c) accord urgency like no other to review petitions that the Supreme Court admits.
(II) Judicious approach and judicial discipline in the departmental officers need to be taught, encouraged and complimented. Cases of blatant injudiciousness and judicial indiscipline, even if those result in demand-confirmation/refund rejection, must invite conspicuous consequences.
Thoughtless decisions by the committee of (Chief) Commissioners to file appeals need more consideration. These especially apply against orders in favour of the assessees and shall invite more than a scolding; at present, even that does not happen. This will, as a result, encourage the departmental officers to pass judicious orders.
The Way Forward
With everything unfolding, where do we see our Indian judicial and taxation system in the coming years? Well, the taxpayer can look forward to a five-fold positive spin effect in the coming future:
(a) By and large, it will bring justice to the assessee right at the first stage of adjudication, promoting better tax compliance in India,
(b) Save similarly situated assesses from the periodical show cause notices,
(c) Reduce the number of appeals to and pendency in the higher quasi-judicial/ judicial fora,
(d) Expedite disposal of appeals and thereby reduce the period of uncertainty and its harmful effects and
(e) Considerably reduce the non-too-insignificant cost of litigation for both the assesses and the government.
