While treading new roads, the Government has rightly taken steps to unload the baggage of past litigations, which may be impeding growth. The maiden budget of the newly elected Government appears to have taken a significant step ahead in its 'ease of doing business' policy. It is called Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, which we will refer to as the scheme.
The scheme is simple - not to waste resources of the industry, the department and the judiciary in long pending litigations and let the taxpayer settle matters of central excise and service tax by paying around 30% to 60% of the 'tax dues'.
Once the 'amount payable' as per the scheme is paid, it is conclusive. The scheme clearly states that the matter and time-period shall not be re-opened in any other proceeding, which is a huge assurance in our country which has a history of retrospective amendments unsettling settled positions.
Looking at the scheme, one may assume that the Government must have done its numbers. The price of sabka vishwas seems to be significant for the Government and definitely, worth a look for taxpayers.
Reading into the scheme, doubts can certainly arise in the mind of the reader, especially those having a long list of tax litigations. Should I pay? Buy peace and settle for half (or a portion)? Should I let the ship sail the way it is? The decision to opt for the scheme will majorly depend on a cost-benefit analysis of the amount of payment involved, litigation costs and other opportunity costs vs. the amount of tax relief, coupled with the chances of success in the case.
One must weigh the situation and the consequences properly. It would be prudent for taxpayers to re-assess the strengths and merits of pending litigations, not only on merits but on limitations as well.
It is always better to revisit the pending litigations with an independent view and judge it based on judicial developments that have taken place so far.
If it sounds so lucrative, why will not anyone take up the scheme? For one, simply because it is not extended to everyone. And, perhaps it is not meant for everyone. Let us see where and what one needs to reassess, and the relevant questions to be asked:-
- Matters such as those where appeal has been filed and heard finally, they are excluded. How to take up the cases which are yet to be heard? How to deal with situations where matter is not yet decided?
- Entire payment is in cash and Input tax credit (ITC) cannot be used to make payment. If one has accumulated credit available, should he go for the scheme?
- Tax paid will not be eligible as ITC to any other person. Direct hit on cash flow - Is it worth going for the scheme?
- If penalty was being contested to avoid jeopardising credit availed by the recipient, though penalty is waived off to the taxpayer, the scheme does not settle matters for the recipient. Is the purpose served?
- If any amount has already been paid and is more than the amount payable under the scheme, the balance is not refundable. Why to go for it?
- Not all forms of duties are covered. To name a few, BCD, CVD levied under Customs Tariff Act, 1975, NCCD under Finance Act, 2001 etc.
- The designated committee may even compute an amount higher than the declaration.
- Any appeal filed has to be withdrawn. What if there is a legal interpretation involved which may affect GST liabilities as well?
Gaps to be fixed
Government has been benevolent in granting relief from payment of interest and penalty, as indicated in the details of the proposal annexed to the Budget speech.
Based on this understanding, one may allege that the scheme seems to have created a disparity between persons who may be alleged to have committed fraud and a person who is making a voluntary disclosure.
A closer look at the scheme shows that one who has committed fraud and not paid tax will get a waiver of the entire penalty on payment of partial duty amount, but the person making voluntary disclosure has to pay the entire duty amount & gets relieved of only interest liability.
The position of persons making voluntary disclosure is also obscure and needs immediate attention. If a person is subjected to audit, enquiry or investigation (without quantification of amount), or has filed the return and indicated the amount of duty payable, but not paid, he is excluded from the scheme.
At the same time, relief granting provisions includes the computation where the return is filed but not paid and also where the tax dues are linked to an audit, enquiry or investigation, which brings in a bit of contradiction in the scheme.
Having said that, terminologies used in the scheme namely, 'amount of duty', 'amount of arrears' and 'relief' do not explicitly mention interest and penalty in all cases.
One must understand that if penalty and interest are not a part of the scheme, then this would be a half-baked dish and the very objective of reducing legacy litigation will be defeated.
It goes without saying that if we compare the scheme with the erstwhile Kar Vivad Samadhan Scheme, 1998, earlier scheme was far more explicit and precise. Though the intention of both the schemes may be similar, it should not be bothersome for the Government to bring out clear policies, like the scheme to reduce litigations should not itself become the point of litigations, as has happened in the past with similar schemes.
Determination of the amount payable by the designated authority in some of the other dispute resolution schemes were held to be a merely mechanical process and not the jurisdiction of the designated authority. Learning from the past, it may be pertinent to define the jurisdiction of the 'Designated Committee' under the scheme itself.
Where matters involve more than one noticees, how far does the action of one affect the position of the others under the scheme has to be seen. Say, the main noticee is going to litigate the matter and not go for the scheme, whether co-noticees on whom only penalty is levied can get relief under the scheme?
Similarly, once a person has filed an application before settlement commission under Customs Act (not covered under Scheme) or the person has been issued a show cause notice for erroneous refund, is he completely barred from opting for the scheme or the bar is specific to that case only not qua the person?
These are a few questions which may crop up in the mind of the reader and needs more clarity from the government.
To look forward
This scheme is definitely a welcome step from the Government, and a huge one indeed. On the one hand, taxpayers should assess their individual cases in light of what is provided and use the opportunity to the fullest.
On the other, the government should bring out clear rules to ensure that this dispute resolution scheme does not itself become the root cause for more legacies which require another amnesty.
(Shivam Mehta is Partner & K Prathiba is Joint Director, Lakshmikumaran & Sridharan)