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Business News/ Politics / Policy/  Finance ministry may modify mandatory pre-deposit clause
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Finance ministry may modify mandatory pre-deposit clause

Arun Jaitley had made it mandatory for taxpayers to deposit 7.5% of the duty demanded before filing an appeal before CESTAT at the first stage

It is estimated that more than 100,000 indirect tax cases are pending before CESTAT. Photo: Mint Premium
It is estimated that more than 100,000 indirect tax cases are pending before CESTAT. Photo: Mint

The finance ministry may modify the mandatory pre-deposit clause for filing appeals in indirect tax cases that was proposed in this year’s budget, said two officials aware of the development.

Finance minister Arun Jaitley had made it mandatory for taxpayers to deposit 7.5% of the duty demanded before filing an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) at the first stage.

For filing second-stage appeal, taxpayers would have to deposit 10% of the duty demanded, or penalty imposed, or both. The budget had also placed a ceiling of 10 crore on the pre-deposit payable. Companies had raised concerns about the provisions that were aimed at reducing litigation and pendency in excise and service tax cases before the tribunal.

It is estimated that more than 100,000 cases are pending before CESTAT.

“Concerns have been raised about some of the indirect tax provisions, especially around the mandatory pre-deposit clause and the high penal interest provisions," said a government official, who did not want to be identified. “The government is looking into it."

Among the changes being considered is placing a minimum level on the pre-deposit payable along with the ceiling that is already prescribed, to protect small and medium enterprises.

The government may also clarify on how much pre-deposit will be payable at each level of appeal and if the deposit will be payable at the second level of appeal if the tax department has won or lost at the first level of appeal.

The changes could feature in the official amendments to the finance bill that the finance minister places in Parliament before the passage of the bill, said another government official who also did not want to be identified. The government has already stated that it is considering some changes in the rules surrounding taxation of debt mutual funds to remove retrospectivity.

Another concern raised by taxpayers was the interest levied on delayed service tax payment that will now vary from 18% to 30%.

While a delay of up to six months will attract interest of 18%, a delay of six months to a year will attract 24%, and a delay of more than one year, 30%. The industry had pointed out that taxpayers will have to pay the interest amount even if the case is pending in appeal and the decision goes against the taxpayers. The central board of excise and customs has clarified that the new interest rates will only be effective from October.

Also, the changes in the penal interest provisions can be brought through a notification by the government and does not require amendments to the finance bill.

“A mandatory pre-deposit should be imposed only in cases where an appeal is filed to a tribunal," said Bipin Sapra, tax partner at EY.

“Also, interest and penalty that is added over and above the initial tax demand should not be included while calculating the mandatory pre-deposit amount," he said.

“Given the 30% interest proposed for delay in depositing the service tax, this amount will turn out to be a big amount," he said.

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Published: 24 Jul 2014, 12:24 AM IST
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