BackBudget introduces measures to cut litigation, punish non-compliance by taxpayers
The budget has made it mandatory for taxpayers to pay a certain amount of the indirect tax demand as deposit before filing an appeal in the CESTAT
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New Delhi: A reading of the fine print of finance minister Arun Jaitley’s 2014-15 budget shows that the government has introduced a number of strict measures to reduce litigation and punish non-compliance by taxpayers.
It has made it mandatory for taxpayers to pay a certain amount of the indirect tax demand as deposit before filing an appeal in the Customs, Excise and Service Tax Appellate Tribunal (CESTAT)—a step that will reduce litigation to a certain extent. It has also linked the rate of interest that is levied in case of delays in service tax payments to the extent of the delay, with a delay of more than one year attracting an interest of 30% per annum.
According to the memorandum explaining the provisions of the finance Bill, a mandatory fixed pre-deposit of duty of 7.5% to 10% on the demand raised will be levied before a taxpayer files an appeal in all indirect tax cases.
Earlier, the taxpayer had the option to go to a court and get a waiver of this deposit.
“The finance minister’s message seems to be very clear. Non-compliance will be very strictly viewed and steps will be taken to reduce varied interpretation of the law and litigation," said Krupa Venkatesh, senior director, Deloitte Touche Tohmatsu India Pvt. Ltd.
“A mandatory deposit will do two things. First, it will prevent frivolous litigation and second, it will speed up the existing litigation process as a number of the cases are for stay of the deposit demand from the tax authorities."
According to industry estimates, more than 100,000 cases are pending before CESTAT.
Legal firm Economic Laws Practice said in a note that the provision on mandatory deposit is silent on whether previous deposits such as the one made under protest in the course of investigation will be taken into account while computing the amount required to be pre-deposited under this provision.
“Furthermore, the provision is also silent on refunds (along with interest) of the pre-deposit amounts pursuant to an assessee receiving a favourable ruling from the appellate authority when their appeal is finally decided," the note said.
The interest levied on delay of service tax payment 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 delay of more than one year, 30%. This has been done to take to task service tax defaulters who collect service tax from customers but do not deposit it with the government.
However, on the flip side, taxpayers will have to pay the interest amount even if the case is pending in appeal and the decision goes against them.
The budget has also changed some survey provisions to enable better monitoring of tax deducted at source by companies.
Jaitley has also announced some measures that will ensure speedy disposal of cases by various appellate authorities. Tribunals have been given the discretionary power to refuse admission of tax dispute cases involving up to ₹ 2 lakh. The earlier ceiling was ₹ 50,000.
Deloitte’s Venkatesh added that the government should combine these changes with administrative reforms wherein a tax officer does not make frivolous demands and gets away with it. “In 85% of the cases, the verdict of the courts has gone against the tax department," she said.
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