On July 5, presenting her maiden Budget, finance minister Nirmala Sitharaman expressed concern over the ₹3.75 lakh crore revenue stuck in unresolved legal disputes pertaining to service tax and excise tax. It has been two years since the adoption of the Goods and Services Tax (GST). Yet there is a large number of pending cases under the former indirect tax regime. The government is looking to tackle this issue with the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, which was announced in this Budget.
The scheme will cover unconcluded disputes pertaining to central excise tax and service tax and provide relief by waiving 40% to 70% of tax dues pending at various stages of enquiry or litigation. It will also fully waive interest and penalty payable for such dues along with relief from prosecution. The primary restriction under the scheme is that neither can the amount payable pursuant to the scheme be paid through the input tax credit account, nor can it be taken as input tax credit under any indirect tax enactment. The amount paid under the scheme will not be refundable regardless of the circumstance.
The scheme shall be available to all taxpayers excluding persons convicted for a punishable offence, persons who have opted for settlement by filing an application in the settlement commission and persons who have been subjected to an investigation and cases in which the amount of duty involved has not been quantified on or before the 30 of June 2019.
The finance minister’s priorities in the Budget speech are pragmatic and focus on improving ease of doing business (EODB). The proposed scheme also seems to be a step in the same direction as it aims to reduce pending litigation. Foreign investors who have refrained from investing in India fearing uncertainties attached with the overburdened judicial system could see the scheme as a positive development and change their view. Hence, the benefits of the scheme are two-fold: reducing pendency, and a likely increase in inflow of foreign investment, boosting the economy.
As per the Economic Survey 2018-19, there are 35 million cases pending with the judiciary. A majority of them are pending in district and subordinate courts. This huge heap of pending cases is not only slowing down the judiciary, economic tribunals and the tax department, it constrains economic growth and development, besides stoking a sense of uncertainty about the fate of these cases.
Tax amnesty schemes have been a favourite tool of governments to recover money from taxpayers by providing them an opportunity to pay a defined amount in exchange for pardon from proceedings arising out of any tax liability relating to a previous tax period. Sadly, such schemes have largely not been successful as fear of further scrutiny by tax officials has acted as a deterrent to defaulters. This scheme, however, may attract a positive response as it proposes a complete waiver of interest and penalty upon voluntary disclosure by defaulters. They also won’t be prosecuted. The intention of the government behind the proposal of this scheme is crystal clear: to get rid of the burden of pre-GST litigations.
The author is partner, Khaitan and Co. Views expressed here are personal.