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Nand Kishore, Akash Deep and Rohit Arora
What people really want is fairness. They want people paying their fair share of taxes.
― Barack Obama
Tax Amnesty Schemes are clearly paradoxical to the above quoted expectations of honest tax paying citizens. Nonetheless, it is a necessary evil for any tax administration, especially the ones infested with high tax evasion and time-consuming pending tax litigation.
The taxation regime in India has witnessed a number of schemes introduced by the Government to lure erring or evading taxpayers, with payment of a lower tax amount against the actual demand, thereby settling the dispute or possible future dispute between the department and the taxpayer. The Service Tax Voluntary Compliance Encouragement Scheme, 2013 and the Kar Vivad Samadhan Scheme, 1998 are some of the prominent schemes to be noted in this regard.
The tax amnesty schemes are infamous since they are generally perceived as a fraud on honest taxpayers. This argument was echoed in the RK Garg’s case, wherein the Special Bearer Bonds (Immunities and Exception) Act, 1981 was challenged on the ground that the said act neglected and discouraged the tax abiding citizens by supporting tax evaders by providing them immunities and exemptions. The Supreme Court discarded this contention and held that
“those who have successfully evaded taxation and concealed their income or wealth despite the stringent tax laws and the efforts of the tax department are not likely to disclose their unaccounted money without some inducement by way of immunities and exemptions and it must necessarily be left to the legislature to decide what immunities and exemption would be sufficient for the purpose.”
The Finance Minister, in her maiden Budget Speech on July 05, 2019, expressed her deep concerns about the huge pending litigation and money stuck therein amounting to Rs. 3.75 lac crore under the erstwhile indirect tax regime. To reduce this huge pending litigation, she introduced the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (the “ Scheme”). The Scheme is valid from September 01, 2019 to December 31, 2019.
The Scheme is a dispute resolution and an amnesty scheme which involves settling of on-going litigation against payment of reduced tax demand and a chance for taxpayers to voluntarily disclose and pay the taxes to be paid by them. The Scheme covers pending litigation right from the show cause notice stage till the appeals before the Supreme Court and extends beyond where the dispute has been against the taxpayer by the Supreme Court, thereby attaining finality. Broadly, the cases covered under the Scheme includes:
and excludes cases for which the taxpayer has been convicted under the erstwhile indirect tax laws cases involving refunds or erroneous refunds, cases pending before the Settlement Commission and cases involving tobacco and specified petroleum products.
A relief granted to the taxpayer opting for the Scheme is tabulated hereunder:
|Upto 50 Lakhs||> 50 Lakhs|
|Tax Dues Related to Show Cause Notice or Appeal(s) as on June 30, 2019||70%||50%|
|Amount in Arrears||60%||40%|
|Enquiry, Investigation or Audit on or before June 30, 2019||70%||50%|
Also, there would be complete immunity from interest, penalty and prosecution under the erstwhile indirect tax laws.
Further, the SLVDR Scheme Rules, 2019 (the “Rules”) provides for the procedure for availing the Scheme. The process under the Scheme broadly involves filing an electronic declaration by the taxpayer, stating the details of their case and the amount of relief available to them., The declaration is evaluated by the Designated Committee (“DC”), which is a body comprising of senior officers of Central Excise and Service Tax, responsible for administering the Scheme. In the event of difference between the amount evaluated by the DC and the amount quantified by the declarant, a hearing is granted to the declarant to make a submission to substantiate the declaration. The final amount payable by the declarant is issued by the DC. The discharge certificate is issued by the DC on being satisfied that the amount mentioned in the statement is paid and the cases pending before High Court or Supreme Court have been withdrawn. The time duration from filing the declaration till issuance of the discharge certificate is 60 days.
The Government is leaving no stone unturned to make the Scheme a success. Frequently Asked Questions (FAQs) and circular have been issued by the Government to bring clarity regarding the issues highlighted by the taxpayers under the Scheme. However, there still remain certain issues left unattended by the Government viz. no refund of pre-deposit paid in excess, outright bar on appeals/ replies to show cause notices heard on June 29, 2019. Further, though the time limit of 30 days for issuing the discharge certificate has been prescribed, however, it is not clear whether in case of failure on part of the DC for not following such time limits, the same shall be treated as deemed issuance of certificate to the declarant.
It will be interesting to see as to how many pending cases are settled and how many taxpayers come forward with voluntary disclosures under the Scheme. It is the view of the author that depending on the response, the tenure of the Scheme could be extended till March 31, 2020.
This is definitely a positive step taken by the Government to bring down the huge pending legacy litigation and at the same time, hope to collect revenue quickly rather than awaiting the long and uncertain legal process. Voluntary disclosures would additionally help the Government in identifying new taxpayers for the GST regime.
Taxpayers should definitely explore the option of availing this opportunity and close their pending tax litigation so that they can start on a clean slate under the GST. Having said this, the taxpayers must thoroughly review the pending cases and after weighing the pros and cons, decide as to whether to opt for the Scheme or continue litigating with the Government.
The authors are lawyers working with the law firm, DSK Legal. Nand Kishore is a Partner; Akash Deep is Principal Associate and Rohit Arora is an Associate at the firm.