No more crawling over entrails of tax disputes Settlement Commission

Transcription

1 Bharat Raichandani, Advocate No more crawling over entrails of tax disputes Settlement Commission In India, there are burgeoning number of tax disputes, apart from the large number of pending cases that the Indian judicial system is already encumbered with. Tax laws, by nature, seem to be ambiguous and are subject various appellate levels, before being blessed with a final verdict, only to note that, in some of time, money and effort is being put in both by taxpayers and the Government in long drawn litigations. Indirect Tax (Customs and Excise) litigation across various levels in India as of November, 2012 (which number definitely must have increased manifold):- Level at which case is pending Number of pending cases Amount disputed (USD billion)* Commissioner 33, (Appeals) Tribunal 58, High Court 14, ,004 2 Total 109, Indian Chambers of Commerce and Industry (2013) Dispute Resolution in Tax Matters) To mitigate the burden on the current system and for expeditious settlement of disputes, India needs to reform, develop and create higher awareness about various dispute settlement and resolution mechanisms available. In reaction to the high costs and delays associated with conventional litigation, there has been a conscious development of alternatives to litigation over the last 20 years in societies around the world 1. Liberal structure for settlement of tax disputes is now a norm in many countries. Settlement Commission As early as 1992, in the Budget speech, the Finance Minister had proposed setting up Central Excise disputes. However, provisions were introduced only in the Finance Bill, The stated objective was that the door to settlement with errant taxpayer should be kept open keeping in mind the primary objective of augmentation of Revenue. There has to be Australian Tax Forum. 12 (February), p The Chamber's Journal 83

2 No more crawling over entrails of tax disputes Settlement Commission room for compromise and settlement. A rigid attitude would inhibit a onetime tax evader or unintending defaulter from making a clean breast of his affairs and unnecessarily strain the investigation resources of the Government. The settlement machinery is, thus, meant for providing a chance to a tax-evader who wants to turn a new leaf as recommended by the Direct Taxes Inquiry Committee, popularly known as the Wanchoo Committee. based on the principle of alternative dispute resolution which is in the nature of arbitration or intercession between the taxpayer and the Indian Revenue Authorities. The commission is a mechanism for speedy settlement of cases without going through the adjudication stages having legal challenges, recoveries and other procedural tangles. It may also be referred to as out of court settlement. The proceedings be judicial proceedings for the purpose of Indian Penal Code. Keeping the aforesaid objective in mind, the The various provisions of sections in provide quick and easy settlement of tax dispute of high revenue stake so as to save the time and energy of both, the Litigant and the Department adding to the proverb Time saved is money saved. Any assessee can make an application and true disclosure of his duty liability which has not been disclosed before the Central Excise Officer. The applicant has to accept the additional amount of central excise duty payable by him and such liability should be not less than ` However, the conditions for availing this facility are restrictive and need to be liberalised. Any proceeding for the levy, assessment and collection of excise duty, pending before the adjudicating authority may be settled by the disputes relating to interpretation of law, disputes below a certain monetary limit and disputes for short levy on goods for reasons other than misclassification, undervaluation and application of exemption notification Commission. Commission also been subject to challenge in courts of law. In Australian Foods Limited case 2, the Madras High Court held that the established as a quasi-judicial body under the statute cannot proceed to deal with an aspect which is completely out of its purview and Commission is limited to the case before it. The expression case has been statutorily litigation. In Ashok Kumar Jain s case 3, the Delhi has jurisdiction to settle cases relating to baggage that co-noticees can approach the Commission after the case of the main noticee is settled, provided case of the co-noticee is pending. However, in Viva Herbal Private Limited case 4, the Bombay High Court held that the orders passed writ jurisdiction. The resort to settlement of disputes finds its roots in mature tax jurisdictions. Hence, it becomes imperative, for us, to look at the dispute resolution mechanisms globally ELT 392 (Mad) ELT 32 (Del) ELT 168 (Bom) 84 The Chamber's Journal

3 United Kingdom ( UK ) The UK tax mediation regime is at a comparatively nascent stage. In 2009, when was burdened with a backlog of tax appeals, there was a growing sense that many tax disputes could be resolved through collaboration between the taxpayer and the tax authority. In 2010, HMRC created a Dispute Resolution which is a formal procedure for tax dispute resolution. The Civil Procedure Rules carried to use ADR procedures so as to achieve fair and expeditious settlement of disputes without unnecessary waste of resources. 5 Government Departments go to court, as a last resort, and a formal pledge was published committing Government departments and agencies to settle legal cases by ADR techniques, whenever the other side agrees to it. The approach is considered appropriate in cases where the parties are at an impasse and litigation might have to be considered. ADR also helps parties prepare for litigation, which would ultimately reduce litigation costs if ADR efforts do not succeed. However ADR cannot be used to resolve cases involving avoidance schemes or issues for which HMRC has a clear policy position that cannot be compromised. Within 30 days of application for ADR, an ADR panel of senior HMRC officers decides whether to accept the case or not. If the case is accepted, reasons are provided in writing together with suggestions on how the parties might proceed towards resolution. At least two independent facilitators appointed by the UK Centre for Effective Dispute Resolution agreement, when they commit to work towards resolution in good faith and acknowledge that their discussions will be on a without prejudice basis. The parties exchange position papers summarising their arguments. Facilitated mediation is held with all decision makers present. The goal is to reach resolution and prepare a draft agreement within one day. evaluating the benefits of implementing ADR in tax disputes. The statistics highlight how how the average elapsed time for all closed ADR cases is 53 days. 6 In light of the above, it is clear that the UK has progressively developed its tax dispute settlement mechanisms and such approach adopted by the HMRC is a sunshine path for resolving the problem of large numbers of pending tax disputes. Even though the ADR process in the UK is relatively new, they have made considerable progress. Australia The Australian-based National Alternative Dispute Resolution Advisory Council other than judicial determination, in which an impartial person assists those in a dispute to resolve the issues between them. Alternative disputes resolution processes include arbitration, conciliation, mediation, negotiation, conferencing, adjudication, case appraisal and neutral evaluation. 7 the settlement of taxation disputes in relation to all taxpayers. It provides guidance as to the situations in which settlement could be The Chamber's Journal 85

4 No more crawling over entrails of tax disputes Settlement Commission considered and outlines the processes which only in appropriate cases and in accordance with established practices that provide the necessary checks and balances, and there is transparency and accountability in the settlement binds all agencies (including the ATO) under the Financial Management and Accountability Act, 1997 requires agencies to endeavour to avoid, prevent and limit the scope of legal proceedings, wherever possible, including by giving consideration to alternate dispute resolution before initiating legal proceedings and by participating in alternative dispute resolution where appropriate. The Code lists certain circumstances in which it is appropriate or inappropriate to settle a matter. Appropriate circumstances include circumstances when the cost of litigation outweighs the amount of tax in dispute, when there are opportunities to narrow facts or issues in dispute, when a party is a tax avoidance or other arrangement has come to accept the around the steps necessary to unwind existing structures and arrangements, when certainty or early payment can be achieved, when settlement will achieve compliance by taxpayer in a costeffective way and when there is a unique issue that cannot be litigated upon. Inappropriate circumstances include matters subject to escalation, matters contrary to law policies and precedential positions, when a similar matter is being litigated and awaiting outcome, and when it is in public interest to have judicial According to ATO, ADR may be applied at any stage of the dispute. 8 and Federal jurisdictions. The ADR process can be mandatory or voluntary, depending on the jurisdiction and the type of ADR used. The ATO ADR process is an interactive one whereby facts, circumstances and information are shared, explained and heard at every stage. The ATO has a Dispute Resolution Network, Management Advisory Panel to facilitate and assist in the increased use of AR across the ATO. good results in achieving resolutions much more frequently and much earlier in the objection and appeals process. United States ( US ) a number of ADR mechanisms that can be engaged at various points in the assessment and appeals process. These include Fast Track mechanism. The approach is available to all Large Business and International Division taxpayers and has been extended to smaller taxpayers and tax-exempt entities. Both factual serves as a neutral mediator and also has the ability to use delegated settlement authority to offer a settlement in the event parties cannot reach a settlement through the use of mediation examination letter has been sent to the taxpayer and after an issue is fully developed, but before a 30-day preliminary notice of deficiency has team to weigh the potential litigation costs as it negotiates settlement. With few set rules, the Australian Tax Forum. 12 (February), p The Chamber's Journal

5 parties have considerable leeway to agree on one or two-day informal mediation process. is that it can occur while the issue is still with the Examination division, thus, interest on tax Another upside is that taxpayers can withdraw from the procedure at any point without losing their traditional rights to appeal. Canada Canada has negotiation as a part of its ADR process. ADR processes that are more adjudicative in nature include settlement conferences. ADR is not a regularly used Canadian dispute resolution tool. traditionally, has been reluctant to allow thirdparty involvement in disputes, but the Tax means of resolving cases before they go to court. Taxpayers and the revenue authority may arrange a settlement conference, where a TCC judge presides over the discussion between both parties. However the judge is only allowed to make non-binding recommendations, resulting in many cases proceeding to a court hearing. The difficulty in resolving tax disputes is that they must be resolved on a principled basis in accordance with fiscal statutes. There is no ability to negotiate on matters based on a single technical legal question. Germany ADR is Germany is relatively new. It was introduced in 2012 as an option in the Mediation Act. Under German law, judicial mediation is not mandatory; its use is left to the discretion of the courts. In deciding whether to allow mediation in their courts, judges and others questioned whether the tax law is open as a public right to intervention of negotiated solutions. As a result, no tax claims can be negotiated or settled by agreement. Further mediation can only be practiced at the tax courts as courts of federal Fiscal Court, which is a pure Court of Appeals on legal matters. New Zealand, Netherlands and Portugal have seen the benefits of ADR in resolving tax disputes. France has no formal ADR practice in place. However, a number of administrative processes exist trying to reduce incidents of cases reaching never formally regulated ADR. On a comparative analysis, it appears that Indian tax mediation strategy, though developing, is at a nascent stage. For astute administration and favourable management of the tax system, a legal framework which allows the Indian tax administration to explore ADR as well enable settlement should be encouraged. Resolving disputes through ADR will be cost effective and expeditious for both the Revenue authorities as well as the taxpayer, apart from withdrawing the burden from the judiciary. Needless to state, there is no bargain of the tax liability, it is an amicable way of resolving a tax dispute. Additionally, willingness to embrace tax mediation is paramount. As noted above, tax mediation regimes in other jurisdictions are mandatory before the appeals stage. India can model a structure based on those archetypes. A successful tax mediation regime must be implemented as a fundamental part of the wider outlook of the tax authorities. Associated operational costs will increase, however, there will be consequent decrease in litigation and investigation costs. All in all, ADR settlements rests on good faith of the parties to negotiate. It is a collaborative process and its success will bolster India as an investor-friendly jurisdiction. The Chamber's Journal 87