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Legacy Dispute Resolution Scheme – An honest reflection of maximum governance minimum government
Puneet Bansal, Managing Partner, Nitya Tax
The article has been co-authored by Sneha Ghosh (Associate).
In the Budget speech, the Hon’ble Finance Minister announced a dispute resolution scheme for pending litigations of the erstwhile Indirect tax regime. It aimed to unlock Rs 3.75 lakh crore involved in cases relating to service tax and excise duty. At the first brush, the scheme brought back memories of the government’s dismal attempts earlier vide Voluntary Compliance Encouragement Scheme in 2013 and Indirect Tax Dispute Resolution Scheme in 2016.
Honestly, we were on the verge to dismiss this scheme as mere travesty. However, a detailed reading of the Sabka Vishwas (Legacy Dispute Resolution Scheme), 2019 (‘Legacy Scheme’) revealed a pragmatic step with a clear intent to alleviate both the taxpayer and the revenue from the ghost of past litigations.
In this article, we will highlight the salient features of the Legacy Scheme.
The Legacy Scheme is a pro-taxpayer device which allows a taxpayer (‘declarant’) to not only preclude an upcoming litigation but also conclude an identified tax demand. The Legacy Scheme covers the erstwhile Central Indirect Tax laws (including Central Excise Act, 1944; Finance Act, 1994; various Cess legislations etc.).
The declarant gets an option for settlement of the tax dues right from the stages of arrears of taxes, self-detection, enquiry and audit by the revenue till the matters pending before the Adjudicating Authorities, Appellate Forums as well as Courts till Supreme Court. The ongoing litigations must be pending as on June 30, 2019 i.e. the final hearing in such matters is yet to take place. To that extent, the scope of the Legacy Scheme is widespread to cover any sort of litigations either actual or probable.
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As a first step, the declarant is required to declare its tax dues and discharge a stipulated percentage thereof. On doing so, the declarant is absolved of balance tax demand as well as full demand of interest as well as penalty. The table below, captures the relief available in the each of the circumstances:
Situation |
Tax Dues |
Relief available (as % of Tax Dues) |
|
Tax dues `50 Lakhs or less |
Tax dues more than `50 Lakhs |
||
Appeal before the Appellate Forums / Courts |
Tax disputed in the appeal |
70% |
50% |
Show Cause Notice (SCN) |
Tax payable in the SCN |
70% |
50% |
Enquiry or investigation or audit initiated |
Tax quantified |
70% |
50% |
Voluntarily disclosure |
Tax amount disclosed |
No relief |
|
Arrears of tax due including orders not appealed against, tax reported in returns but not paid etc. |
Tax amount in arrears |
60% |
40% |
A declarant is therefore required to deposit the tax dues less the tax relief. In essence, a declarant is only required to pay 30% to 60% of tax amount to bring an end to the litigation.
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On the subsequent acceptance of the declaration and payment of the amount, the relevant authority will issue a discharge certificate. A declarant shall henceforth, be discharged from depositing any further duty, interest or penalty with respect to such an issue and the specific time period. Also, such an issue and time period for which discharge is granted, shall not be subsequently reopened in any other proceeding under the Indirect Tax enactment.
Interestingly, the Legacy Scheme debars certain issues / taxpayers from its purview. Specifically, refund and situations wherein tax amounts have not been quantified on or before June 30, 2019 in pursuance to an enquiry or audit, have been kept outside the purview.
Importantly, the Legacy Scheme does not provide any refund where a declarant deposits an amount in excess of tax dues. Further, the deposit needs to be made in cash as against payment through input tax credit and the tax so paid is not creditable as well.
All in all, the Legacy Scheme is undoubtedly a brave and earnest effort to relieve the taxpayers from unwarranted tax litigations spanning into years. This is an optimum way in which a good Budget is expected to address perennial problems.
As most of the pending litigations are frivolous and ultimately decided in the favour of taxpayer, this is an attempt of the government to get rid of these disputes. For the taxpayers, it is an opportunity to wipe the slate clean and get-over the legacy issues particularly where the tax demands are meagre or where the legal battle looks tough or long drawn.
We need to wait to see the implementation of the Legacy Scheme – it can prove to be a legend if implemented and administered with a right spirit.
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