MUMBAI: Last week, the Ministry of Finance did something unthinkable. It decided to pipe down on tax disputes aggregating Rs 7.6 lakh crore. About 41 per cent of the cases belong to the Central Board of Direct Taxes and 18 per cent to the Central Board of Indirect Taxes and Customs.
The withdrawn cases will cost the exchequer Rs 6,000 crore. In another act of kindness to small taxpayers and businesses, the threshold limit for filing appeals in tribunals is raised to Rs 20 lakh, Rs 50 lakh and Rs 1 crore respectively in High Courts and the Supreme Court.
But hang on a minute though, as the ministry retained discretionary powers of tax sleuths. It means the relaxation will not apply to cases where substantial point of law is involved, so tax scrutiny can’t be completely ruled out.
Also, the withdrawal of cases doesn’t lead to significant amount of tax foregone, as over 66 per cent of the cases stuck in litigation comprise a mere 1.8 per cent of the total disputed value. In other words, percentage-wise the number of withdrawn cases under dispute may be higher, but not in terms of value. The move clearly will help the department in better utilisation of resources to take on high-value tax disputes.
As per a 2016 World Bank estimate, judicial delays cost India around 1.5 per cent of its GDP annually. Also, the economic costs and affects of tax litigation aren’t understood clearly as lack of reliable, granular-structured datasets for courts and tribunals is a critical challenge to understanding the problem of tax litigation.
The ITAT, a quasi-judicial institution set up in January 1941, deals with appeals under the direct taxes various statutes like the Income Tax Act-1961, Wealth Tax Act-1957, Gift Tax Act-1958 and Interest Tax Act-1974. The orders passed by the ITAT are final, but appeals can be made with High Courts if a substantial question of law arises for determination.
Currently, ITAT has 63 sanctioned benches operating out of 27 locations, divided into nine zones. Like the Judiciary, ITAT also suffers from issues like an inadequate number of members (judges), mounting pendency and bureaucratic process of the registry.
Just two ITATs, Mumbai and Delhi with 14 benches each, constitute 51 per cent of the total listings. Delhi lists more cases, an average of 12 cases daily per bench, than Mumbai that lists an average of 10 cases daily per bench, but in both the average disposal rates are less than desired.
Which is why the Economic Survey 2017-18 pitched for separate benches at various high courts to reduce pendency.
“India needs to address pendency, delays and injunctions that are overburdening courts and severely impacting the progress of cases, especially economic cases, through the different tiers of the appellate and judicial arenas if it wants to further ease prospects of doing business here,” the survey had said.
The delays and pendency of economic cases takes a toll on the economy in terms of stalled projects, mounting legal costs, contested tax revenues and reduced investment.
Also, the government persists with litigation despite high rates of failure at every stage of the appellate process, adding to the pendency.
Hence, the government should work to devise an effective tax policy that raises revenue by minimising collection costs, compliance costs and the cost to the economy on account of the distortions created.