Budget 2013: How will it impact indirect tax disputes?

Puneet Bansal & Saurabh Agarwal
BMR & Associates

While Budget 2013 may not have met the expectations of the industry on various fronts, however, a couple of steps have been made by the government in this budget to bring down increasing indirect tax disputes and litigations across the country.

The expansion of the categories of the applicants eligible to seek advance ruling under the customs, central excise and service tax laws has been a path breaking step taken by the government in this budget. Till now, this facility was available to few categories of taxpayers like foreign companies, joint venture of foreign companies, PSUs etc. Going forward, Public Limited Companies can seek advance ruling from the authorities on their correct liability to pay customs duty, excise duty & service tax before they decide to enter into newer businesses & transactions. This would provide certainty of indirect taxes to investors and would go a long way in reducing the tax disputes in future.

Further, the introduction of the Service Tax Voluntary Compliance Encouragement Scheme, 2013 ("the Scheme") is also a step taken by the government in the right direction. The scheme would enable the delinquent tax payers to step up themselves and pay their service tax liabilities. The Scheme will help genuine taxpayers to set things right for the past considering ambiguities in the service tax law in past few years during its evolution period. The payment of service tax liability under the Scheme would grant immunity from interest, penalty and other proceedings to the taxpayers which might have been initiated against the taxpayers on account of such defaults.

Having said the positives, the current budget has also proposed a couple of legislative changes which may be regressive for the industry at large.

One of such proposals is limiting the power of the Tribunal under the customs, central excise and service tax laws to grant stay for a maximum period of 365 days post which the stay shall automatically stand vacated even where the delay in disposal of appeal is beyond the control of the taxpayers. The proposed amendment (if enacted) would require taxpayers to shell tax out of their pockets even where the taxpayers are diligently pursuing their appeals before Tribunal but still Tribunal didn't dispose the appeals. The proposed amendment seems to be clearly against established principles of natural justice of audi alteram partem, which provides that no person should be condemned unheard. Also, this amendment defies the logic as it seeks to penalize taxpayers for pendency of large number of cases in the Indian judicial system.

The second such proposal is introduction of the provisions under the federal indirect taxes wherein specific offences are proposed to be made non-bailable and authorizing the field formations to grant bail with respect to bailable offences. Further, re-introduction of prosecution provisions under the service tax laws would add to the hardship & harassment of the tax payers.

Therefore, while the Finance Minister in his budget speech mentioned that the intent of the Central Government is to bring clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution and an independent judiciary. However, the fine print of some of the Budget proposals suggests that such reforms are distant from this stated intent.

Hence, the proposals made in Budget 2013 are a mixed bag (both boon and bane) for the taxpayers as far as Indirect tax disputes and litigations are concerned.