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TAX authorities will not take legal recourse in cases disputed amount
November, 11th 2010

TAX authorities will not take legal recourse in cases where the disputed amount is below a certain threshold, as the government looks to reduce unproductive litigation.

The new rules are in sync with a national litigation policy that seeks to make the government an efficient and responsible litigant.

The purpose of the policy is to ensure that valuable time of the courts is not spent in resolving pending cases and to bring down the average pendency time in the courts, a tax department official explained.

The Central Board Of Excise and Customs (CBEC), the apex indirect taxes body, has directed its officials that an appeal will not be filed in the appellate tribunal if the amount involved, including fine and penalty, is `1 lakh and less. Similarly, appeals will not be filed in high courts if the disputed amount is `2 lakh and less.

CBEC is responsible for the collection of indirect taxes central excise, Customs duty and service tax. An amount of over `47,000 crore, more than the governments disinvestment target for the current fiscal, is locked up in indirect taxes arrears.

In the case of direct taxes, more than `75,000 crorean amount close to a fifth of the governments annual collectionsis blocked in courts. The direct taxes body already has a rule in place to check litigation.

Experts say the move is a step in the right direction, but add that the department needs to go a step further and shun litigation altogether.

The government should bring clarity in the law and its directions to tax authorities to avoid confusion or interpretational issues that lead to unnecessary litigation, said R Muralidharan, executive director at consulting firm PwC .

Under the new provisions, if the commissioner (appeals) has given a ruling in favour of the taxpayer in a case involving a duty of Rs 1 lakh, including penalties, the tax department will not go to the appellate tribunal.

This will ensure that only cases where the cost and time are worth the expected recovery are taken up, helping reduce litigation drastically.

At the end of March 2009 there were 14,707 excise cases pending adjudication and another 37,368 of confirmed demands pending recovery.

Arrears of Rs 15,897 crore were locked up in various courts and tribunals at the end of December 2009. Another Rs 13,573 crore was blocked in BIFR and debt recovery tribunals.

An industry official welcomed the proposal, but wanted to see it work before passing a judgement.

Tax authorities will also not appeal if the matter is covered by a series of judgements of tribunals and high courts, which have not been challenged in the Supreme Court .

The new policy also lays down that no appeal shall be filed where the assessee has acted in accordance with the long-standing practice. However, adverse judgements would have to be contested irrespective of the amount involved in cases where the constitutional validity of the provisions of an Act or rule is under challenge or where a notification/instruction/order/circular has been held illegal.

Tax authorities will also file appeals in cases where the department has accepted an audit objection in a case.

Finance minister Pranab Mukherjee had, in August, pulled up the two boards and set up two panels, one each for direct and indirect taxes, to draw up a road map to reduce rising litigation.

The instructions make it clear that such cases where the department has decided not to file appeal with the sole aim of reducing litigation shall not have any precedent value. The income-tax department is also working on a national e-management system for quick disposal of tax disputes.

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