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Drive for revenue should not ride roughshod over natural justice
January, 09th 2013

The finance ministry has directed companies to pay indirect taxes even if a plea is pending before an appellate body and that body has not ordered a stay. There is nothing wrong, in principle, with the directive, based on a two-decade-old Supreme Court ruling. However, tax dues should be recovered only after the appellate body considers the merits of an application and provides reasonable grounds to deny a stay. The assessee should not be penalised if the appellate body fails to hear a stay application for reasons such as lack of judicial infrastructure to hear pending cases. That would amount to harassment by tax authorities. It is unfortunate that the circular issued by the Central Board of Excise and Customs ( CBEC) seeks to do that — recovery proceedings will be initiated even if the stay application has not been heard. With around 72,500 appeals pending before CESTAT, the government is targeting around Rs 75,000 crore locked up in litigation, or roughly Rs 1 crore from each assessee. That's not small change. However, such coercive action on the taxpayer is unjust, even if the government is desperate to raise revenues to rein in the fiscal deficit.

Tribunals and courts must decide on stay petitions in a finite time frame. And the finance ministry should operationalise the circular only when this is done. The larger point is for the government to ensure that tribunals and courts hear appeals within stipulated deadlines. Clearly, action is needed to clear up the mess and also revamp the system to prevent mounting tax arrears. The government should get to the nub of the problem that leads to disputes between authorities and taxpayers. The most significant one is the poor drafting of tax laws, leading to varying interpretation of tax provisions. Simple, clearcut tax laws and low rates, without exemptions, will reduce litigation. Also, there is reluctance on the part of the system to take a decision that favours the taxpayer, adding to the backlog of cases. The number of levels of appeal must be lowered and dispute settlement mechanism made more robust. This calls for vastly expanding the judiciary. The need is also to bring a cultural change in the way taxes and arrears are collected.

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