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Industry against mandatory deposit clause in tax disputes
July, 25th 2014

The Budget has proposed to make it mandatory for an indirect tax assessee will have to deposit a sum while he files an appeal before the commissioner (appeals) or the appellate tribunal, infuriating a section of business. However, the finance ministry said the provision has been inserted to haaelp business.

The Finance Bill seeks to insert a clause in the Customs and Excise Act for the purpose, asking the assessees to pay 7.5-10 per cent of the demand raised or penalty imposed or both, with a cap of Rs 10 crore, while filing the appeal at a pre-high court level. This would also be applicable to service tax assessee.

However, the Bill kept it open for the interpretation, whether the required sum would be on the demand raised, penalty imposed or both. Some modification in the Bill is expected on Friday, when Finance Minister Arun Jaitley is expected to reply to the Finance Bill in the Lok Sabha. But, the provision might not be entirely removed. For the first-stage appeal, that is an appeal after the indirect tax officials had raised the demand, the deposit would be 7.5 per cent. For the second-stage appeal, which is against the order of the commissioner (appeals) on an appeal before the Custom Excise & Service Tax Appellate Tribunal, it is 10 per cent.

While some in industry cried foul over the provision, Central Board of Excise and Customs (CBEC) Chairman J M Shanti Sundharam said the proposed move would help businesses.

She said currently a tax assessee files an appeal for stay after a demand for tax is raised. Half of the cases pending in various legal channels are stay appeals. Much of the time of the adjudicating authorities is spent on deciding on the stay cases.

Now, the tax department gives three months time to an assesse after raising the demand for a stay order. Generally, the appeal is not disposed of in this period due to a long pending list of cases. As soon as three months expire, the tax department asks for the payment of the demand from the assesse, even when his stay appeal is not disposed off.

Now, with this new provision, once the assesse submits deposit, there would be no need for filing a stay appeal. The industry can file only the main appeal and chief commissioner (appeal) and the tribunal can decide on that case.

"This will help the industry as well as quicken the disposal of a long pending list," Sundharam said.

As on January 31, 2014, there were 1,24,273 appeals of Union indirect taxes at different levels -- from the commissioner (appeals) to the Supreme Court. Amount in litigation stood at Rs 1,29,881 crore.

However, J K Mittal, head indirect taxation committee of Assocham, said the provision was not in the interest of honest taxpayers. It would help tax evaders more, he claimed. He said after filing the deposit, the tax evaders will wait easily for the next 10-15 years as this is the time taken for the case to be disposed of. In the pendency of case, the evaders can sell his assets. "So, from where will you recover the tax dues?"

The honest taxpayers will bear the brunt, as they will have to unnecessary pay the deposit, even on frivolous cases, he said.

The Confederation of Indian Industry (CII), on the other hand, wants some tweaking in the provision.

It said in a note that it should be made clear that the deposit would be calculated on disputed tax amount excluding penalty. The chamber also wanted that the assesse should be given an option to furnish bank guarantee instead of cash payment.

Mittal said it would be very difficult for an assesse to get back the payment from the tax department even after he wins his case.

However, the CBEC chairman said a mechanism is being put in place to return the money along with interest after the tax department loses its case.

Pratik Jain, Partner Indirect Tax, KPMG India, said the small taxpayer might have an issue with the provision, though big businesses might not find it too taxing as there is a cap of Rs 10 crore.

However, the tax authorities should take care that the provision is not misused by high pitch or frivolous demands towards the end of a year, he cautioned.

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