The Confederation of Indian Industry (CII) has called for creating a smooth and effective dispute settlement mechanism in the Union Budget 2017-18 which would strengthen the tax administration system and thereby result in minimizing disputes and reducing unnecessary litigation. A simple, predictable and litigation free tax environment involving quick and efficient resolution of disputes is crucial for improving tax compliance and releasing resources, hitherto locked up in disputed tax demand, for further economic activity.
According to Mr Chandrajit Banerjee, Director General CII, the Government has no doubt taken commendable initiatives and made fair provisions to minimize and reduce unnecessary litigation. However, much more needs to be done to further strengthen the dispute resolution mechanism in the area of both direct and indirect taxes.
In direct taxes, CII is of the view that there is need for strengthening the dispute resolution panel since these panels have not functioned as independently as they should have been and almost every dispute has to be taken up before the Tribunal. The upcoming Budget should amend the existing constitution of Dispute Resolution Panel, to include at least one member (retd.) from ITAT, so that the panel can make assessments or pass orders independent of the apprehensions regarding tax consequences.
Secondly, The Government should, in Budget 2017, ensure that the time limit prescribed for passing orders is adhered to by the Authority for Advance rulings (AAR), which continues to have a significant backlog of cases. CII suggests that since the objective behind AAR is to provide faster dispute resolution mechanics, a specific provision should be made in the law to the effect that mere filing of income tax return should not debar the taxpayer in approaching the AAR.
Thirdly, CII recommends that India may introduce a clarification in the Budget to enable taxpayers from the countries like Germany, France, Singapore and Italy to file for bilateral Advance Pricing Agreements (APAs). This becomes important since the Indian APA authorities have been refusing to accept applications for bilateral APAs from countries like Germany, France, Singapore and Italy as the Double Taxation Avoidance Convention (DTAC) of India with these countries do not contain Article 9(2) which provides for corresponding adjustment to be allowed to the taxpayer for any economic double taxation that arises due to transfer pricing adjustments.
In indirect taxation, the procedures laid down by the Advance Ruling Authority need to be further simplified and the strength of the Authority should be increased. Such a move assumes significance since the conditions and limitations imposed by the Authority have created difficulties in getting the advance ruling within a reasonable time frame. This defeats the purpose of setting up the platform for clarification and guidance.
Secondly, there is need to strengthen the alternate dispute resolution mechanism to facilitate expeditious resolution of disputes on a fast track basis. While initial results have been encouraging, with the passage of time the pendency of cases has piled up which needs to be redressed.
Thirdly, the pendency of cases at Appellate levels, which is growing at an alarming rate, needs review, especially for cases which are within the monetary limits, stated CII.
Fourthly, the Indirect Tax Dispute Resolution scheme, 2016, which was introduced for a limited period to resolve the litigations pending with the respective Commissioner (Appeals), with the rationale of reducing litigation pending at the first appellate stage, has been ineffective due to the limitations and conditions inbuilt in the scheme as well as the limited redressal available to applicants. CII suggests that while re-launching the scheme, it should be ensured that it is made simple and has a wider coverage.
Industry is expecting that this year, the Government would come up with a landmark Budget, which may include radical steps to reduce litigation and redressal of disputes.