Be a Tension free of Litigations (Direct Tax & Indirect Tax) (June 2016)

Litigation is the curse and hindrance for the growth of Indian Industry. Number of litigations are pending at various levels i.e. 1st Adjudication, 1st Appeal, 2nd Appeal, Appeals in High Court & Supreme Court. Litigations has substantially increased not only on account of multiplicity of the laws in India as well as complexity thereof, but, moreso let go approach of Quasi-Judicial Authorities and judicial approach of revenue officials / Govt. officials. Hon. Prime Minister of India Shri Narendrabhai Modi is very serious on resolving this issue and therefore made the number of directives to officials of various department of Central / State Govt. Hon, Chief Justice of India Mr. Thakur has also expressed his concern on number of vacancies of judiciaries. Attempt has been made in this budget to reduce number of litigations and number of actions has been initiated which has been deliberated below:

1. Withdrawal from prosecution in Central Excise cases older than 15 years involving duty less than rupees five lakhs:

CBEC has issued the instruction vide Circular No. 1018/6/2016-CX 29th February, 2016 to withdraw the prosecution cases, which are pending more than 15 years and having penalty / duty amount less than Rs. 5 Lacs, which was in line with revised limit fixed in 1994 but no action was taken.

2. Withdrawal of cases pending before HC / CESTAT on the basis of earlier Supreme Court’s decision on the identical matters – CBEC has issued a direction vide F. NO. 390/ Misc/67/2014-JC dtd. 18th Dec 2015 authorizing Chief Commissioner of Customs, Chief Commissioner of Service Tax and Chief Commissioner of Excise to review & withdraw all the pending appeals before High Court & CESTAT, where Hon. Supreme Court have already taken the decisions on identical issues and based on such directives 7300 cases has been withdrawn by the department.

 3. CBEC Issues Revolutionary Circular keeping in the mind the Ease of Doing Business and issued the directives No Immediate and Compulsory Show Cause Notice based on CAG Audit Objection. Board has taken a bold decision that every objection by CAG’s Audit will not result in a Show Cause Notice. The CAG was responsible for creation of thousands of Show Cause Notices and perennial litigation at all stages. In a comprehensive and clear circular leaving no scope for ambiguity or further interpretation, Board has clarified/directed that:

  • No Show Cause Notice should be issued in cases where department has not agreed with the audit objection on merits.
  • In cases where department has agreed to the merits of the objections, Show Cause Notices should be issued immediately.
  • Where a contested audit objection has become DAP and on examination it is found by CBEC that the objection should have been admitted, necessary directions may be given to the field to issue show cause notice and adjudicate the case on merits.

4. Expedite the process of adjudication : While emphasizing that the Adjudicating Authority is a quasi-judicial authority and is legally bound to adjudicate the case independently and judiciously, certain veiled instructions are given:

  • Adjudication should take into consideration the audit objection by CERA/CRA, reply of the department as referred above, reply of the party, relevant legal provisions, case laws on the subject and relevant circulars of the Board, if any.
  • It is expected that the factum of SCN being a consequence of CERA/CRA objection, would be incorporated in the brief facts of the case in the adjudication order.
  • Where an issue was under audit objection and has been subsequently either judicially settled, by say judgment of Hon’ble Supreme Court or where a circular of the Board has been issued on the subject, further correspondence with the Board on the audit objections, even if they have become DAPs, is not necessary and such cases may be adjudicated on merits taking into consideration the latest judgments and circulars.
  • While adjudicating, it should be ensured that the reply given by the department is available on record.

No Call Book: the procedure of transferring the show cause notice arising out of CAG objection to call-book has been discontinued and in future no such show cause notice should be transferred to the call-book.

This is one of the best circulars issued by the Board in recent times and is sure to promote ease of doing business and reducing litigation. The circular has been drafted in precise language with absolute clarity in thought and expression. The directions are straight and clear. This is a template for Board Circulars. DDT congratulates all those responsible in CBEC for issuing such an exemplary circular.

Now is the time for the field officers to show their brilliance and independence and above all their decision making capabilities are under test. They should have the ability to challenge the audit view and take the decision not to issue Show Cause Notices. The Board has done its job, will the field officers do theirs?


5. New procedure has been implemented for speedy disposal of the issues raised by CERA / CRA Audit vide Circular No. 1023/11/2016 – CX dtd. 8th April 2016.


 6. Similarly, in the Finance Act 2016 following provisions have been incorporated :

 a. Indirect Tax Dispute Resolution Scheme, 2016  

  • It will be applicable for all the disputes pending before Commissioner (Appeals) as on 01.03.2016 and will be valid upto 31.12.2016.
  • Applicable for dispute related to Central Excise, Customs and Service Tax matters.
  • Assistant Commissioner / Deputy Commissioner will be designated authority under the scheme as notified.
  • Declaration needs to be filed by the declarant (Appellant) opting for such scheme in the prescribed format.
  • Declarant (Appellant) will have to discharge duty liability along with interest and 25% penalty within 15 days after declaration is filed and acknowledged.
  • Submit the proof of payment within 7 days from the date of payment.
  • Designated authority will pass an order of discharging the dues
  • Provision of this scheme is not applicable if,
    • the impugned order is in respect of search and seizure proceeding; or
    • prosecution for any offence punishable under the Act has been instituted before the 1st day of June, 2016; or
    • the impugned order is in respect of narcotic drugs or other prohibited goods; or
    • impugned order is in respect of any offence punishable under the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985 or the Prevention of Corruption Act, 1988; or
    • any detention order has been passed under the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974.
  • After getting the discharge order, Appeals before Commissioner (Appeals) will be stand disposed and immunity from other proceedings will be granted.
  • No re-opening of discharge order is permitted.
  • No refund also will be granted after the payment by the declarant.
  • Such declaration & discharge order will not be considered merit and will not have any binding effect.


b. Direct Tax Resolution Scheme :

  • Scheme to be applicable to “tax arrear” which is defined as the amount of tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, 1957 in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) as on the 29th day of February, 2016.
  • The pending appeal could be against an assessment order or a penalty order.
  • The declarant under the scheme be required to pay tax at the applicable rate  plus interest upto the date of assessment.
  • In case of disputed tax exceeding rupees ten lakh, twenty-five percent of the minimum penalty leviable shall also be required to be paid.
  • In case of pending appeal against a penalty order, twenty-five percent of minimum penalty leviable shall be payable along with the tax and interest payable on account of assessment or reassessment.
  • Consequent to such declaration, appeal in respect of the disputed income and disputed wealth pending before the Commissioner (Appeals) shall be deemed to be withdrawn
  • The declarant under the scheme shall get immunity from institution of any proceeding for prosecution for any offence under the Income-tax Act or the Wealth-tax Act.
  • In case of specified tax the declarant shall also get immunity from imposition of penalty under the Income-tax Act or the Wealth-tax Act.
  • The scheme provides waiver of interest under the Income-tax Act or the Wealth-tax Act in respect of specified tax.


In the following cases a person shall not be eligible for the scheme:-

  • Cases where prosecution has been initiated before 29.02.2016.
  • Search or survey cases where the declaration is in respect of tax arrears.
  • Cases relating to undisclosed foreign income and assets.
  • Cases based on information received under Double Taxation Avoidance Agreement under section 90 or 90A of the Income-tax Act where the declaration is in respect of tax arrears. (iv) Person notified under Special Courts Act, 1992.
  • Cases covered under Narcotic Drugs and Psychotropic Substances Act, Indian Penal Code, Prevention of Corruption Act or Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

Both the schemes of Dispute Resolution w.r.t. Direct Tax & Indirect Tax will come into effect from 1st June 2016 and will be valid till Sept 2016. It is advisable to review all pending litigations lying with authorities as mentioned above and then decide whether to opt for the scheme and continue to litigation to get till the time justice is obtained.

7. Finance Act 2016 contains Income Declaration Scheme 2016 :

  • Scheme to come into force from 01.06.2016.
  • An opportunity is proposed to be provided to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all to forty-five per cent of such undisclosed income declared.
  • The scheme is proposed to be made applicable in respect of undisclosed income of any financial year upto 2015-16.
  • Tax is proposed to be charged at the rate of thirty per cent on the declared income as increased by surcharge at the rate of twenty five per cent of tax payable (to be called the Krishi Kalyan cess). A penalty at the rate of twenty five per cent of tax payable is also proposed to be levied on undisclosed income declared under the scheme.
  • Following cases shall not be eligible for the scheme:
    • o where notices have been issued under section 142(1) or 143(2) or 148 or 153A or 153C, or
    • o where a search or survey has been conducted and the time for issuance of notice under the relevant provisions of the Act has not expired, or
    • o where information is received under an agreement with foreign countries regarding such income,
    • o cases covered under the Black Money Act, 2015, or
    • o persons notified under Special Court Act, 1992, or
    • o cases covered under Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988.
  • Declarations made under the scheme shall be exempt from wealth-tax in respect of assets specified in declaration.
  • No scrutiny and enquiry under the Income-tax Act and Wealth-tax Act be undertaken in respect of such declarations and immunity from prosecution under such Acts be provided. Immunity from the Benami Transactions (Prohibition) Act, 1988 is also proposed for such declarations subject to certain conditions.
  • Nothing contained in the Scheme shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under this Scheme.

 8. Similarly, followed by action by Central Govt., State of Maharashtra also have notified Maharashtra Settlement of Arrears in Dispute Act, 2016, whereby pending arrears and pending disputes on number of State Acts can be settled :

A. Maharashtra Settlement of Arrears in Dispute Act, 2016 extends to the whole State of Maharashtra. This law is applicable to all the laws stated under Sales Tax Department. These are as under:

  • The Central Sales Tax Act, 1956
  • The Bombay Sales of Motor Spirit Taxation Act, 1958
  • The Bombay Sales Tax Act, 1959
  • The Maharashtra Purchase Tax on Sugarcane Act, 1962
  • The Maharashtra State Tax on Professions, Trades, Callings and Employment Act, 1975
  • The Maharashtra Sales Tax on the Transfer of the Right to use any Goods for any Purpose Act, 1985
  • The Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987
  • The Maharashtra Tax on Luxuries Act, 1987
  • The Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contract (Re-enacted) Act, 1989
  • The Maharashtra Tax on Entry of Goods into Local Areas Act, 2002
  • the Maharashtra Value Added Tax Act, 2002,


B. Government has divided this into 2 parts :

  • Where the arrears in disputes pertain to any assessment period ending on before 31st March 2005, then the taxpayers paying tax will get waiver of interest and penalty.
  • Where the arrears in disputes pertain to any assessment period on and after 1st April 2005 and ending up to 31st March 2012, then the taxpayers will have to pay whole amount of tax and 25% of interest. That is, 75% of interest and penalty will be waived.

C. Those taxpayers who desires to apply under this scheme, will have to comply with the following:

  •  Separate application shall be made by an applicant for each law.
  • Application should be filled before 30th September 2016 in the prescribed form.
  • The applicant shall produce the proof of withdrawal of appeal. Further the condition of stay in Appeal is there, which needs to be taken care off.
  • The applicant shall pay amount as stated above and proof of the same shall be submitted along with application.


D. The other important aspects of this law are as follows:

  • Sales Tax officer can reject the application by providing the reason for the rejection.
  • No refund shall be provided to the taxpayers in any circumstances.
  • After settlement, taxpayers cannot appeal for the same.
  • After the order is passed, the Commissioner within 12 months may call for the record.
  • Final rules and procedures for this settlement are yet to be notified.

Proactive steps have been taken to reduce the litigation and also relieved from pending adjudication as well as forthcoming adjudication. Now the time has come to reciprocate from the Trade and Industries and following steps needs to be taken by each of them:

  1. Re-look on tax compliances, direct tax as well as indirect tax from the expert professional and avoid the future disputes / litigation
  2. Re-visit of pending litigations with various authorities as elaborated above by expert professionals and decide whether to opt for Dispute Resolution Schemes of Direct Tax & Indirect Tax. This needs to be done on Top Most Priority, since all the above schemes will be commenced w.e.f. 1st June 2016 and scheme will close on 30th Sept 2016.

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