At a time when the government is scurrying for every penny that counts - because of fiscal uncertainty arising out of a slowing economy - it can hope to get some help from unlikely quarters, the tax litigants.
The government has recently launched an amnesty-cum-dispute resolution scheme - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - which seeks to resolve pre-GST excise and service tax litigation involving Rs 3.75 lakh crore.
While the aim of the scheme is to reduce pending litigations and declog the judicial system of legacy disputes, the exercise can end up in windfall gains for the government looking for sources to boost revenues in the current financial year.
But, how much of this Rs 3.75 lakh crore would come to the government coffers? Even if the scheme manages to mop up 10 per cent of this amount, or Rs 37,500 core, it would help the government reduce the fiscal deficit by as much as 17.5 basis points in the current financial year. But would that be an easy target?
What's the scheme?
The scheme gives a window to tax litigants to settle any pre-GST indirect tax-related disputes. It covers disputes under central excise, service tax and specified cesses including education cess, krishi kalyan cess and swachh bharat cess. The scheme comes with a validity of four months starting from September 1, 2019 to December 31, 2019.
The scheme waives up to 70 per cent of the tax dues and 100 per cent of interest and penalty.
If the tax dues are up to Rs 50 lakh, the scheme offers to waive 70 per cent of the dues and if the tax dues are more than Rs 50 lakh then the waiver is 50 per cent. Dues which are recoverable as arrears (matters have attained finality), 60 per cent dues will be waived if the tax involved is up to Rs 50 lakh and 40 per cent if the amount involved is more than Rs 50 lakh.
Now, the Rs 3.75 lakh crore involved in litigation would include interest and penalty. Besides, the scheme offers to waive up to 70 per cent of the tax dues. Therefore, even if we consider all the litigants availing of the amnesty scheme, it is unlikely for the government to collect more than 10-15 per cent of the amount involved in these litigations.
However, even a 10-15 per cent recovery would mean a windfall gain for the government.
"Dealers are likely to come forward and use this scheme, as this is one of the rare schemes, which not only provide waiver from interest and penalty, but also allows partial waiver of tax dues. In my view, where scheme is managed well and adequate awareness is generated, same should help the government to garner decent revenues in these challenging times," says Harpreet Singh, partner, indirect taxes, KPMG India.
While the amnesty scheme appears lucrative, there are certain questions and ambiguities which may force many tax litigants to think before availing of the scheme.
For instance, what if a declarant wishes to partially apply for a foreclosure. Will it be allowed under the scheme? The scheme says a person who has been issued a show cause notice and the final hearing has taken place on or before June 30, 2019 will not be eligible for the scheme. However, the scheme does not provide any guidelines to determine whether the hearing has been concluded before June 30, 2019.
There are a few shortcomings too. The tax dues are required to be settled in cash and any input credit balance cannot be used to make payment of dues under the scheme. If pre-deposit amount exceeds the amount payable, no refund will be admissible under the scheme.
With these ambiguities and shortcomings, it is unlikely for tax litigants to avail of this scheme.
Shivam Mehta, partner, Lakshmikumaran & Sridharan, says: "The scheme should be carefully assessed. The scheme has its own set of criteria - what types of cases are covered, etc. The assessee should not only go by the merit of the case and the amount involved but also take into account if his/her case indeed makes the cut for the scheme."
Harpreet Singh of KPMG says that the scheme is likely to be used more for cases where demand is less vis-a-vis the relative cost of litigation and interest, and also where the assessee believes that the case is weak on merits. Thus, he believes the need of the hour is to quickly analyze the pending litigation and decide upon cases that can be applied for under the scheme.