The Indirect Tax Dispute Resolution Scheme, 2016 - A Step Towards Resolving Pending Litigations

1.0 Introduction:
The Finance Bill, 2016 has proposed THE INDIRECT TAX DISPUTE RESOLUTION SCHEME, 2016 for indirect tax disputes. The scheme is new to the indirect tax laws and is proposed to aimat resolving the litigations pending under the said Acts in a peacefull manner. The scheme is optional and provides relief to those litigants who want to buy peace of mind. The scheme is analysed as follows:

2.0 Disputes covered by scheme:
The scheme covers the disputes pending under Central Excise Act, 1944,Customs Act, 1962 and Chapter V of the Finance Act, 1994 (I.e. service tax) before the Commissioner (Appeals) as an appeal against the impugned order as on 1st day of March, 2016.
It is worth noting here that scheme takes within its purview only the appeals pending before Commissioner (Appeals) under the above said Acts as on 1st day of March, 2016. That means it is not applicable to the appeals filed after 1st March, 2016 before Commissioner (Appeals). The scheme also does not cover the appeals pending before Tribunal or High Court or Supreme Court.

3.0 Disputes not covered by the scheme:
The scheme provides that it shall not be applicable in the following cases:
(a) The impugned order is in respect of search and seizure proceeding; or
(b) Prosecution for any offence punishable under the Act has been instituted before the 1st day of June, 2016; or
(c) The impugned order is in respect of narcotic drugs or other prohibited goods; or
(d) 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
(e) Any detention order has been passed under the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974.

4.0 Procedure for making declaration under the scheme:
A person may make a declaration to the designated authority on or before the 31st day of December, 2016 in such form and manner as may be prescribed.
The designated authority shall acknowledge the declaration in such form and manner as may be prescribed.
The declarant shall pay tax due alongwith the interest thereon at the rate as provided in the Act and penalty equivalent to twenty-five per cent. of the penalty imposed in the impugned order, within fifteen days of the receipt of acknowledgement under sub-section (2) and intimate the designated authority within seven days of making such payment giving the details of payment made along with the proof thereof.
On receipt of the proof of payment of tax, interest and penalty, the designated authority shall, within fifteen days of the receipt of such proof, pass an order of discharge of dues referred to in sub-section (3) in such form as may be prescribed.
It is worth mentioning here that the 'Form' for making above said declaration would be notified later once the rules under the scheme are framed.It is also worth noting here that Designated authority is defined to be an officer not below the rank of Assistant Commissioner who is authorised to act as Assistant Commissioner by the Commissioner for the purposes of this Scheme.

5.0 Scheme provides immunity from other proceedings of the Acts:
Clause 213 provides under a non-abstante clause that once an order is passed under the scheme as stated above by the Designated Authority then the appeal pending before the Commissioner (Appeals) shall stand disposed of and the declarant shall get immunity from all proceedings under the Act, in respect of the indirect tax dispute for which the declaration has been made under this Scheme.
Such declaration shall become conclusive upon the issuance of an order under sub-section (4) of section 211 and no matter relating to the impugned order shall be reopened thereafter in any proceedings under the Act before any authority or court.

6.0 Consequences of order passed in the scheme:
The scheme clearly provides that any amount paid in pursuance of declaration shall not be refunded. It also provides that the order passed under scheme in pursuance of the declaration filed by a person shall not be deemed to be an order on merits and has no binding effect.
Which means that once a person opts under the scheme, the order passed thereof would not lead to any inference that the tax or penalty imposed under the impugned order is correct as per law or on merits. In other words the order passed under the scheme would not become a precedent for other cases.

7.0 Rationale behind the proposed scheme:
The rationale behind the scheme as also stated in the beginning is resolving the litigation pending before the first appellate authorities under the Central Excise, customs and service tax in a peaceful manner. The scheme is optional and provides relief to those litigants who want to buy peace of mind.
The rationale behind the legislation of the scheme can be very well understood from the extracts of the speech of finance minister as follows:
"Litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the Government. There are about 3 lakh tax cases pending with the 1st Appellate Authority with disputed amount being 5.5 lakh crores. In order to reduce this number, I propose a new Dispute Resolution Scheme (DRS)."

8.0 Summury of the scheme:
The scheme is a step towards resolving litigation still pending at the initial level before the first appellate authorities. The scheme however does not speak about monetary limits in appeals to which this scheme will apply. Person opting under the scheme will have to pay the tax along with interest and in case the matter in appeal is related to penalty imposed under the impugned order then 25% of such penal amount will have to be paid. The feature of the scheme is that opting under scheme and paying tax and penalty would not render the matter as being decided on merits and would not result in any binding precedent for other cases. The rules under the schemes are yet to be framed so one will have to wait untill the rules are framed under the scheme before a person opts for such dispute resolution scheme.
All in all the scheme is for resolving the litigation for those litigants who wants to buy peace of mind.