The Alternative Dispute Resolution mechanism provides a way to resolve disputes between taxpayers and the Government without having to go through formal litigation
The Goods and Services Tax (GST) was introduced to rationalize the indirect tax system in India, thereby creating a common national market for goods and services. This “one nation-one tax” initiative aimed at price rationalisation, promotes ease of doing business and economic growth. The success of this reform is evident from the fact that the number of GST filers has increased by 32% from 10.6 million in April 2018 to 14 million in April 2023, and record revenue collection of Rs 1,87,035 crore in April 2023, the highest ever, and Rs 1,72,129 crore in January 2024, the second-highest since GST rollout. However, to further strengthen this reform, a time-bound and robust dispute resolution mechanism needs to be put in place in the GST.
Delay in setting up of Appellate Tribunals: It has been noticed that even after six and half years of the GST law coming into effect on July 1st, 2017, still the formation of GST Appellate Tribunals is awaited, which is a significant gap in the GST administration. This absence of a tribunal has forced businesses to approach high courts, which is usually a long and expensive process, and it also adds pressure on already overburdened high courts. According to various estimates, over one lakh appeals involving more than Rupees one lakh crore are expected to approach the GST Appeals Tribunals once they become functional.
Although the government notified the creation of GST Appellate Tribunals on October 25, 2023, they are yet to become operational. The tribunal will help to efficiently dispose of disputes, and keep litigation in less time, and at a lower cost. From the taxpayer's point of view, even for completely justified tax positions, they have no option but to wait for a remedy.
Moreover, the delay in the formation of the Tribunal is leading to an increase in interest burden, delay in genuine refunds, pre-deposit of taxes leading to cash flow challenges, and repetitive show cause notice to cascade disputes. Thus, the immediate formation of GST Appellate Tribunals and expeditious resolution of disputes is the need of the hour.
Disputes on an interpretation of the law, unsatisfactory advance ruling mechanism, and revenue-centric approach by tax authorities have led to an increase in litigation. Under GST, disputes arise from differences in tax paid by the assessees and the computation of tax liability by authorities. Such tax disputes can arise due to various reasons during assessment, audit, and/or scrutiny of records/accounts. For example, the rate of tax, a claim of tax exemption, the claim of an input tax credit, incorrect determination of the place of supply, the nature of supply (composite or mixed supply), classification of goods and services, etc. While GST is touted to remedy the proliferation of tax disputes and simplify tax administration, early experiences point to the contrary.
Revenue-centric approach dented the confidence of taxpayers: The dispute resolution schemes formulated with the revenue-centric approach, have certain limitations. For example, the 'Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019' resolved around 49,534 Pre-GST and GST cases, involving an amount of Rs 24,970 crores, thousands of appeals are still pending, leading to lakhs of rupees being locked. The backlog of around 38,000 Pre-GST, VAT dispute settlement cases in Punjab alone is a matter of concern and the OTS offered in November 2023, to settle these cases, valid until March 31, 2024, is not sufficient.
The ‘Vivad Se Vishwas Scheme 2020’ for Income taxpayers was expected to resolve a significant part of direct tax litigations worth about Rs 4.8 lakh crore by remitting and waiving interest and penalty for pending disputes. The fact that the scheme ended on December 31, 2023, is disappointing, and the announcement of a one-time disputed direct tax demands settlement of up to Rs 25,000 and in total of Rs 3500 crore in the interim budget is inadequate.
It is high time that a robust one-time GST Amnesty Scheme is introduced to assist bona fide taxpayers who may have committed inadvertent errors during the initial phase of GST. The GST being one of the largest tax reforms, had its gestational issues, and taxpayers and authorities struggled to understand the complexity of the law, aligning internal systems and training personnel. These issues resulted in numerous inadvertent slippages, which are now under departmental audits/scrutiny, leading to a flurry of tax demands, interest and penalties. The government needs to take immediate action to address these concerns and ensure that the taxpayers are not burdened with unnecessary litigations and penalties.
Effectiveness missing in earlier efforts: The Authority of Advance Ruling (AAR) was established to provide certainty in tax positions in advance, and to reduce litigation. AAR and the Appellate Authority of Advance Ruling (AAAR) are established under the respective State GST Acts. However, it is important to note that the rulings given by the AAR or AAAR may not be accepted by authorities in other states. Additionally, the AAR does not have the power to deal with every aspect of the GST law, such as issues related to 'place of supply', which has been a cause of doubt for many.
It is worth noting that the rulings of the AAR or AAAR are only binding on the applicant who has sought the advance ruling and on the concerned/jurisdictional officer in respect of the applicant. Nevertheless, divergent rulings in different states on the same matters have led to increased litigation. Therefore, the government and the GST Council should establish a central authority for AAR, which could address the issues related to 'place of supply' and resolve conflicting views of State-level AAR. The revenue-centric approach of the AAR has negatively impacted the confidence of taxpayers. Even in situations where a reasonable interpretation is evident, the ruling has been unfavourable to the taxpayer. Hence, it is essential to restore confidence in AAR, to serve the object and purpose of this progressive move.
The Way Forward: The Alternative Dispute Resolution (ADR) mechanism provides a way to resolve disputes between taxpayers and the government without having to go through formal litigation. While Advance Rulings can be a form of ADR, the limitations of The Authority of Advance Ruling may result in reducing unnecessary litigation. Additionally, the introduction of the Settlement Commission aims to quickly collect taxes that are unpaid and also offers delinquents a one-time opportunity to come clean, which can substantially reduce the time and cost involved in unproductive litigation. The concept of centralized audit/ investigation should be introduced. Moving forward, once GST Appellate Tribunals become operational, will help to seamless flow of input tax credit for businesses with minimum blockages, efficiently dispose of disputes, reduce litigation time, and lower costs, further strengthening the country's revenue reform and economic growth.
(The author is Vice-Chairman of Sonalika Group, Vice-Chairman of the Punjab Economic Policy and Planning Board, and Chairman of ASSOCHAM Northern Region Development Council; Views expressed are personal)
