Sabka Vishwas Tax Amnesty Scheme: Big taxpayers stick to legal fight

Taxpayers with deep pockets seem to have weighed the two options of resolving their indirect tax disputes with the government under the Sabka Vishwas scheme and getting legal remedy, only to mostly choose the latter route. Why else even after nearly 90% of the eligible taxpayers opted for Sabka Vishwas, cases related to only a fifth of the total disputed amount of Rs 3.6 lakh crore have been resolved yet? As reported by FE earlier, the scheme’s original deadline was December 31 but it was later extended to January 15.

Over 87% of 1.8 lakh eligible taxpayers applied for the leniency scheme by Monday, according to officials. The government had earlier said 1.6 lakh taxpayers committed to pay Rs 35,094 crore of Rs 79,968 crore claimed by the taxman and settled the disputes. It remains to be seen how much of the committed payments will be made in the current fiscal.

Government sources say that large taxpayers are steering clear of the scheme because in many cases the tax consultants and lawyers employed by the firms might have found that immediate settlements would not be in the best interests of these intermediaries.

Tax officials have therefore been asked to convey to these taxpayers that since the scheme actually provides ‘never before, never again’ offer, even if a taxpayer is advised that a case is legally strong, economic prudence would call for availing the scheme.

Lawyers and tax practitioners, however, say that a firm that can afford to fight cases will prefer to continue litigation with even moderate chances of success as the payoff outweighs the legal costs when the amount involved is large. Additionally, there are several cases that are legally sound.

“Taxpayers are also watching how some of the underlying disputes are being resolved under GST and whether these judicial principles can help them in their legacy disputes,” Rahul Renavikar, managing director at Acuris Advisors, said. He said that the government should come out with a similar scheme to resolve direct tax disputes as well.

However, some tax practitioners agree with the tax officials that the legal consultants and in-house legal departments of many companies, especially foreign ones, aren’t forthcoming with approval to settle legacy cases under the scheme.

“The government believes that the scheme’s potential has not been realised in full due to undue pressure from the intermediaries, including tax consultants and lawyers, who are asserting to their clients to stay put and continue the litigation, as in many cases cost of litigation would be much lower than the cost of tax payable under the scheme,” Rajat Mohan, senior partner at AMRG & Associates, said.

The two main components of the scheme are dispute resolution and amnesty. The dispute resolution component is aimed at liquidating the legacy cases pending in litigation at various forums. The amnesty component of the scheme offers an opportunity to the taxpayers to pay the outstanding tax and be free of any other consequence under the law.

Further, the scheme offers relief to the tune of 70% if the tax demand involved is Rs 50 lakh or less and 50% if it is more than Rs 50 lakh. In cases of outstanding dues, the relief is 60% if the dues are Rs 50 lakh or less and 40% if these are more than Rs 50 lakh. Barring some exceptions, there is full waiver of interest and penalty along with exemption from prosecution in all these cases.

“The scheme should be used pragmatically so that the liability is reduced in cases when there are higher chances of losing the matter at a higher forum. However, to mitigate the risk, it may be feasible to tilt towards the scheme,” Abhishek A Rastogi, partner at Khaitan & Co, said.

Source: Financial Express