There has been plenty of debate and discussion about the concept of tax amnesty in India. It was discussed even during the inaugural 2019 Union Budget of the newly elected Government, the result of which basically became the Sabka Vishwas – Legacy Dispute Resolution Scheme 2019.
While the statisticians continue to highlight how INR 3.75 lac crore is stuck in litigation-related matters in India (out of which INR 1.5 lac crore is stuck in indirect tax-related litigation), the scheme has been put to effect since 1st September 2019 to streamline matters on both ends, between the taxpayers and the Government.
The Sabka Vishwas – Legacy Dispute Resolution Scheme was ideally brought about to ensure that the number of litigation cases regarding legacy service tax and central excise are effectively reduced, while it further offered various models regarding waivers, including full amnesty on interest payable on the demanded duty as well as penalties applicable, if any.
However, it required certain understanding as to how this scheme would be put into place and who’d be eligible to opt for it and what type of issues would it cover in order to resolve them for the taxpayers.
Widely, it was brought in for legacy service tax and central excise matters pending in adjudication or appeal, but it is important to understand that it covers 26 other concerning enactments, where the taxpayer’s dispute falling under any of these 26 categories is legible to be covered within the scheme. A practical reason this scheme was brought into force was to ensure that sustainable cash flow occurs within the system via the legacy taxes paid (service tax, VAT, etc.) and there is a win-win situation created for the authorities and the taxpayers.
Discussing about when and where the scheme is applicable, it has few criteria which need to be adhered to. The scheme is applicable in the following cases:
- If there has been a show-cause notice (SCN) issued against the assessee
- If there is an appeal filed by the assessee against the department
- If there is an enquiry, investigation or audit conducted against the assessee by the concerned departments and the demand duty has been quantified by the auditing/invigilating authority
- If there are voluntary disclosures made by the assessee
- If there is pending demand duty with respect to amount in arrears
With the scheme intending to streamline and reduce the cases for litigation regarding the demand duty in the aforementioned cases, it has provided a plethora of benefits for those who are eligible to avail it.
The series is particularly beneficial in terms of providing waivers on the interest amounts of the taxes paid, which will be a key factor to drive it into pan-Indian popularity. Following are the benefits which can be availed under the Sabka Vishwas (legacy Dispute Resolution) Scheme:
- If the demand duty amount is INR 50 lakh or less, the scheme provides for the assessee to get a 70% waiver on the demand duty as mentioned, with no extra interest as well as no penalty required to be paid to the authorities. The scheme also provides for not re-opening the cases, once settled.
- If the demand duty is INR 50 lakh or more, the scheme provides for the assessee to get a 50% waiver on the demand duty as mentioned, with no extra interest as well as no penalty required to be paid to the authorities. In this case as well, the scheme also provides for not re-opening the cases, once settled.
- If the issue is regards to only the late fees or penalty to be paid by the assessee, the scheme allows the assessee to get 100% waiver on the said cost.
- If the dispute is regarding arrears, the demand duty is 60% waived off is it is less than INR 50 lakh or less and is 40% waived off if the amount is more than INR 50 lakh.
- If the assessee has deposited 7.5% of the disputed amount for the first level as pre-deposit and 10% of the disputed amount on the 2nd level as pre-deposit, then only the differential amount of the amount left (after being given 70% waiver from the disputed amount) has to be paid.
- For those assessees who opt for voluntary disclosure int heir disputes, the scheme provides no benefits in such cases.
While there are plenty of benefits which the scheme allows for, there are also areas where the scheme has played it relatively cautious and given out certain criteria, owed to which assessees can’t apply for the scheme.
Here are the cases where the assessee can’t apply for the Sabka Vishwas (legacy Dispute Resolution) Scheme:
- If the final appeal regarding the dispute has been heard before 30th June, 2019
- If the assessee is convicted under any offense of this act
- If an SCN has been issued only for refund
- If the assessee has been subject of an audit, investigation or enquiry but the demand duty amount has not been quantified
There is another case where the assessee can’t apply for the scheme which deals with voluntary disclosure. In the case of voluntary disclosure, there are 3 criteria where the assessee can’t opt for the scheme:
- If the assessee has applied for the scheme immediately after an audit conducted
- If there are self-admitted duty/tax dues not paid by the assessee
- If the disclosures are related to tobacco/related products and petroleum products
- If the case concerning the assessee is in settlement commission
On paper, there are no downsides to the scheme as it shifts the onus completely on to the taxpayer by urging them to pay only the pending taxes and not worry about the interest amount. The taxpayer wins by paying his taxes, and the Government wins by ensuring cash flow within the system. The estimated interest for the tax amounts covered in the scheme can go to exorbitant costs in the given time frame under this scheme, which is why the Government has prioritized the closure of these cases and ease of taxpayer.
One of the (albeit very few) downsides of this scheme is the fact that it has been applicable till the 31st of December 2019 only, which is being thought of as a relatively short period to resolve these cases. However, we believe the said timelines will be revised, as the scheme is currently operational and productive results are expected from the same.
On the other hand, various states such as Rajasthan, Gujarat, etc. have also been developing certain criteria for similar schemes as an extension to ensure VAT and service tax-based litigations are effectively resolved and the ease of the taxpayer is prioritized. There are a few minor kinks which can be worked upon in the same such as making the filing process relatively easier, as the forms under the scheme are quite tedious to fill out. However, it’s not a major cause of concern as GST return forms pretty much follow the same lines and we expect this to be worked upon by the authorities in the near future.
Till then, we shall continue to monitor and analyze the scheme as it continues its operations till December 2019.