The Central Board of Excise and Customs (CBEC) has asked its officers to become "responsible litigants" and change their mindset towards revenue maximisation, as the latest data showed the success rate of the department at various levels of appeals was barely 31 per cent in 2013-14, same as the previous year.
The success rate slightly improved to 34 per cent in April-May this year but as these are only early days, the CBEC has evolved a strategy to reduce litigation with taxpayers.
"The mindset or revenue bias is a major cause of rising litigation. With time when the role of the department has changed from the tax enforcers to that of tax facilitators, then definitely the same is reflected in the way CBEC now perceives litigation," said CBEC, in its instructions to field officers.
The Board noted in the long-term with the change of mindset, proper mediation and reconciliatory policies, the litigation would not only be avoided but extinguished before its inception.
At the end of May 2014, the success rate of the department in appeals before the Supreme Court was 43 per cent, against 27 per cent before high courts, 35 per cent before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), and 31 per cent before the Commissioner of Appeals.
Interestingly, in the appeals filed before SC by the department, the CBEC's success rate was poor at 26 per cent. However, in 78 per cent of the cases, where the appeal was filed by the taxpayer, the court's verdict went in favour of the tax department.
"There are three main reasons for their low success rate. First, a lot of appeals are repetitive. They keep on filing fresh appeals for each assessment year till the matter is decided by the court. Second, a lot of time a frivolous position is taken by the department. Last, in many cases the department is not well represented because their officers are overloaded with work and have very little time to work on a case," said Rakesh Nangia, Managing Partner with consultancy firm Nangia & Co. To improve the success rate at all levels, CBEC has asked its officers to ensure voluntary compliance, put in place an alternative dispute resolution scheme and seek the settlement of disputes with the taxpayer through the process of mediation, reconciliation and settlement.
At the end of 2013-14, 122,115 cases involving an amount of Rs 1,55,337 crore were locked up in appeals at various levels. This translates into merely Rs 1.27 crore a case. The amount held up in dispute increased to Rs 1,63,267 crore at the end of May 2014.
The indirect tax collection target for this year is Rs 6.24 lakh crore - about 26 per cent higher than Rs 4.96 crore collected in 2013-14. The growth will be led by service tax collections, which are projected to rise by 40 per cent to Rs 2.15 lakh crore, against Rs 1.54 lakh crore last year. The estimated growth in excise duty and customs collections in 2014-15 is 22 per cent and 17 per cent, respectively.
A finance ministry official said the irony was that very high tax targets are set by the finance ministers and, hence, the target is missed like it did in 2013-14.
"A fiscal deficit number is decided and then all calculations are done backwards. A target is given for tax collections and then everybody is made to work towards achieving that," the official said.
Addressing the annual conference of chief commissioners and directors general of customs of Central Excise and Service Tax on August 11, where the strategy to reduce litigation was discussed, Finance Minister Arun Jaitley had said the revenue targets in the case of indirect taxes for the current financial year 2014-15 were "challenging but very much achievable".
