1. law, govt and politics

| SPECIAL STORY | Advance Rulings & Settlement Commission|
Bharat Raichandani, Advocate
“No more crawling over entrails of tax disputes”
– Settlement Commission
In India, there are burgeoning number of
tax disputes, apart from the large number of
pending cases that the Indian judicial system
is already encumbered with. Tax laws, by
nature, seem to be ambiguous and are subject
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various appellate levels, before being blessed
with a final verdict, only to note that, in some
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of time, money and effort is being put in both by
taxpayers and the Government in long drawn
litigations.
Indirect Tax (Customs and Excise) litigation
across various levels in India as of November,
2012 (which number definitely must have
increased manifold):Level at which
Number
Amount
case is pending of pending
disputed
cases
(USD billion)*
Commissioner
33,135
1.5
(Appeals)
Tribunal
58,994
15
High Court
14,654
2
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3,004
2
Total
109,787
20.5
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Indian Chambers of Commerce and Industry
(2013) Dispute Resolution in Tax Matters)
To mitigate the burden on the current system
and for expeditious settlement of disputes, India
needs to reform, develop and create higher
awareness about various dispute settlement
and resolution mechanisms available. In
reaction to the high costs and delays associated
with conventional litigation, there has been
a conscious development of alternatives to
litigation over the last 20 years in societies
around the world 1 . Liberal structure for
settlement of tax disputes is now a norm in
many countries.
Settlement Commission
As early as 1992, in the Budget speech, the
Finance Minister had proposed setting up
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Central Excise disputes. However, provisions
were introduced only in the Finance Bill,
1998. The stated objective was that the door to
settlement with errant taxpayer should be kept
open keeping in mind the primary objective
of augmentation of Revenue. There has to be
,10'//#2.'5#
/GFKCVKQPCUCPCNVGTPCVKXGQRVKQPKP#WUVTCNKCŏUVCZFKURWVGUTGUQNWVKQPRTQEGFWTGU
Australian Tax Forum. 12 (February), p. 531.
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83 ¯
_“No more crawling over entrails of tax disputes” – Settlement Commission_
However, the conditions for availing this
facility are restrictive and need to be liberalised.
Any proceeding for the levy, assessment and
collection of excise duty, pending before the
adjudicating authority may be settled by the
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disputes relating to interpretation of law,
disputes below a certain monetary limit and
disputes for short levy on goods for reasons
other than misclassification, undervaluation
and application of exemption notification
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based on the principle of alternative dispute Commission.
resolution which is in the nature of arbitration
or intercession between the taxpayer and the 6JGUEQRGCPFLWTKUFKEVKQPQHVJG5GVVNGOGPV
Indian Revenue Authorities. The commission Commission also been subject to challenge in
is a mechanism for speedy settlement of cases courts of law. In Australian Foods Limited
without going through the adjudication stages case 2 , the Madras High Court held that the
having legal challenges, recoveries and other 5GVVNGOGPV %QOOKUUKQP YJKEJ JCU DGGP
procedural tangles. It may also be referred to established as a quasi-judicial body under the
as “out of court” settlement. The proceedings statute cannot proceed to deal with an aspect
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be judicial proceedings for the purpose of Indian LWTKUFKEVKQP6JGLWTKUFKEVKQPQHVJG5GVVNGOGPV
Penal Code.
Commission is limited to the “case” before
it. The expression “case” has been statutorily
Keeping the aforesaid objective in mind, the FGſPGF6JGUCKFGZRTGUUKQPJCUJCFKVUUJCTGQH
5GVVNGOGPV%QOOKUUKQPYCUEQPUVKVWVGFWPFGT litigation. In Ashok Kumar Jain’s case3, the Delhi
5GEVKQPQHVJG#EVYKVJGHHGEVHTQOVJ,WPG *KIJ%QWTVJGNFVJCVVJG5GVVNGOGPV%QOOKUUKQP
1999. The various provisions of sections in has jurisdiction to settle cases relating to baggage
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1TFGT0Q5$%':JGNF
QDLGEVKXGQHVJG5GVVNGOGPV%QOOKUUKQPKUVQ that co-noticees can approach the Commission
provide quick and easy settlement of tax dispute after the “case” of the main noticee is settled,
of high revenue stake so as to save the time and provided case of the co-noticee is pending.
energy of both, the Litigant and the Department However, in Viva Herbal Private Limited case4, the
adding to the proverb “Time saved is money Bombay High Court held that the orders passed
saved”. Any assessee can make an application D[VJG5GVVNGOGPV%QOOKUUKQPCTGCOGPCDNGVQ
VQVJG5GVVNGOGPV%QOOKUUKQPEQPVCKPKPIHWNN writ jurisdiction.
and true disclosure of his duty liability which
has not been disclosed before the Central The resort to settlement of disputes finds its
Excise Officer. The applicant has to accept the roots in mature tax jurisdictions. Hence, it
additional amount of central excise duty payable becomes imperative, for us, to look at the
by him and such liability should be not less than dispute resolution mechanisms globally.
` NCEKPCRCTVKEWNCTECUG
room for compromise and settlement. A rigid
attitude would inhibit a onetime tax evader
or unintending defaulter from making a clean
breast of his affairs and unnecessarily strain
the investigation resources of the Government.
The settlement machinery is, thus, meant for
providing a chance to a tax-evader who wants
to turn a new leaf as recommended by the Direct
Taxes Inquiry Committee, popularly known as
the “Wanchoo Committee”.
2 254 ELT 392 (Mad)
3 292 ELT 32 (Del)
4 260 ELT 168 (Bom)
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| The Chamber's Journal | $SULO |
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| SPECIAL STORY | Advance Rulings & Settlement Commission|
United Kingdom (‘UK’)
UK Centre for Effective Dispute Resolution
The UK tax mediation regime is at a Ŏ%'&4ŏCTGCRRQKPVGF6JGRCTVKGUUKIPCP#&4
comparatively nascent stage. In 2009, when agreement, when they commit to work towards
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Ŏ*/4%ŏ resolution in good faith and acknowledge
was burdened with a backlog of tax appeals, that their discussions will be on a without
there was a growing sense that many tax prejudice basis. The parties exchange position
disputes could be resolved through collaboration papers summarising their arguments. Facilitated
between the taxpayer and the tax authority. mediation is held with all decision makers
In 2010, HMRC created a Dispute Resolution present. The goal is to reach resolution and
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Ŏ&47ŏVQEQQTFKPCVGFGXGNQROGPVQH prepare a draft agreement within one day.
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evaluating the benefits of implementing ADR
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Ŏ#&4ŏ
in tax disputes. The statistics highlight how
which is a formal procedure for tax dispute
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resolution. The Civil Procedure Rules carried
how the average elapsed time for all closed
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ADR cases is 53 days.6 In light of the above, it is
to use ADR procedures so as to achieve fair
clear that the UK has progressively developed
and expeditious settlement of disputes without
its tax dispute settlement mechanisms and such
unnecessary waste of resources.5
approach adopted by the HMRC is a sunshine
Government Departments go to court, as a path for resolving the problem of large numbers
last resort, and a formal pledge was published of pending tax disputes. Even though the ADR
committing Government departments and process in the UK is relatively new, they have
agencies to settle legal cases by ADR techniques, made considerable progress.
whenever the other side agrees to it. The
approach is considered appropriate in cases Australia
where the parties are at an impasse and litigation The Australian-based National Alternative
might have to be considered. ADR also helps Dispute Resolution Advisory Council
parties prepare for litigation, which would Ŏ0#&4#%ŏFGHKPGU#&4CUőVJQUGRTCEVKEGU
ultimately reduce litigation costs if ADR efforts other than judicial determination, in which an
do not succeed. However ADR cannot be used impartial person assists those in a dispute to
to resolve cases involving avoidance schemes resolve the issues between them.” Alternative
or issues for which HMRC has a clear policy disputes resolution processes include
position that cannot be compromised.
arbitration, conciliation, mediation, negotiation,
Within 30 days of application for ADR, an
ADR panel of senior HMRC officers decides
whether to accept the case or not. If the case
is accepted, reasons are provided in writing
together with suggestions on how the parties
might proceed towards resolution. At least
two independent facilitators appointed by the
conferencing, adjudication, case appraisal and
neutral evaluation.7
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Ŏ#61ŏ%QFG
QH5GVVNGOGPV2TCEVKEGŎRTQXKFGUIWKFGNKPGUQP
the settlement of taxation disputes in relation
to all taxpayers. It provides guidance as to
the situations in which settlement could be
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&KURWVG4GUQNWVKQPKP6CZ/CVVGTU#P+PFKC7-%QORCTCVKXG2GTURGEVKXG
+PVGTPCVKQPCN6CZCVKQP
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5WOOCT[
#7564#.+#0#&4#%
&KURWVG4GUQNWVKQP6GTOU6JG7UGQH6GTOUKP
#NVGTPCVKXG&KURWVG4GUQNWVKQP
558++
| The Chamber's Journal | $SULO|
85 ¯
_“No more crawling over entrails of tax disputes” – Settlement Commission_
considered and outlines the processes which
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VJCV ŎUGVVNGOGPVU QH VCZCVKQP FKURWVGU QEEWT
only in appropriate cases and in accordance
with established practices that provide the
necessary checks and balances, and there is
transparency and accountability in the settlement
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binds all agencies (including the ATO) under
the Financial Management and Accountability
Act, 1997 requires agencies to endeavour to
avoid, prevent and limit the scope of legal
proceedings, wherever possible, including
by giving consideration to alternate dispute
resolution before initiating legal proceedings and
by participating in alternative dispute resolution
where appropriate.
The Code lists certain circumstances in which
it is appropriate or inappropriate to settle a
matter. Appropriate circumstances include
circumstances when the cost of litigation
outweighs the amount of tax in dispute, when
there are opportunities to narrow facts or issues
in dispute, when a party is a tax avoidance
or other arrangement has come to accept the
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around the steps necessary to unwind existing
structures and arrangements, when certainty or
early payment can be achieved, when settlement
will achieve compliance by taxpayer in a costeffective way and when there is a unique issue
that cannot be litigated upon. Inappropriate
circumstances include matters subject to
escalation, matters contrary to law policies and
precedential positions, when a similar matter
is being litigated and awaiting outcome, and
when it is in public interest to have judicial
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on the jurisdiction and the type of ADR used.
The ATO ADR process is an interactive one
whereby facts, circumstances and information
are shared, explained and heard at every stage.
The ATO has a Dispute Resolution Network,
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Management Advisory Panel to facilitate and
assist in the increased use of AR across the ATO.
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good results in achieving resolutions much more
frequently and much earlier in the objection and
appeals process.
United States (‘US’)
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a number of ADR mechanisms that can be
engaged at various points in the assessment
and appeals process. These include Fast Track
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mechanism. The approach is available to all
Large Business and International Division
taxpayers and has been extended to smaller
taxpayers and tax-exempt entities. Both factual
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serves as a neutral mediator and also has the
ability to use delegated settlement authority to
offer a settlement in the event parties cannot
reach a settlement through the use of mediation
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examination letter has been sent to the taxpayer
and after an issue is fully developed, but before
According to ATO, ADR may be applied “at any a 30-day preliminary notice of deficiency has
stage of the dispute”.85GVVNGOGPVPGIQVKCVKQPU DGGP UGPV 5GVVNGOGPVU ECP DG DCUGF QP VJG
CTGWUGFKP%QWTVUCPF6TKDWPCNUKPDQVJ5VCVG JC\CTFUQHNKVKICVKQPCNNQYKPIVJGGZCOKPCVKQP
and Federal jurisdictions. The ADR process team to weigh the potential litigation costs as
can be mandatory or voluntary, depending it negotiates settlement. With few set rules, the
,10'//#2.'5#
/GFKCVKQPCUCPCNVGTPCVKXGQRVKQPKP#WUVTCNKCŏUVCZFKURWVGUTGUQNWVKQPRTQEGFWTGU
Australian Tax Forum. 12 (February), p. 538.
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669,,
| SPECIAL STORY | Advance Rulings & Settlement Commission|
parties have considerable leeway to agree on to intervention of negotiated solutions. As
JQY&#4YKNNWPHQNF(65WUWCNN[KPXQNXGUC a result, no tax claims can be negotiated or
one or two-day informal mediation process.
settled by agreement. Further mediation can
only be practiced at the tax courts as courts of
6JGIQCNQH(65KUVQTGCEJTGUQNWVKQPYKVJKP ſTUVKPUVCPEG0QOGFKCVKQPKURGTOKVVGFCVVJG
FC[UQHCEEGRVCPEG#MG[CFXCPVCIGQH(65 federal Fiscal Court, which is a pure Court of
is that it can occur while the issue is still with Appeals on legal matters.
the Examination division, thus, interest on tax
FKURWVGYKNNPQVCEETWGYJKNGVJG(65RTQEGGFU New Zealand, Netherlands and Portugal have
Another upside is that taxpayers can withdraw seen the benefits of ADR in resolving tax
from the procedure at any point without losing disputes.
their traditional rights to appeal.
France has no formal ADR practice in place.
However, a number of administrative processes
exist trying to reduce incidents of cases reaching
Canada
Canada has negotiation as a part of its EQWTV6CZFKURWVGUKP$TC\KNCTGUVTKEVN[TGUGTXGF
ADR process. ADR processes that are more HQTVJGEQWTVUDGECWUGVJG$TC\KNKCPVCZEQFGJCU
adjudicative in nature include settlement never formally regulated ADR.
conferences. ADR is not a regularly used
Canadian dispute resolution tool.
On a comparative analysis, it appears that Indian
tax mediation strategy, though developing, is
6JG %CPCFKCP 4GXGPWG #WVJQTKV[ Ŏ%4#ŏ at a nascent stage. For astute administration
traditionally, has been reluctant to allow third- and favourable management of the tax system,
party involvement in disputes, but the Tax a legal framework which allows the Indian tax
%QWTV QH %CPCFC Ŏ6%%ŏ FQGU JCXG KVU QYP administration to explore ADR as well enable
means of resolving cases before they go to settlement should be encouraged. Resolving
court. Taxpayers and the revenue authority may disputes through ADR will be cost effective and
arrange a settlement conference, where a TCC expeditious for both the Revenue authorities as
judge presides over the discussion between both well as the taxpayer, apart from withdrawing
parties. However the judge is only allowed to the burden from the judiciary. Needless to state,
make non-binding recommendations, resulting there is no bargain of the tax liability, it is an
in many cases proceeding to a court hearing. amicable way of resolving a tax dispute.
The difficulty in resolving tax disputes is that Additionally, willingness to embrace tax
they must be resolved on a principled basis mediation is paramount. As noted above, tax
in accordance with fiscal statutes. There is no mediation regimes in other jurisdictions are
ability to negotiate on matters based on a single mandatory before the appeals stage. India can
technical legal question.
model a structure based on those archetypes.
A successful tax mediation regime must be
implemented as a fundamental part of the
Germany
ADR is Germany is relatively new. It was wider outlook of the tax authorities. Associated
introduced in 2012 as an option in the Mediation operational costs will increase, however, there
will be consequent decrease in litigation and
Act.
investigation costs.
Under German law, judicial mediation is not
mandatory; its use is left to the discretion of the All in all, ADR settlements rests on good faith
courts. In deciding whether to allow mediation of the parties to negotiate. It is a collaborative
in their courts, judges and others questioned process and its success will bolster India as an
whether the tax law is open as a public right investor-friendly jurisdiction.
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