Direct Tax Vivad Se Vishwas Bill, 2020

On 5^th February, 2020, the Finance Minister introduced The Direct Tax Vivad se Vishwas (from dispute to trust) Bill, 2020, in order to provide for a mechanism to settle disputed tax cases across the country.
However, on suggestions received during the post-budget industry consultation, the Union Cabinet decided to introduce amendments with a view to increase its scope to cover litigations pending in various debt recovery tribunals (DRTs). With the amendments made, the scheme now includes coverage of search and seizure cases where the recovery is up to Rs 5 crore.
It is to be noted that, Sabka Vishwas Scheme was brought in to reduce litigation in indirect taxes in 2019, which resulted in settling over 1,89,000 cases.

According to the Finance Ministry, at present there are as many as 4,83,000 direct tax cases, having collective amount of nearly 9 lakh crore worth, pending in various appellate forums i.e. Commissioner (Appeals), Income Tax Appellate Tribunal (ITAT), High Courts and Supreme Court. The idea behind the scheme is to reduce litigation in the direct tax arena.

Wide Coverage

It has provisions to cover tax disputes pending at the level of Commissioner (appeals), Income Tax Appellate Tribunals (ITAT), High Courts and the Supreme Court.

Resolution Mechanism

Under the proposed scheme, taxpayers willing to settle disputes shall be allowed a complete waiver of interest and penalty if they pay the entire amount of tax in dispute by March 31 this year, following which a 10 per cent additional disputed tax shall have to be paid over and above the tax liability.
In case the tax dispute is over penalty, interest or fee, the settlement amount payable is 25% of the dues if paid before the end of March, 2020, beyond which the same shall be enhanced to 30 %.

Immunity to Appellant

Once a dispute is resolved, the designated authority cannot levy interest or penalty in relation to that dispute. Further, no appellate forum can make a decision in relation to the matter of dispute once it is resolved. Such matters cannot be reopened in any proceeding under any law, including the IT Act.

The declaration filed by an appellant will become invalid if: (i) its particulars are found to be false, (ii) he violates any of the conditions referred to in the IT Act, or (iii) he seeks any remedy or claim in relation to that dispute. Consequently, all proceedings and claims withdrawn based on the declaration will be deemed to have been revived.

The proposed mechanism will not cover certain disputes. These include disputes: (i) where prosecution has been initiated before the declaration is filed, (ii) which involve persons who have been convicted or are being prosecuted for offences under certain laws (such as the Indian Penal Code), or for enforcement of civil liabilities, and (iii) involving undisclosed foreign income or assets.

Introduced in 2019, the scheme aims to resolve all disputes relating to the erstwhile Service Tax and Central Excise Acts, as well as 26 other Indirect Tax enactments (now subsumed under Goods and Services Tax). Hence, the term ‘legacy’.

Components

Dispute Resolution Component: It is aimed at liquidating the legacy cases of Central Excise and Service Tax that are subsumed in GST and are pending in litigation at various forums.
Amnesty Component: It offers an opportunity to the taxpayers to pay the outstanding tax and be free of any other consequence under the law.

Benefits

Taxpayers can pay the outstanding tax amounts due and be free from any other consequences under the Law.
Taxpayers will get substantial relief in the form of full waivers of interest, penalties and fines.
There will be complete amnesty from prosecution proceedings.

Revenue Generation: The scheme will reduce the litigation expenditure for the government and at the same time, may help in generating revenue.

However, the Bill has been criticized on two grounds:

Using Hindi Words in Scheme Name: On use of Hindi words in its name, it is argued that this was government’s way to impose Hindi on the non-Hindi speakers. Some political parties objected to its name, saying that the name of Bills should be in English, considering the diversity of languages used by the population in the country.
Violation of Fundamental Right: The Bill is criticized for treating both honest and dishonest people on equal footing. The Bill endorses the idea of exempting the defaulting taxpayers of their penalty and interest on the aggregate amount and getting away with the payment of the disputed tax alone. This violates the fundamental right to equality since it is arbitrary and treats equals unequally which leads to an unreasonable classification.

With the new scheme, the government hopes to recover a big chunk of money involved in direct tax litigation in a swift and simple way, while offering the taxpayers the relief of not having to fight the case endlessly. For a government that is staring at a big shortfall in revenues, especially tax revenues, the scheme makes a lot of sense.