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'Vivad se Vishwas' Scheme and its plausible failure

The “Vivad Se Vishwas” scheme was announced by our honourable Union Finance Minister Mrs Nirmala Sitharaman during her budget speech on February 1, 2020. (2020). This scheme is brought in to reduce litigation indirect taxes. Vivad se Vishwas is a scheme, under which taxpayers whose tax demands are locked in dispute in multiple forums, can pay due to taxes by March 31, 2020, and get a complete waiver of interest and penalty. The “Vivad se Vishwas” scheme is similar to the ‘Indirect Tax, “Sabka Vishwas” scheme, which was introduced in July 2019 during Budget, 2019.

As per the Vivad se Vishwas Act, 2020, a taxpayer is only required to pay the ‘disputed tax’ to be determined in accordance with the Scheme as a full and final settlement in respect of the tax arrears. The tax arrears includes the aggregate amount of the disputed tax, interest chargeable or charged on the disputed tax, and penalty leviable or levied on such disputed tax and also includes disputed interest, disputed penalty as well as disputed fee. The appeal in relation to the dispute shall be deemed to have been withdrawn and no further proceeding in respect of an offence shall be instituted nor any penalty as well interest shall be imposed or levied in respect of such tax arrears.

It is an undisputed fact that Tax dispute consumes time, energy and resources both on the part of Govt. as well as taxpayers. And penalty on such tax disputes leads to further hardships on the taxpayer, and the taxpayers enter into penalty proceedings now for the penalty amount, so there is penalty dispute arising from the tax disputes. And an unbreakable chain of litigation, which keeps on circling the same issue, is seen.

Recently, CBDT improvised the scheme and added some FAQs related to problems faced by the taxpayers and income tax officials while dealing with settlement processes. Herein, a few problems due to which improvisation and clarity are needed in provisions of the scheme:

  • There was increased pressure on the revenue officials to increase the tax base & to collect more taxes resulting in surging tax demands.

  • These demands were not realised because – assessee is not traceable or not possessing adequate assets, the demand stayed by appellate bodies, the company is under liquidation etc.

  • Recent Income Tax Department reports identify that over 6,000assessee income tax return did not match with their assets.

  • But the revenue department is continuing its drive to raise tax demands in this fiscal year too.

  • Efforts were taken by the centre to check tax evasion, reduce black money has also resulted in too many frivolous demands.

  • The Standing Committee also reported that 95 % of the total outstanding demands will be difficult to recover.

This dispute resolution scheme is expected to be relatively simple keeping in mind the ultimate purpose that it seeks to achieve. But it suffices to say that the scheme lacks clarity and can be interpreted otherwise which makes it anything but simple. The resolution scheme is as complex as the statutory provisions of the Income Tax law, which probably resulted in the dispute in the first place. While the scheme offers a mechanism to put an end to pending litigation, it is essential to examine the finer nuances and conditions mentioned therein, in order to take benefit of the same.

In light of the new penalty section and the latest Scheme, one can say it’s a pardoning tax regime, but the details of sections and new provisions as per the scheme are new and virgin norms and section. They are open to interpretation and since there is no backward reference available, the CBDT and Central government will have to work hand in hand to remove any areas of ambiguity and close any loopholes if found.

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