Service Tax Disputes Body in Works

Rising instances of disputes over service tax claims has prompted the government to consider setting up a settlement commission on the lines of the ones in existence for income-tax and excise & customs.

An announcement to this effect is likely in the Budget 2012-13. Settlement commissions are a mechanism where the differences between the tax authorities and the taxpayers are settled amicably, without necessitating litigation.

These commissions have the power to grant immunity to assesses from prosecution, thus encouraging more people to approach it than go to appellate tribunals or courts.

The first settlement commission was set up in 1976 and it deals exclusively with income-tax matters. Another commission was set up for excise and customs in 1999 where disputes on claims above R3 lakh are entertained.

Service tax is a relatively new tax head, it was introduced in 1994, but over the last few years it has grown at faster pace than the other two indirect taxes — excise and customs. Even as excise collection has grown below 7% in April-January this fiscal, service tax collection grew an impressive 36.9% to R75,440 crore.

With the government’s plan to replace the current positive list (which lists some 120 taxable services) with a negative list (which means all services except a select few will be taxed), the service tax base is expected to grow further in an economy dominated by services.

The government’s decision to set up a settlement commission for service tax at this juncture suggests that it is resigned to the fact that GST could still take a couple of years to come into being.

According to Ernst & Young tax partner Saloni Roy, “Settlement commission would give an opportunity to taxpayers to settle cases expeditiously and it would give them waiver from penalty and prosecution. For revenue department, the recovery of taxes would be quicker.”

The revenue department is one of the biggest litigant in the country. As per data presented in Parliament, direct and indirect tax arrears of about R4.60 lakh crore are locked up in litigation before various appellate bodies at the end of last fiscal. While am amount of R57,702 crore is under litigation on the indirect tax front, the disputed amount is much higher for direct taxes at R4.05 lakh crore.

The IT and central excise/customs settlement commissions have one principal bench each in Delhi and three additional benches in other three metropolitan cities. In Budget 2011-12, the government had estimated to raise R82,000 crore from service tax out of the total indirect tax target of R3.92 lakh crore.

Financial Express, New Delhi, 15-02-2012