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Payment of tax-demand before appeal -- Objections stall Finance Ministry move

Hema Ramakrishnan

NEW DELHI, July 16

THE proposal mooted by members of the Parliamentary Standing Committee on Finance to make direct tax assessees cough up a certain percentage of the tax-demand raised on them before filing an appeal against the Revenue Department has hit a roadblock, with the Finance Ministry receiving a spate of representations against the same.

The basic objection is that an advance payment of a part of the tax-demand will impose a financial burden on any assessee who decides to go on appeal against the Department's order.

``Although the proposal essentially aims at reducing a number of frivolous appeals and pruning tax arrears, the pros and cons will have to be weighed carefully before a final view is taken,'' sources said.

An indication that the Ministry was likely to accept the proposal was given by the Finance Minister, Mr. Yashwant Sinha, at the Conference of Chief Commissioners of Income-Tax held in May.

The proposal entails making it mandatory for assessees to cough up 30 per cent of the total tax demand raised on them before filing an appeal. Another alternative is to collect a graded percentage depending on the stage of appeal. Legislative changes in the form of an amendment to the Income-Tax Act 1961 will be required in case the Government accepts the proposal.

On the indirect tax front, any assessee who appeals to Customs Excise and Gold Appellate Tribunal (CEGAT) against a duty demand confirmed by the Revenue Department is asked to cough up a pre-deposit if the Tribunal reckons that prima-facie the case is in favour of the Department.

Of the total tax arrears of around Rs. 50,000 crores, the arrears in direct and indirect taxes are estimated at Rs. 40,000 crores and Rs. 10,000 crores respectively. Although an attempt was made to reduce tax arrears through the Samadhan scheme -- which entailed a one-time settlement of tax disputes -- it did not meet with much success since most of the assesses felt that they had a stronger case than the Department.

Several individuals, who have sent in their representations, have contended that it would be rather restrictive to make assessees part-pay the duty demand raised on them, particularly if the demand is stayed by the competent authorities.

Besides, tax arrears are also locked in different stages of appeal. The Ministry is engaged in the exercise of collating data from field formations on the break-up (in terms of the stages of appeal) of pending arrears.