The Goods and Services Tax (GST), a cornerstone of India’s economic reform, aimed to streamline the nation’s indirect tax structure, fostering a unified marketplace for goods and services. Yet, its success hinges on an effective dispute resolution system, a crucial element for minimizing litigation costs while ensuring efficient dispute resolution.
Disputes under GST often arise from disparities between tax payments by taxpayers and the authorities’ calculations of tax liability. The reasons are multifaceted, stemming from assessment, audits, and record scrutiny—varying tax rates, claims of tax exemptions, input tax credit disputes, erroneous place of supply determination, nature of supply concerns, and the classification of goods and services. Although GST aimed to simplify tax administration, initial experiences suggest a contrary trend.
As tax authorities and taxpayers continue to stand on opposing sides, the contours of litigation reveal a worrisome pattern based on historical trends. Disagreements stemming from interpretations of the law, unsatisfactory advance ruling processes, and a revenue-centric approach by tax authorities have propelled litigation. Addressing this trend is essential, and several critical measures must be implemented.
A much-needed GST Amnesty Scheme must be introduced to aid sincere taxpayers who may have inadvertently erred during GST’s early stages. Given the complexity of this monumental tax reform, both taxpayers and authorities faced challenges aligning internal systems and training personnel, leading to numerous unintentional mistakes. Now, these errors are being subjected to departmental audits and scrutiny, causing a surge in tax demands, interest, and penalties.
It is rumored that the government is contemplating a GST dispute settlement scheme, offering a one-time opportunity for businesses to settle tax cases. This scheme, likely similar to the 2019 ‘Sabka Vishwas Scheme,’ is expected to exclude cases of willful tax evasion and ongoing enforcement agency scrutiny. Such a scheme could provide much-needed relief for taxpayers while contributing to a more efficient tax administration.
The long-awaited Goods and Services Tax Appellate Tribunal (GSTAT), despite five years since GST’s introduction, has yet to become operational. This absence forces taxpayers to resort to High Courts, straining an already overburdened justice system and causing delays in delivering justice to genuine taxpayers. The immediate establishment of GSTAT and expeditious dispute resolution is paramount.
The Authority of Advance Ruling (AAR) was established to offer tax certainty in advance, aiming to reduce litigation. However, AAR’s limited scope and its binding nature only for the applicant and the concerned jurisdictional officer in the respective state GST Acts have led to divergent rulings and increased litigation. Centralizing AAR authority and addressing critical aspects like ‘place of supply’ can significantly reduce disputes and restore confidence in the system.
Furthermore, exploring Alternate Dispute Resolution (ADR) mechanisms, such as arbitration and mediation, can further minimize unwarranted litigation. The introduction of the Settlement Commission, allowing delinquents to resolve disputes more efficiently, can play a pivotal role in this process.
It is imperative that the government, in collaboration with the GST Council, take bold and decisive steps to address the mounting GST disputes. A robust dispute resolution mechanism, coupled with policy interventions, can not only curb the proliferation of litigation but also foster confidence among taxpayers, ensuring the realization of GST’s true potential as a catalyst for economic growth and simplicity in tax administration.
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