Vivad se Vishwas Scheme: Will the Tax Payer Express Trust?

[Venkat Maithreya is a Counsel at the Telangana High Court]

The Vivad Se Vishwas Scheme (now the Direct Tax Vivad Se Vishwas Act, 2020) (the “Scheme”) was introduced by the Finance Minister, Ms. Nirmala Sitaraman, in her Budget speech for the year 2020-21 in the Lok Sabha on 1 February 2020.

The Scheme seems to be an equivalent of the Indirect Tax Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (the “Indirect Scheme”) for direct tax payers. The Indirect Scheme, according to Finance Ministry estimates, seems to have been a success in terms of earning revenue for the Government exchequer. Sources indicate that the scheme seems to have fetched Rs. 39,000 crores of revenue and resulted in the settling of 1,90,000 indirect tax pending cases.

In the exact words of the Finance Minister, currently a total number of 4,83,000 cases are pending before various appellate forums, i.e., Commissioner (Appeals), various Income Tax Appellate Tribunals (“ITATs”), High Courts and the Supreme Court. The tax payer would only be required to pay only the amount of disputed taxes and will obtain a complete waiver of interest and penalty, provided the payment is made before 31 March 2020. In case payment is made before 30 June 2020, i.e., last day for availing the Scheme, then an additional amount will have to be paid.

The Scheme received legislative backing of the Parliament, which passed the Direct Tax Vivad Se Vishwas Act, 2020 (the “Act”). The Act received the assent of the President of India on 17 March 2020. A tax payer, more formally referred to as an Appellant in the Act, is eligible to avail this Scheme as per the Act, if in their case:

  1. an appeal or writ petition or special leave petition has been filed either by the Appellant or by the department, and the said appeal or writ petition or special leave petition is pending;

  2. an order has been passed by the assessing officer or an order in appeal has been passed by the Commissioner (Appeals) or the ITAT or by the High Court in a writ petition on or before the specified date, and the time pending for filing an appeal against such order has still not expired;

  3. objections have been filed before the Dispute Resolution Panel (“DRP”) under section 144C of the Income Tax Act and is still pending, or where an order has been passed by the DRP under the said section and no order by the assessing officer has been passed pursuant to the order of the DRP; or

  4. a revision application under section 264 of the Income Tax Act is pending as on the specified date.
The procedure for availing the Scheme as enunciated under section 4 of the Act is carried out by filing and verifying a declaration as prescribed by the Central Board of Direct Taxes (“CBDT”) with the Designated Authority (“DA”), who is usually not below the rank of Commissioner of Income Tax. Upon filing the declaration, the appeal pending before the Commissioner (Appeals) or the ITAT shall be deemed to have been withdrawn and in the case of a writ petition or special leave petition before the High Courts or the Supreme Court respectively, the Appellant shall withdraw such petition with the leave of the Court and provide proof of payment of the disputed tax to the DA. The Appellant shall also furnish an undertaking to the effect that s/he shall waive all rights whether direct or indirect under law or equity with respect to the disputed tax amount that is payable. This provision per se may affect the constitutional validity of the Act.

Section 3 of the Act is the equivalent of the charging section, which enunciates the amount to be paid by the tax payer. The DA shall determine the amount payable within a period of 15 days from date of submission of the declaration and issue a certificate with the amount payable. Thereafter, the tax payer shall pay the amount as determined by the DA within a period of 15 days from the date of the certificate. The amount finalized by the Department shall be final and shall not be called into question by the tax payer. If the tax payer has already paid an amount in excess of the amount of tax payable as per the certificate, then s/he is entitled to receive a refund of the excess amount, but shall not entitled to receive any interest on the excess amount.

The Scheme or Act also excludes certain persons from availing the said Scheme. The CBDT may issue directions from time to time and the Central Government may make rules for carrying out the provisions of this Act.

It will be interesting to see whether the Act passes the test of constitutionality. The Act has already been challenged before the Supreme Court. It will also be interesting to see if this Scheme is as successful as the Indirect Tax Scheme. Both the tax payer and the department end up wasting huge resources on tax disputes which have clogged up various judicial forums. The Act certainly seems to be a boon for tax payers, who have no issue in accepting the bare tax liability, but have been burdened  by the exorbitant interest and penalties levied by overzealous assessing officers and the department. Can the Government expect to unlock much needed revenue from this Scheme? We will have to wait and watch. Also, the last date for availing this Scheme is likely to be extended considering the current situation.

– Venkat Maithreya

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