Why Government's move to ensure time-bound settlement of Customs cases may not be effective

While presenting the last full budget of Modi Government 2.0, the Hon’ble Finance Minister highlighted the importance of improving the tax administration in India and proposed amendments to the Indirect Tax law with the aim to boost exports and encourage domestic manufacturing. Though the industry has been expecting some major announcements under the Customs Law, the Budget proposals have been low-key, with a few changes in the Customs duty rates.

One of the important amendments proposed in the Budget is Section 127C of the Customs Act, 1962 which provides the mechanism for closure of cases under the ‘Settlement Commission’, post receipt of an application by the taxpayer for settlement of the cases. The amendment proposes to introduce time-bound settlement of cases by the Commission, within a period of 9 months from the date of the application, with an option for further extension for 3 months for reasons to be recorded in writing. In case the prescribed timelines are not adhered to, the settlement proceedings shall stand ‘abated’, and the adjudicating authority will have to adjudicate the case as if no such settlement application was ever made.

In India, the Settlement Commission provides for an alternate dispute resolution mechanism for a taxpayer, who wishes to resolve a tax dispute through conciliation, rather than litigation. The basic objective of the set-up of the Settlement Commission in India was to expedite the closure of tax disputes by avoiding costly and time-consuming litigation processes and providing taxpayers an opportunity to come clean incase they failed to remit the tax. It provides a forum for the assesses to apply for settlement of their cases, on the basis of true and complete disclosure of their duty liability. The settlement of cases before the Commission is considered less costly and beneficial to the applicant compared to the normal appeal route which is not only time-consuming but also costly with running interest burden. Under Customs Law, an importer, exporter or any other person, may file an application before the Settlement Commission to have their cases involving duty liability, be settled before the adjudication of the matter by the original adjudicating authority.

Prior to the proposed amendment, there was no prescribed timeline for the conclusion of the proceedings by the Settlement Commission. In the absence of a prescribed timeline, there have been delays and unnecessary hassles on account of the prolonged process for settlement of disputes, defeating the objective and purpose of the settlement process and delaying in realisation of tax dues. There have been several cases where the matter remained unsettled for years, causing unnecessary hardships to all concerned.

While the above amendment which proposes definitive timelines for closure of the cases is expected to bring respite from delays and dithering, the proposal to ‘abate’ the proceedings on the expiry of the prescribed timelines, would not just take the sheen out of the purported facilitative amendment but can pinch the taxpayers very badly. In the event of the ‘abatement’, as per the amendment, the case shall be disposed-off by the adjudicating authority before whom the matter is originally pending, in accordance with the provisions of the law. It will be interesting to see how the Settlement Commission prioritises the pending matters and dispose-off the same within the prescribed timelines of 9 months, plus the additional 3 months. The applicants after the expiry of the prescribed timeline will be left with no option but to follow the entire process of adjudication again, which will discourage the industries to opt for the settlement of cases. Further, the representations made by the taxpayer before the Settlement Commissioner may be relied upon by the adjudicating authorities in the disposal of the cases before him.

It will be interesting to see how the Settlement Commission prioritises the pending matters and dispose-off the same within the prescribed timelines of 9 months, plus the additional 3 months. The applicants after the expiry of the prescribed timeline will be left with no option but to follow the entire process of adjudication again, which will discourage the industries to opt for the settlement of cases. Further, the representations made by the taxpayer before the Settlement Commissioner may be relied upon by the adjudicating authorities in the disposal of the cases before him.

Therefore, it becomes imperative for the applicants to have their cases settled expeditiously by the Settlement Commission within the prescribed timelines, so that the time and efforts involved in the abortive settlement process are not rendered futile, on account of the ‘abatement’ of the proceedings.

Source: Economic Times