Union Finance Ministry has hiked threshold monetary limit for tax departments to file appeals all three levels of appeal — Appellate Tribunals, High Courts, and Supreme Court. The move is aimed at significantly decreasing taxpayer greivances and litigation burden of tax departments in courts and tribunals across the country.
Tax departments, Central Board of Direct Taxes (CBDT) files appeals in ITAT (Income Tax Appellate Tribunal) while Central Board of Indirect Taxes and Customs (CBIC) files appeals in CESTAT (Customs, Excise and Service Tax Appellate Tribunal) and also in High Courts and Supreme Courts.
Under new limits tax departments CBDT and CBIC can file appeals in ITAT/CESTAT only if the tax amount involved is Rs 20 lakh or more, up from Rs 10 lakh at present. Moreover, appeals can be filed in High Courts if tax amount involved in litigation is Rs 50 lakh (up from Rs 20 lakh at present). For appeals in Supreme Court, the threshold limit has been hiked to Rs 1 crore (from Rs 25 lakh at present).
The new threshold limits will result in 41% reduction litigation from CBDT’s side, including 34% cases in ITAT, 48% of cases in case of High Courts and 54% of cases in case of Supreme Court. Similarly, in case of CBIC, it will result in reduction in 18% of cases as 16% of cases will be withdrawn in CESTAT, 22% in High Courts, and 21% in Supreme Court.
This decision will give relief to taxpayers. It is also based on premise that the cost of litigation is sometimes more than the recovery sought. It will also create trust in tax administration and give relief to honest, small and mid-sized taxpayers. It will promote tax friendly environment and help to promote ease of doing business.
More than 66% of cases are stuck in litigation involve 1.8% in value. In many cases, cost of litigation is higher than the recovery. As per Economic Survey 2017-18, even though success rate of tax department at all three levels of appeal — Appellate Tribunals, High Courts, and the Supreme Court is under 30% for both direct and indirect tax litigation, it remains undeterred and persists in pursuing litigation at every level of the judicial hierarchy making it the largest litigant in India. The tax department unambiguously loses 65% of its cases. Over period of time, the success rate of tax departments has only been declining, while that of assessees has been increasing.