The document discusses trends in tax litigation in India. It notes that tax disputes are increasingly being litigated up to the Supreme Court. Large pendency of cases is burdening judicial machinery, with over 3 million cases pending. The government has attempted to curb litigation through higher interest rates for unpaid tax and mandatory pre-deposits for appeals. However, pendency remains high across forums. The life of a typical tax litigation in India ranges from 6-10 years as it moves through the multi-level appellate system.

1. TAX LITIGATION – TRENDS &
STRATEGIES
17 October 2015
LIFE OF A TAX LITIGATION IN INDIA

2. TRENDS IN TAX
LITIGATION
• Every dispute is likely to be litigated either by the assessee or the Department up to the
Supreme Court
• In view of CBEC guidelines prescribing low monetary thresholds for appeals by the Department, the
Department has been seen to appeal from every dispute above such threshold
• The result is a pendency of cases before various forums and a burdening of the judicial
machinery. The pendency of cases, before each forum, is as follows:
Appellate forum Monetary limits
CESTAT Rs. 5 lakh
High Court Rs. 10 lakh
Supreme Court Rs. 25 lakh
Indirect Tax **
Forum 2010-11 2011-12 2012-13
Supreme Court 2,675 2,863 3,081
High Court 15,211 14,695 15,113
CESTAT 46,094 53,583 62,163
Commissioner
(Appeals)
23,882 27,825 33,225
Direct Tax *
Forum 2010-11 2011-12 2012-13
Supreme Court 5,740 5,844 5,865
High Court 34,812 29,129 31,844
ITAT 30,999 31,299 31,914
Commissioner
(Appeals)
1,87,182 2,30,616 1,99,390
*Ministry of Finance, Department of Revenue, Annual Report FY 2012-13 & 2013-14
** Tax Administration Reform Commission (‘TARC’) Report

3. TRENDS IN TAX
LITIGATION
 Age wise pendency of disputes (as per TARC report)-
 Increasing trend in the number of appeals filed at all levels coupled with a slow disposal rate
has lead to a huge pile of pending litigation, resulting in a dedicated tax Bench being appointed
by the Supreme Court to expedite tax cases
 The Government has made some recent attempts to curb tax litigation and / or reduce
pendency
• Introduction of a 30% interest rate for any tax remaining unpaid for more than a year, to disincentivise
assessees adopting litigious positions
• Introduction of a mandatory pre-deposit for filing of appeals under Customs, Excise and Service tax
(akin to those already existing under various State VAT statutes), in order to do away with the need to
determine stay applications at the Tribunal level and thereby reduce pendency
Appellate
authority
2012-13
<1 yr >1 yr - 3yr >3 yr Total
Supreme Court 462 1,229 1,390 3,081
High Court 3,913 4,331 6,869 15,113
CESTAT 17,011 25,076 20,076 62,163
Commissioner(Appeals) 21,301 9,622 2,302 33,225

4. REGULATORY &
ENFORCEMENT STRUCTURE
Ministry of Finance, Government of IndiaMinistry of Finance, Government of India
Department of RevenueDepartment of Revenue
CBDTCBDT CBECCBEC Attached offices/ Other bodiesAttached offices/ Other bodies
Directorate General of
Income Tax (DGIT)
Directorate General of
Income Tax (DGIT)
Narcotics Control
Bureau
Narcotics Control
Bureau
Directorate of
Enforcement
Directorate of
Enforcement
Directorate of
Revenue Intelligence
Directorate of
Revenue Intelligence
Directorate General
Central Excise Intelligence
Directorate General
Central Excise Intelligence
Narcotic Drugs and
Psychotropic Substances
Act, 1985
Narcotic Drugs and
Psychotropic Substances
Act, 1985
Foreign Exchange
Management Act, 1999
Prevention of Money
Laundering Act, 2002
Foreign Exchange
Management Act, 1999
Prevention of Money
Laundering Act, 2002
Customs LawsCustoms Laws Central Excise &
Service tax
Central Excise &
Service tax
Joint Working Group / Directorate of
Valuation for Custom and Transfer Pricing
Joint Working Group / Directorate of
Valuation for Custom and Transfer Pricing
Direct taxesDirect taxes

5. HIERARCHY OF THE
FORUMS IN TAX
LITIGATION
5
Direct appeal
to Supreme
Court in the
following
cases:
a.Rate of duty
b.valuation
Direct appeal
in case of
Order passed
by the
Commissioner
Life of a tax
litigation in
India
typically
ranges from
6-10 years

6. ALTERNATIVE ROUTES
6

7. EVENTS IN THE
INVESTIGATION PHASE
7
• Wide powers
to call for
evidence and
production of
details/
documents
• Recording of
statements
• Officer empowered
to seize goods
believed to be liable
to confiscation
• Seizure of
documents believed
to be relevant
• Panchnama to be
drawn up for seized
goods
• Supratnama of
seized goods under
a bond and by
providing security
• Arrest for offences where revenue
involved is more than Rs. 50 lakh
• Authorities empowered to arrest
even without a warrant for certain
specified offences
• Non-cooperation during the
investigation
• Making contradictory statements
• Seek Payment by
way of a Deposit
Pre SCN (always
pay “under
protest” and
“without
prejudice”
• Encashment of
Bank Guarantees
• Freezing of Bank
accounts
Regulatory and enforcement powersRegulatory and enforcement powers
SummonsSummons SeizureSeizure Financial ThrustFinancial Thrust ArrestArrest

8. INVESTIGATION
8
RECENT TRENDS IN INVESTIGATIONRECENT TRENDS IN INVESTIGATION

9. INVESTIGATION
9
• Full and honest disclosure is imperative
• Respectful, firm and credible demeanour
with investigating officers
• Company expected to always act in a
cooperative manner
• Cohesive briefing of Company personnel
to ensure consistency in statements
• Best to seek time if the person whose
statement is being recorded is unaware
of any issues
• Immediate retraction of incorrect/
inconsistent statement
• The “Friday evening statement”
• Critical to ensure that statements or
submissions to protect one tax
position does not create adverse
consequences in relation to other
regulatory/ tax compliances
• Appointment of one nodal attorney to
ensure the relevance of all statements
• Guard against statements to the effect
that “the head office knows”
• Lawyer can accompany but cannot
intervene or influence
HOW TO PARTICIPATE PURPOSEFULLYHOW TO PARTICIPATE PURPOSEFULLY

10. ADJUDICATION
PROCEEDINGS
10
FACTS
•This is the first fact finding forum and all relevant facts need to be clearly stated and evidenced
•Any factual allegations made need to be fully rebutted
EVIDENCE
•All evidence to be led should be introduced at this stage; if independent expert evidence is led,
the experts must be offered for cross-examination
•Any evidence led by the Department must be rebutted; if the Department has relied upon
expert evidence, seek cross-examination
LEGAL SUBMISSIONS
•Take all submissions of natural justice and jurisdictional deficiency upfront
•Any errors of law need to be highlighted, whether errors regarding statutory provisions or legal
precedents
•If individuals are sought to be penalised, formulate a defence for individuals distinct from the
company

11. PREPARATION OF
APPEALS
11
ISSUES OF FACT
• Fact finding exercise based on the material on record continues before the Commissioner (A)
and Tribunal
• Fresh evidence can typically be introduced in appeal only in the following circumstances:
• Refusal of lower authorities to admit evidence which is admissible and ought to have been allowed on
record
• Inability of assessee to furnish evidence sought by lower authorities , sufficient cause
• Insufficient opportunity provided to the assessee by the lower authorities to produce relevant evidence
• Necessity to produce further evidence on record where additional factual inquiries made by the appellate
authorities

12. PREPARATION OF
APPEALS
12
NORMAL STRUCTURE OF GROUNDS OF APPEAL
• Raise any issue of natural justice
• Raise all issues of lack of jurisdiction by the authorities
• Highlight all errors of facts
• Highlight all errors of law – particularly, a misreading of provisions or a failure to
follow binding precedents
• Address arguments on interest, penalty and other penal actions
• Senior Judges are normally not either technical or accounting experts. The
key issue is to simplify rather than complicate
• Senior Judges respond to legal principles rather than accounting
technicalities

13. APPEAL TO SUPREME
COURT
13

14. WRITS + SLPs
14

15. ALTERNATIVE OPTIONS TO
LITIGATION
15
SETTLEMENT COMMISSIONSETTLEMENT COMMISSION
ADVANTAGESADVANTAGESKEY FEATURESKEY FEATURES

16. ALTERNATIVE OPTIONS TO
LITIGATION
16
ADVANCE RULINGADVANCE RULING
• Only eligible applicants can apply
• Both parties bound by an AAR and cannot challenge it other than by
way of a Writ
• Ruling will only be binding on the applicant and the authorities, and
not on any other person

17. ALTERNATIVE OPTIONS TO
LITIGATION
17
REPRESENTATIONREPRESENTATION
• Both the CBEC & CBDT have the power to issue clarifications/ instructions to bring
about uniformity and certainty in the application / enforcement of the various tax laws
Certain limitations:
• The CBEC/ CBDT typically do not intervene so as to determine the result of pending
adjudication/ appellate proceedings
• The CBEC/ CBDT may not act on issues of limitation but on substantive issues of
taxability, eligibility of CENVAT credit, etc.
• Clarifications, so issued, are binding on the Department but not on the assessee or on
the Tribunal or higher courts

18. THE CO-RELATION – CIVIL
& CRIMINAL LIABILITIES
• Civil consequences include recovery of duties, interest and penalties (including personal
penalties on senior officers of the Company)
• In addition to the civil consequences, there is also an exposure in cases of tax evasion to a
criminal prosecution of the Company and senior officers
• Recent judgments of the Supreme Court have indicated that a criminal trial can proceed in
parallel with the civil tax proceedings. The earlier view was that a criminal prosecution can
proceed only after civil proceedings are concluded and tax has been held to be due
• Previously, there was a legal view that a Company cannot be criminally prosecuted. The view
has changed after the Supreme Court decision in Iridium India Telecom Ltd. v. Motorola
Incorporated and Ors that the intent of certain individual officers is attributable to the
Company
18

19. CONSEQUENCES – SENIOR
OFFICERS
• Both the civil and criminal liabilities for senior officers apply to officers “who are in charge of,
and responsible to, the company for the conduct of its business”
• The focus of such proceedings is normally on the Managing Director, the CFO, the tax officers
and senior individuals in procurement or marketing
• For senior officers the statutory defence against penalty and prosecution:
• No knowledge;
• Not responsible for the area of operation;
• Not acted in negligence;
• Had acted to prevent the ocurance of the issue;
• The maximum criminal liability of offices is imprisonment of 7 years and fine
• As concerns civil penalties, the officers are penalized based on the quantum of evasion
• Normally, penalties range between Rs. 5 lakhs to Rs. 5 Cr.
• It is critical while defining the roles and responsibilities of senior officers to clearly demarcate
those who are concerned specifically with tax decisions and compliance issues to reduce risk of
those officers who do not have any tax functions
• Periodic review and obtaining of opinion from Senior Counsel or ex- Supreme Court Judges on
any contentious issue is critical to establishing credibility of any tax decisions
19

20. RECENT TRENDS
20
• Certain recent measures taken by the Government in a bid to counter allegations of tax
terrorism and usher in a more non-adversarial tax regime
• Stated intent to expeditiously dispose of three of the largest tax disputes (in relation to
Cairn, Shell and Vodafone) by way of judicial tribunals, discussions or other methods
• IT Department has written to Cairn stating than an arbitrator will be appointed in
relation to the USD 1.6 mn tax dispute
• Bombay High Court judgement dated 10.10.2014 in Vodafone’s case, on the issue of
whether the issuance of shares at a premium to a non-resident holding company gives
rise to any income from an international transaction under the transfer pricing
provisions, accepted by the Government of India and no appeal filed to the Hon’ble
Supreme Court
• Introduction of amendments to free FIIs and FPIs from paying MAT on capital gains from
sale of shares effective from FY 2015-16, as well as a clarification for the period prior to
FY 2015-16 that no MAT is payable by FIIs and FPIs who do not have a permanent
establishment in India. Castleton case before the Hon’ble Supreme Court was also
disposed off

21. RECENT TRENDS
21
• Cellular operators are facing issues of non-deduction of tax
on discounts offered to retailers, which the Department
claims are in the nature of commission
• Real estate Sector hit by issues on taxability of development
arrangements
• The insurance sector has been issued large demand notices
in relation to recovery of tax from insurance agents
• The IT industry is facing various disputes qua eligibility for
export of service benefits for offshore activities
• Various Customs and Excise issues are ongoing for non-
mega power plants
• Various Service Tax issues are pending for the aviation
sector (e.g. on payments to CRS companies, Interline /
Codeshare arrangements etc.)
INDUSTRY WIDE ISSUESINDUSTRY WIDE ISSUES

22. RECENT TRENDS
22
SPECIFIC ISSUESSPECIFIC ISSUES
INDIRECT TAXINDIRECT TAX DIRECT TAXDIRECT TAX

23. HOME TRUTHS AND POINTS
TO PONDER
 Caesar to Caesar to proceedings
 At the adjudication level, 99% of tax demands are confirmed
 In appeals, approximately 86% of all revenue orders are set aside
 India adopts, local interpretation of all global tax laws
 The Indian Supreme Court, deals with more tax cases than the Supreme
Court of the fifty economies in the world (combined)
 Of the most publicized tax issues – potential recovery in excess of Rs. 25000
Cr were expected – How much did GoI actually recover?
 Pre-deposits – are we monetising bad orders and creating a method of
surrogate financing of Government by corporates
 Justification of arrest and coercive recoveries given appellate records
 Early stage distinction between issues of interpretation and acts of evasion
 Greater emphasis of new means and methods of settlement
23

24. THE FUTURE
24

25. 25

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