Direct and Indirect Tax Litigation in India

Tax litigation in India is like a vast maze that occupies a large portion of judicial time. This is due to the ever-changing, complex laws and structural lack. Also, depending upon the type of taxes, there are differences in laws and jurisdictions. According to data on the law ministry’s Legal Information Management and Briefing System (LIMBS) website, the finance ministry has the most cases pending, with 1,59,240 pending cases in which it is a party to the litigation.

The judicial procedures are long and tedious. The need for a structured litigation management system is felt by almost all the businesses involved in litigation and assessments. Finance Minister Nirmala Sitharaman stated in her budget announcement on February 1, 2022, that the government will create a litigation management system “to avoid repetitive appeals by the department.”

In this article, we will discuss the basics of Tax Litigation in India, the two main types of taxation, and the litigation associated with it that businesses need to be aware of.

What is Tax Litigation?

To understand Tax litigation, let us first understand what are taxes?

Taxes can be defined as an obligatory contribution to the Government by individuals or corporations who fall within the tax bracket. Taxes are levied on citizens to generate revenue for commercial ventures, improve the country’s economy, and raise the national standard of living.

Litigations on the other hand can be defined as ‘the process of taking legal action in a court of law’. Corporate litigation law deals with disputes that arise from non-criminal business and commercial activities.

Thus, tax litigation consists of legal actions taken around disputes arising from tax non-payment or delayed payment by the taxpayers or unwanted/unauthorised tax collection by the authorities etc.

Broadly, there are two main types of taxes – Direct Tax and Indirect Tax. And there is litigation for all types of taxes.

1.1 What is Direct Tax Litigation?

As the name suggests, ‘Direct Taxes’ are levied by the government directly on an individual or a company, and they cannot be transferred to another person or entity. The Central Board of Direct Taxes (CBDT), which is overseen by the Department of Revenue, is the only federation that rules or is the decision making authority for direct taxes. All kinds of litigation related to direct taxations fall under this category.

1.2 What is Indirect Tax Litigation?

Indirect taxes are taxes that are levied on products and services provided by the businesses to the consumers. In July 2017, many of the indirect taxes were subsumed and the country moved to ‘One Nation One Tax’ conduit channeling the entire tax collection to a single authority. The multiple tax systems were replaced by the Goods and Service Tax (GST). GST is imposed on items and is collected through an intermediary i.e. the individual selling the product like shopkeepers, e-commerce operators etc. called as taxpayers. So, any litigation pertaining to GST falls under this category.

But, since GST was implemented in July 2017, there are several pending cases from the pre-GST regime as well. So, litigation for indirect taxes also is divided into two types, they are as follows:

1.2.1 Pre-GST Regime Litigation

Litigations that are continuing from the pre-GST regime prior to July 2017 fall under the category of Pre-GST litigation. Cases related to Excise, Sales tax, VAT etc. are covered under this litigation system. However, businesses find it difficult to manage the documentation and processes from the pre-GST regime due to the long proceedings. So, businesses should opt for litigation management software solutions to manage their cases.

1.2.2 GST Litigation

Any Indirect tax litigation after the introduction of GST in July 2017 falls under the category of GST litigation. GST since its introduction has been continuously evolving. There are changes that get communicated via multiple authorities, notifications, circulars etc. The GST Council is a separate authority deciding expected changes in the law from time to time. Hence, it is important for businesses to understand the nitty-gritties of GST litigation.

Being prepared for the Departmental Audits and Litigation under GST will ensure proactive response by businesses to defend their cases. Audits are performed not just on a scheduled basis, but also if a questionable record or change in the GST filing is discovered. Hence, it is imperative to collate, maintain and validate data required for departmental audits on a proactive basis.

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If you are looking for an efficient Litigation Management Software, choose IRIS LMS!

How can LMS help you?

IRIS LMS is a Litigation Management Solution (LMS) developed by IRIS in association with DAA Consulting, a specialized Indirect Tax Consulting Organization with in-depth experience in litigation, knowledge of the subject and understanding of the practical difficulties faced by various industries.

IRIS-DAA have combined their individual strengths of Technology and Subject Matter Experiences & Expertise to develop a robust product anticipating the needs of the industry in light of the faceless assessments under GST which is in pipeline.

LMS is a cloud-based litigation management software with Artificial Intelligence, Proactive alert mechanism, extensive reporting and analytics dashboard for enterprises.

LMS is here to assist you in facing GST departmental audits and to efficiently manage GST litigations.

Further, Integration through API with GSTN Portal is under request with GSTN to enable better tracking.

What can you do with IRIS LMS?

Track: Status of Litigations on real-time basis at GSTIN Level
Store: Complete trail of Litigation from 1st Letter to Replies, Hearing Proceedings to Final Order
Retrieve: Data through friendly UI with custom categorizations
Archive: Gst Returns Data and Various Reconciliations to handle Departmental Audit in the future
Alerts: For various Due Dates for Pending Replies, Appeals, Personal Hearings, Written Submissions

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