Over the past decade, significant changes have been made to the Indian tax structure. Tax rates, laws and tax litigation have been streamlined for improved compliance, simple tax payment, and better enforcement. The impact of rationalising tax administration and direct/ indirect tax litigation is a process that never ends. Before the GST regime, there were several indirect tax heads that existed and dominated the business scenario in the country.
Due to multiple tax heads, businesses found it difficult to manage their taxation due to the number of everyday transactions that they were responsible for. This led to tax fraud and litigation. The pre-GST litigation is still prevalent and tedious to deal with. In our previous post, we discussed GST litigation and here in this article, we will discuss taxes in the pre-GST era and pre-GST litigation in detail…
Taxes in the pre-GST era
Just as today, there were two main types of taxes in the pre-GST era as well – Direct Tax and Indirect Tax. And there is litigation for all types of taxes.
Direct Tax: Direct Tax is a type of tax that is paid directly to the government by an individual or institution. In other words, the taxpayer cannot shift the direct taxes to another party whatsoever. Direct taxation consisted of:
- Income Tax
Indirect Tax: Indirect Tax is a type of tax which is levied on goods and services. The manufacturer, service provider, vendor, etc., have a direct obligation to pay indirect tax. Consumers eventually shoulder the burden. Indirect taxation was further divided into several taxes which are as follows:
- Sales tax
- Value-added tax (VAT)
- Excise tax
- Customs Duty
- Service tax
Reasons for Pre-GST Litigation
Disputes, disagreements, frauds and illegal dealings in the pre-GST and even GST regime are quite common. The number of companies, transactions and people involved in these transactions are responsible for disputes and disagreements. Since there were multiple tax heads, it was difficult to keep track of them all. Several litigation cases are a result of tax audits by officials while some are due to appeals made by the business owners or taxpayers. Tax disputes that get started by the tax authorities on tenuous legal grounds, engage the taxpayer in a drawn-out legal battle until the High Court or Supreme Court can grant relief.
What is Pre-GST Litigation?
Pre-GST litigation comes under the indirect tax litigation category. Litigation and cases that are continuing from the pre-GST regime prior to July 2017 are all grouped under Pre-GST litigation. Cases related to Excise, Sales tax, VAT etc. are covered under this litigation system.
Why handling pre-GST litigation is difficult?
There are several reasons why handling pre-GST litigation is considered tedious. Listing down a few reasons below:
1. Manual work/documentation: A lot of the legal data is made and stored manually even today. It is laborious to handle important documents that were paper based with no digital copies from the pre-GST era.
2. Misplaced documents: Certain documentation and paperwork from the pre-GST era is not even available today making it strenuous for taxpayers as well as the authorities.
3. Old data/circulars: Old notifications and circulars from the government are arduous to look for and use in the current taxation system. Also, tax rules have changed a lot over the years.
4. Authorities change: Several authorities, tax officials, and court judges have retired, transferred or changed over the course of time. Present-day GST litigation cases are on the rise too thus handling pre-GST litigation with new officials who may or may not be well-versed with previous laws can also slow down the process.
5. Current GST and Tax Rules are completely different: After the implementation of GST laws and one nation one tax rule for businesses, the Indian judicatory laws have also completely changed. Different taxation has different rules and methodologies that are supposed to be followed.
Delayed processing because of pending cases: The number of pending taxation cases in India is in lakhs and it is expected to increase even further while the courts and officials handling the cases are limited.
Dealing with Pre-GST Litigation
Businesses find it difficult to manage the documentation and processes from the pre-GST regime due to the long proceedings. Since the regime has changed and GST is an evolving law, the return filing and processes are all extremely different. In GST there is only one tax however, in the Pre-GST regime, there were multiple different taxes with different proceedings for each.
Introduction of the GST Amnesty Scheme to Resolve Pre-GST Litigation
In order to put to rest the age-old Pre-GST Litigation, the Maharashtra Government introduced an Amnesty Scheme. The scheme has been devised to settle all open tax disputes related to the pre-GST era. It was introduced by passing an ordinance, namely, Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fee Ordinance, 2019.
The amnesty scheme allows for the settlement of Pre-GST tax disputes by way of waiver of a certain percentage of Tax demand, Interest and penalty in relation to these tax disputes.
Later, a lot of states introduced the GST Amnesty Scheme and settled the pre-GST Litigation issues faced by the business community.
Managing the litigation for the pre-GST taxation system can be even more challenging. Taking care of the due dates, managing documentation, preparing reports etc. in excel can be strenuous.
So, it is the need of the hour that businesses opt for a smart litigation management software to manage their cases pertaining to Pre-GST litigation and GST litigation in general.
If you’re looking for a time-saving, easy-to-use and efficient Litigation Management Software, IRIS LMS is your answer!
IRIS LMS (Litigation Management Solution) is here to solve all your GST audit and litigation problems which includes keeping a track of due dates, notices, facing audits and managing cases. The solution has been designed to assist you in facing the GST audits efficiently and managing GST litigations effectively.
How can IRIS LMS help you?
Face departmental Audits Seamlessly by providing:
- Transaction Matrix – Map all types of supplies with the tax implications thereby creating a matrix of transactions which would serve as the GST profile of the company.
- Tax Position Repository – Maintain a repository of all the tax positions along with the facility to archive the judicial precedence or Legal opinion based on which such tax position has been taken. Revalidate your tax positions at regular intervals with the help of automatic updates on such tax positions provided by LMS
- Checklist-driven Data Archival System – Proactively collate and archive data/documents required for facing a departmental audit with the help of an exhaustive checklist-driven archival system with a one-touch retrieval mechanism.
- Audit Tracking System – Track the progress of audits across GSTINs, Divisions, and Legal Entities (in a group) by capturing all relevant details right up to it becomes litigation.
Streamline and Manage Litigation Effectively by providing:
- Single Repository of all Pre-GST Regime and GST litigations – LMS serves as a single repository of all Pre-GST Regime and GST litigations for monitoring them across various adjudication / appellate forums across multiple GSTINs, Divisions and Legal Entities.
- Analytics Dashboard – Intelligent Analytics Dashboard to provide decision makers with various crucial analytics data like Issue wise analysis, Aging analysis, Divisional analysis etc.
- Dataflow Design – Data flows that capture internal processes for litigation management as well as any possible scenario throughout the life of litigation including department appeal, cross objections, Writ petitions, and Remand back proceedings.
- MIS Reports – Master Report comprising of extensive details which are useful for decision making in litigations such as demand of tax, interest and penalty; Pre-deposit, Amount admitted and paid, Risk portfolio, Case status, remarks etc.
- User Access Controls – Manage unlimited users at PAN and GSTIN levels with detailed access controls to manage permissions and access levels across the organization.
- Contingency Liability Reporting and so much more – LMS provides Contingency Liability Report consistent with the format adopted by listed companies providing for quarterly movement in provisions made in books of accounts, Contingency liability disclosure, CARO Disclosure, Last hearing date etc.
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