Unsettling the settled

A lot has been said about the rising amount of disputes in the field of taxation initiated by the Government over the last few years. The debate appears to be heading towards a logical conclusion with the Union Law Minister’s launch of the National Litigation Policy (NLP) in the last week of June. The NLP aims to ensure conduct of responsible litigation by the Government and to reduce frivolous appeals that are not necessarily to be contested. In keeping with the good intention of the Government to reduce the pendency of appeals lying at different stages of the Appellate proceedings, the NLP also suggests the ways in which the appeals in revenue matters need to be filed. It has been very clearly stated in the policy that the appeals shouldn’t be filed in cases where the matter is covered by a series of judgments of the Tribunal or High Court which have held the field and which have not been challenged before the Supreme Court.

Interestingly, it needs to be seen whether the Indirect Tax Authorities would be taking cognizance of this policy in its true sense at a time when they seem to be getting favourable decisions by distinguishing the settled judgments that prevailed over a period of time. A quick perusal of these judgments gives the impression that the authorities are not going to accept the settled law for the sake of accepting the same, but are trying to unsettle the settled law. Illustrations in this regard are as follows:

• Service tax applicability on the aspect of vivisection of the works contract has been settled in favour of the assessees by the Delhi Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case of Daelim Industries, in which the SLP filed in the Supreme Court has also been dismissed by commenting that there is no reason to interfere with the CESTAT Decision. Things seem to have been settled with this judgment till the CESTAT referred the question of vivisection of a works contract for service tax purposes, to the Larger Bench in the case of BSBK Private Limited. Recently, the Larger Bench held that the law laid down by Daelim Industries was not a good law and the same is liable to set aside.
• The Larger Bench of the CESTAT in case of GTC Industries clearly held that cenvat credit of service tax on outdoor catering is eligible for manufacturers and there is no reason why the credit should be denied as long as the same is related to activities of business. However, the Single Member bench of the Chennai Tribunal in the case of Sundaram Brake Linings India Limited has taken a completely different stand and held that outdoor catering cannot by itself be considered as an input service.
• The famous Chandrapur Magnet Wires decision of the Supreme Court has been completely distinguished by the Mumbai High Court in the case of Nicholas Piramal (India) Limited whereby the option of choosing between reversal of input credit vs. payment of prescribed amount has been held to be not available for assessees, when there is no available provision in the law. Although there are subsequent changes made by the Finance Act, 2010, the Nicholas Piramal Judgment has created uncertainty on the aspect of reversal of credit vs. payment of a prescribed amount.
• The Microsoft decision (although a stay) created controversy when the CESTAT held that so long as the ultimate consumer is in India, there cannot be an export of service even though the contract for provision of service is with a foreign entity. This seems to be radically different from the views which the earlier benches of the CESTAT and in fact the CBEC have taken on the identical subject.

While the list aforementioned is only an illustrative list, there are many more judgments in the recent past which have reversed several settled principle (eg: Vandana Global). Things seem to be clear from the aforementioned series of instances that the Department Authorities are not going to accept a settled principle. The view of the CESTAT / High Court is constantly coming under pressure where authorities at different parts of the country are interpreting the judgments in different ways and able to find ways whereby they can unsettle the settled law by repeatedly contesting the same matter at different levels.

As this is the case with the indirect tax litigation, the NLP has given a different dimension to the entire process of litigation requiring the Government Authorities to follow the settled law. When the Government authorities are fighting hard to unsettle the settled law and are able to garner revenue for the Government, the NLP is expected to curtail their overjealous attitude. It would be interesting to see, in the coming days, whether the Authorities would be able to consistently follow the trend of unsettling the settled law or the NLP gains acceptance and brings down the indirect tax litigation.

The authors are with Deloitte Touche Tohmatsu India Pvt Ltd. The views expressed are personal and not those of Deloitte Touche Tohmatsu India Pvt Ltd.