Service tax litigations have increased substantially in recent years and that may be due to absence of a pan-India Goods and Services Tax (GST) regime that can possibly remove several ambiguities around indirect taxation, experts maintain.
A total of 75,314 litigations were pending with the Department of Revenue, the Supreme Court, state high courts, specific tribunals and settlement commissions in 2014-15 with revenue implications of as much as Rs.1,51,414 crore, according to India's official auditor.
"While the number of pending adjudication service tax cases increased by 66 percent, the amount involved in these cases increased by 143 percent. The number of cases pending for more than one year almost tripled," the Comptroller and Auditor General (CAG) said in a recent report.
"As no action can be initiated for recovery of revenue till the appeal is pending, locking up of revenue of Rs.155,489 crore is a matter of concern."
Finance Ministry's Department of Revenue alone was dealing with thousands of cases having a monetary implication of Rs.77,463 crore as on March 31, 2015. Of these, 12,668 cases were before it for more than one year, the audit report said.
Senior officials in the finance ministry, as also stakeholders outside -- notably professionals in taxation laws -- feel many of the issues in indirect taxes like on double taxation, were arising in the absence of GST.
"The scope of service tax litigation will be definitely curtailed once GST is implemented. There are certain grey areas in the existing laws around service tax, that is leading to many litigations," a senior finance ministry official said.
"It's a consensus -- that GST will be the solution to preventing service tax litigations."
The reasons are many: Some service tax items have been vehemently opposed. Courts have put on hold such levies, like on legal services provided by advocates. Industry is crying foul over such tax on transporting goods by vessels, saying it amonts to double-levy, after having paid customs duty.
Thus far, however, the bill to bring the GST regime into force is stuck in parliament.
Tax litigation firm Advaita Legal said that service tax litigations have risen much more than excise and other tax-related cases. "We are on way to seeing more such cases. GST would have taken care of all these issues," the firm's partner and national head Sujit Ghosh said.
Associated Chambers of Commerce and Industry of India (Assocham) also asserted that service tax litigations are heading towards a rise, if not addressed timely. "The current taxation concepts are vague. Many lead to double taxation," said J.K. Mittal, co-chair of its indirect tax panel.
"Looking at the pendency in courts, service tax litigations have taken predominance. GST won't completely eradicate litigation. But yes, because of simplifications and removal of ambiguities, it should lead to less litigations," PricewaterCoopers India partner Amit Bhagat said.
"GST is agnostic to any kind of exemption. It is intended to simplify things," Bhagat said. "Let's see how it pans out."