The government's decision to increase the monetary threshold for appeals in tax litigations would lead to unlocking of close to Rs 5,600 crore. Though this is merely 0.8 per cent of the total Rs 7.6 lakh crore stuck in tax litigations across different courts and tribunal, the move would lead to 41 per cent reductions in income tax cases and 18 per cent reduction in indirect tax cases.
While it's a big relief for both taxpayers as well as tribunals and courts, there is one particular clause in the circular issued by the revenue department that may play spoilsport. The circular says that the threshold 'will not apply in such cases where substantial point of law is involved'. This particular condition may give tax officers discretionary power to continue pursuing a case in higher courts despite not crossing the threshold for appeal. This clause has been put in the circular to guard revenue interests.
"You can't always go by the amount. Sometimes the tax impact of a litigation is low but its impact on revenue could be high. The point of law could be very significant and it could have very significant impact on other cases in future," says Sanjay Sanghvi, Partner, Khaitan & Co.
However, there is fear that such a clause could be misused to deprive some taxpayers of the exemption given by the new order. "Though there are set precedence for determining if a substantial question of law is involved or not, in some tricky cases the tax officers can certainly use their discretionary power of refuse exemptions to some taxpayers," says Amit Maheshwari, Managing Partner of law firm Ashok Maheshwary & Associates LLP.
The threshold for filing appeal at the Income Tax Appellate Tibunal (ITAT) and The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has been increased from Rs 10 lakh to Rs 20 lakh, for High Courts the limit has been increased from Rs 20 lakh to Rs 50 lakh and in case of Supreme Court the limit has been increased four-fold to Rs 1 crore. This increase in the threshold would automatically lead to withdrawal of many pending cases direct and indirect tax litigations.
A similar move was taken in 2015 when the government increased the threshold monetary limit, and income tax department had withdrawn 17,000 cases pending before various appellate courts having tax effect less than the stipulated threshold monetary limit at the time.