We don’t need no litigation

The World Bank’s ‘Doing Business’ report provides an objective measure of business regulations and their enforcement across 189 economies. A higher ranking indicates better, usually simpler, regulations for businesses.

The very fact that it is easier to do business in Pakistan than in India, and that India is getting to be a harder place to do business is alarming. While Singapore has consistently maintained the highest rank, India has also stayed consistent — but in the lower-ranking range of 132 to 134.

In the Congress’ election manifesto for 2014, priority has been given to improving India’s ‘Ease of Doing Business’ (EODB) ranking from the current 134 to 75 within five years by streamlining tax enforcement systems, among other things. But it appears that the masterminds behind the Congress manifesto have conveniently forgotten another global ranking — the Corruption Perceptions Index (CPI) by Transparency International.

EODB is synonymous with low levels of corruption. Singapore, Denmark and New Zealand rank higher on EODB parameters, thanks to their low CPI of 5 and 1 (Denmark and New Zealand ranked a joint first), whereas India languishes at 94. Even China is better, at rank 80.

Another stumbling block in the path of EODB is mounting litigations in direct as well as indirect taxation. An answer given in the Lok Sabha recently pointed out that the amount locked in income-tax litigation appeals as on December 2011 was almost ₹4.36 lakh crore, involving more than 2.5 lakh cases. Indirect tax cases pending at various courts and tribunals exceed one lakh in number and Rs 1 lakh crore in value.

The success rate of the government in the apex court in such cases is hardly 11 per cent. This means that in nearly 90 per cent of the cases, the government couldn’t make its case stick.

Even though the Central Government has formulated a National Litigation Policy (NLP) to shed the tag of being the nation’s largest litigant, it continues to file frivolous appeals. That is what the Courts have observed, more than once.

The Mumbai High Court, in Techno Economic Services Pvt Ltd vs CCE (2010-TIOL-464-HC-MUM-CX), commented that the Government is the largest litigant, accounting for 70 per cent of the three crore cases pending in various courts.

The average time taken for an indirect tax case to attain finality after passing through different adjudication forums, such as jurisdictional Asst Commissioner of Excise, Customs and Service Tax, Commissioner (Appeals), CESTAT, High Court and Supreme Court is 14 to 20 years.

The Biennial Report of the Delhi High Court (2010-12) states that the average expenditure incurred per minute of the Court’s working is ₹ 15,678. But that doesn’t stop the government from wasting the time of various courts.

The Supreme Court, in a recent case, criticised the Commissioner of Central Excise, Madurai, for unnecessary litigation up to the apex level on a small amount of duty of ₹ 1.34 lakh. ( CCE vs Ayyappan Textiles Ltd 2013-TIOL-34-SC-CX).The dispute was over the quality of a batch of cotton yarn, but the litigation has travelled between different adjudicating authorities since 1993, resulting in a colossal waste of time of the adjudicators including of the Supreme Court.

The High Court of Karnataka, in the case of Adecco Flexione Workforce Solutions Ltd (2011-TIOL-635-HC-KAR-ST), observed that though the law does not say so, authorities working under the law seem to think otherwise and thus they are wasting valuable time in proceeding against persons who were paying service tax with interest promptly.

In a recent case ( Alok Enterprises vs CCE, Mumbai-III — 2014-TIOL-208-CESTAT-MUM), the short-payment of excise duty due to a clerical error was a paltry ₹10. The demand of duty, with penalty and interest, was ₹ 2, 12,345 and it took almost six years to get final relief from the Mumbai Tribunal.

Unless unwanted and frivolous litigation by the government is bridled, there can be no improvement in ‘ease in doing business.

The writer is a tax specialist with an MNC.

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