Unease in doing business: Legal wrangles remain bane of running operations in India

Notwithstanding the striking progress made in ease of doing business, India continues to lag behind Pakistan, Congo and Sudan when it comes to enforcing contract agreements.

Pointing to the long-standing problem of rising pendency of economic and tax-related cases in the Indian courts and Economic Tribunals, the Economic Survey said the next frontier on the ease of doing business front will be addressing these issues in the appellate and judicial arenas to boost economic activity.

Throwing light on the problem of “delayed and hence denied justice” by quoting actor Sunny Deol’s memorable film dialogue “ tarikh-par-tarikh ” (date followed by date), the Survey said the high number of pending economic cases with the Supreme Court, Economic Tribunals and Tax Department has led to stalled projects, hurdles in dispute resolution and contract enforcements, escalation in legal costs for companies and the government and has also adversely impacted investments.

The average age of pending cases across the tribunals is 3.8 years. The explosion of pendency in telecom and electricity was the result of interventions by the Supreme Court, says the Survey. Infrastructure project are among the worst hit by cases pending across various courts.

The Survey goes on to suggest that the Centre, particularly the Tax Department, should “exercise greater self-restraint” by limiting appeals, given their low success rate.

It has noted that the success rate of the Tax Department at appellate tribunals, high courts and the Supreme Court for both direct and indirect litigation is less than 30 per cent and in some cases it’s as low as 12 per cent.

“The Department unambiguously loses 65 per cent of its cases. Over a period of time, the success rate of the Department has only been declining, while that of the assessees has been increasing,” it added.

The Survey has urged the government and the judiciary to work together on large-scale reforms and incremental improvements to combat these issues.

It suggested that the Tax Department limit the number of appeals by either forming ex-ante rules for limiting appeals or by creating an independent panel to decide on further appeals of tax verdicts against the department.

Some of the other recommendations include expanding judicial capacity in lower courts to reduce the existing burden on high courts and the Supreme Court, increasing state expenditure on judiciary and improving courts’ case management and automation systems.

Abhishek Goenka , Leader-Corporate & International Tax, PwC, said: “The Economic Survey recognises the need to address the ever-growing tax litigation in India. With the Tax Department being the largest litigator with a low success rate, the government may be expected to introduce measures to curb frivolous litigation and promote tax certainty.”

Riaz Thingna, Director, Grant Thornton Advisory Pvt Ltd, said: “The Economic Survey has rightly highlighted the need for an effective and efficient judicial disposal system as a development area. While we have experienced a higher level of discretion by the Tax Department in litigating on tax positions taken by taxpayers, this area requires a structural change in the approach to dispute management as recommended by the Tax Administration Reforms Commission in its first report in 2014.”

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