We owe it to the present Finance Minister for having made us aware of the National Litigation Policy (NLP). In Para 127 of the Budget Speech the Minister referred to steps being taken for reducing litigation and focusing attention on high Revenue cases in accordance with the NLP.
The Central Government formulated the NLP in October 2009 with the objective of reducing cases pending in various courts. The average pendency of any litigation in any court should not exceed 3 years. The Policy recognises the fact that government and its various agencies are the predominant litigants in courts and tribunals. The Policy Resolution refers to various aspects of litigation such as Government representation, adjournments, pleadings and counters, filing of appeals etc., The Minister announced that instructions have been issued raising limits of tax effects below which disputes will not be pursued by Governments in higher Courts of Appeals. These measures would enhance productivity of resources employed in raising Revenue.
The CBDT has come up with Instruction No.3 of 2011 dated February 9, 2011 laying down that Appeals shall not be filed in cases where the tax effect does not exceed certain monetary limits (See Table)
Even when the tax effect exceeds the limit, the board does not approve of automatic filing of appeals. The question has to be decided on merits of the case. The tax effect will not include interest when chargeability of interest itself is in dispute. Tax effect in respect of disputed issues will have to be calculated separately for every assessment years. Appeals can be filed hereafter, only with reference to the tax effect in the relevant assessment year. The decision not to file an appeal will not mean acceptance of the Ruling on the disputed issue. Appeal can be filed in other cases or in the case of the same assessee for other years when the monetary limit is exceeded. In other words, such decisions will have no precedent value.
At the same time, the board authorises filing of appeal in all cases where the constitutional validity of the provisions of the Act or Rule is under challenge, or where Board's Order, Notification, Instruction or Circular has been held to be illegal or where Revenue audit objection in the case has been accepted by the Department. Special Leave Petition (SLP) before the Supreme Court can be filed only in consultation with the Law Ministry. These monetary limits will not apply to writ matters.
The Camco Case
Courts do not entertain appeals filed disregarding the monetary limits specified by the board. The Bombay High Court in its leading judgment Camco Colour Co. 254 ITR 565 held that such invalid appeal is best withdrawn by the department. The court issued notice to the Commissioner in 331 ITR 433 to move the CBDT in order to get an authorisation for withdrawing such appeals filed against such circulars. In this case, the Commissioner tendered an apology for having filed an invalid appeal. The Court directed refund of proportionate court fee on withdrawal of the appeal.
Pending Proceedings
In Inamdar's Case 318 ITR 149, the Bombay High Court held that the revised monetary limit should apply for all pending appeals. The Punjab and Haryana High Court, however, dissented and ruled that instructions prevailing on the date of filing of the appeal alone should be relevant to decide whether the appeal is valid or not.
The latest instruction categorically states that it will apply to appeals filed on or after February 9, 2011.
Tax Arrears
Direct Taxes in arrears total more than Rs 3,00,000 crore. This is much higher than the personal tax collections a year. Appeals pending before the first appellate authority involve tax arrears of Rs 2.20 lakh. According to figures furnished in Parliament, only 30 per cent of appeals could be disposed of in the last financial year. Several Benches of the Tribunal remain vacant. It was with a view to recovering taxes in high demand cases that time limit for completion of assessments was brought back to December, instead of March.
It is a sorry state of affairs that the tax department is a big litigant and files appeals disregarding instructions of the board. Nobody has a more sacred obligation to obey the law than those who make the law. The Civil Procedure Court has built-in provisions concerning monetary limits for various courts. In keeping with the NLP, the Finance Ministry should consider restructuring the Appeal provisions in the income-tax law, making the monetary limits for filing appeals a part of the statute. The execution of the laws, as Mr Thomas Jefferson, is more important than the making of them.
(The author is a former Chief Commissioner of Income-Tax.)
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