Unraveling the Web of Taxation: A Call for Clarity and Fairness

In recent months, a series of Supreme Court judgments on tax-related matters have overwhelmingly favored the taxpayers. While these rulings have provided much-needed relief to appellants, they have also shed light on a concerning trend in the tax department's approach to collections.

   It appears that the tax department, in its pursuit of aggressive tax collection targets, has been creating tax demands based on shaky grounds that are unsustainable in court. The rationale behind this approach becomes clearer when one considers the financial burden placed on taxpayers who wish to appeal such demands. The tax department understands that imposing a hefty tax demand requires taxpayers to pay a significant amount, typically 10% to 20%, under protest to initiate an appeal

   This strategy allows the tax department to meet its collection goals swiftly. Moreover, the department is aware that the final resolution of these issues often lies with the Supreme Court, a process that can take several years. During this time, the tax department retains the collected taxes without an immediate obligation to refund the amounts paid under protest

As a consequence of this aggressive approach, taxpayers in India find themselves living in a state of tax-related anxiety, lacking clarity on how they will be taxed. Additionally, businesses must allocate substantial funds towards litigation costs to navigate the complexities of the Indian tax system.

To substantiate the captioned facts I would like to refer the recent Supreme court ruling in the case of Suncraft Energy. The court upheld a demand for Input Tax Credit (ITC) against the service recipient based on discrepancies between GSTR-2A and GSTR-3B, despite the absence of any investigation at the supplier's end. Prior to this judgment, the tax department had already issued substantial tax demands to numerous taxpayers, collecting taxes from them. Now, taxpayers who complied with these demands are left wondering about the process to obtain refunds for the taxes paid.

In another significant ruling, the Supreme Court, in the case of Vegetable Products Ltd, emphasized that when a taxing provision allows for multiple interpretations, the one favoring the taxpayer should be adopted. This ruling provides relief to taxpayers who faced hefty tax demands based on differing interpretations rejected by the tax department, resulting in substantial litigation costs and the burden of taxes paid under protest.

It is evident that not all taxpayers have the financial capacity to pursue legal recourse through writs in the High Court and continued litigation in the Supreme Court. The tax department's awareness of this fact raises concerns about the harassment of genuine taxpayers solely to meet collection targets

In light of the government's efforts to promote "Make in India" and improve the country's economy, there is a pressing need to address the ambiguity in taxation. This entails halting the blind collection of taxes when a taxpayer wishes to appeal and establishing mechanisms to compensate taxpayers for their litigation costs when they prevail in court. Such measures would instill confidence in businesses and contribute to a more equitable and transparent taxation system