Unresolved tax dues: A budget blindspot that needs attention

Tucked away in the Union Budget documents are nuggets of data that do not get the attention or generate the discussion that they deserve. For instance, Annex 5 of the Receipts Budget 2024-2025 provides details of tax
revenues raised but not realised, a requirement under Rule 6 of the Fiscal Responsibility & Budget Management (FRBM) Rules 2004. These details, categorised under major tax heads as disputed and undisputed amounts, make for a dismal reading.

Alleged infringements of law, be it the Income Tax Act, the Goods & Services Tax Act (GST), the Central Excise or Service Tax, the Customs Act (CA), or the SEBI Act, invite consequential issues of notice to the entity concerned. After due process, a ‘speaking’ order is passed by the adjudicating authority, either dropping the charges or confirming the demand fully or partially.

Tax revenue is consequently ‘raised’—this is the amount which the department believes the taxpayer owes. The aggrieved party, be it the taxpayer or the department, has the right to dispute the order in the appropriate forum. The order, if accepted, becomes final, and these monies are unequivocally due to the government.

As per the receipt budget, a total amount of Rs 10.48 lakh crore is under dispute in corporation tax and on taxes on income other than corporation tax, while undisputed amounts total Rs 8.79 lakh crore. The position in indirect taxes is similarly not good and concerning. A total of about Rs 1.71 lakh crore is pending between the Customs, Union Excise, and Service Tax in cases where there is a dispute.

The total quantum of amount pending in cases that are not under dispute in these taxes is about Rs 28,929 crore. Even the recently introduced GST has an amount of Rs 2,317 crore under dispute and Rs 2,747 crore pending in cases where there is no dispute. If not kept under check, these are amounts that are likely to balloon. Typically, the reason for non-realisation of amounts ‘not under the dispute’ category is because there are no assets, inadequate assets for recovery, or assets not being traceable.

Thus, a total amount of about Rs 12.21 lakh crore under dispute is pending, while a total of Rs 9.08 lakh crore is the amount pending where there is no dispute. This is a staggering amount—to put matters in perspective, our total fiscal deficit of Rs 16.53 lakh crore could get wiped out if these amounts totalling to more than Rs 21 lakh crore are recovered.

The recently published annual report of the SEBI similarly has details of the amount termed ‘difficult to recover’ (DTR) as of the financial year ending 2023-2024. On March 31, 2024, a total amount of Rs 76,292 crore had been shown in the DTR category. The annual report also gives details of other cases, which are subjudice and pending in various legal forums, including the consumer forum. Under this category, a total of Rs 95,347 crore is shown as pending.

All of this raises the larger question—how are we going to address this issue? The trigger for demands being raised is the notice itself, which is the result of investigations. As we have witnessed, there is no shortage of trigger-happy, overzealous officials. Faced with such monumental demands, very many adjudicators buckle under the weight of the sheer numbers confronting them.

In case a taxpayer believes the demand is not justified, they have little choice but to go through the expensive litigation process; appeals are filed in the tribunals (the GST Tribunal has yet to start functioning) or the courts. The success rate of the department in the courts is poor, suggesting that the demand was ill-conceived.

A multi-pronged strategy is needed to address the issue. Departments are expected to have a pre-notice discussion with the taxpayer to get a preliminary view of the taxpayer. Data is not available to assess how this is working, but anecdotal evidence would suggest that this is a mere formality. The adjudicating authorities need to be empowered to act fearlessly and fairly.

All orders are subject to internal review to ascertain the legality and propriety of the decision. No review committee normally takes up cases where the decision is in favour of the department. The net result is the piling up of cases in courts. The courts need to be sensitised to take up these cases early and decide them. 

Serious focus is needed to recover the undisputed amounts pending. Task forces need to be created to ascertain the availability of the defaulters—civilised versions of the bouncers some banks are said to be engaging to recover loans—and they need to be put in place. In cases that are more than a decade old and impossible to recover, a committee needs to examine and recommend a write-off. While this is a difficult call, it needs to be taken with the approval of the government and perhaps also by involving the Public Accounts Committee. Otherwise, these amounts will continue to stick like sore thumbs in the budget documents.

(The writer is chairman (retired), Central Board of Indirect Taxes & Customs)