Making VAT ADR effective at Supreme Court level

Md. Abdur Rouf and Farhana Khan | Published: December 05, 2018 21:24:14 | Updated: December 22, 2018 12:57:46

Alternative Dispute Resolution (ADR) is globally regarded as an easier and more accessible mode of resolving disputes over the traditional, more complicated and expensive regime of litigation in courts. In the legal system of Bangladesh too, in line with the global practices and trends, there are mechanisms for ADR. The Arbitration Act, 1940 was modernised in 2001 to suit the current needs by enactment of Arbitration Act, 2001 to facilitate arbitration. The Civil Procedure Code, 1908 was amended in 2012 to introduce mediation provisions for all forms of civil disputes. In the same spirit, ADR provisions were introduced for all forms of direct and indirect taxes in 2012.

The aim of enacting ADR provisions across various laws was the same: reduction of large backlog of cases. For the disputes involving revenue matters like Value Added Tax (VAT), an additional and rather more important incentive was to recover the large amount of taxes stuck in the cases pending before the courts. It can be mentioned here that at present there are about 3,500 VAT related cases pending with the Supreme Court of Bangladesh involving about Taka 188 billion.

However, as with the civil cases, the ADR mechanisms for revenue disputes have been met with little success since their enactment. In this article, the ADR provisions available for pending cases pertaining to VAT and the application of such provisions in practice will be discussed.

Section 41(Uma) (4) of the Value Added Tax Act, 1991 provides for referral of VAT disputes by the Supreme Court of Bangladesh to appropriate authority for resolution through ADR process. Such reference may be made by the honourable Court suo moto or upon application of the aggrieved person. However, referral to ADR upon application by an aggrieved person is conditioned by prior permission of the concerned Division (Bench).

The provisions of the Act have been supplemented by the Value Added Tax (Alternative Dispute Resolution) Rules, 2012.

Perusal of the ADR provisions of the Act and the rules would reveal that they contain no guidelines as to the criteria to assist the Court in determining the eligibility of a dispute for resolution through ADR. Given that Value Added Tax is inherently a technical area, these guidelines could certainly have contributed to the Court's suo moto actions in making referrals of VAT disputes to ADR. 

In developing the culture of resolution of disputes through ADR, it should be remembered that culturally, the prevailing sense of justice in the country is more inclined towards fighting out the disputes and vindicating the rights through public declaration by the courts as opposed to through resolution via discussion behind closed doors. It goes without saying that adoption and enforcement of any new mode of addressing problems, whether in the arena of dispute resolution or otherwise, largely depends on the culture in which such new technique is proposed. Accordingly, to ensure success of hitherto seldom practiced method of resolving VAT disputes through ADR, such method has to be backed by enough incentives tailored to the unique cultural understanding of dispute resolution in Bangladesh.

The purpose of devising ADR mechanisms is clear in the mind of the policymakers i.e., reducing caseload and expediting recovery of stuck-up revenues. But unfortunately, the provisions do not contain enough clarity and incentives for any of the parties involved to encourage them to opt for resolution of outstanding VAT disputes through the ADR process.

Accordingly, in order to make the ADR provisions effective and making a real impact in terms of decreasing backlog of cases and recovery of stuck-up taxes, the ADR provisions may be revised in the following manner:

  1. Providing guidelines setting out objective criteria for the Court to facilitate suo-moto referral of VAT cases to ADR;
  2. Providing for incentives for lawyers in tangible and/or intangible form e.g. according annual recognitions to lawyers who successfully resolve certain number of cases through ADR;
  3. Incentivising taxpayers to resolve ADR disputes by allowing income tax/VAT benefits e.g. rebate, refunds etc. for the year when the dispute is resolved through ADR;
  4. Formation of dispute resolution panel by the honourable Chief Justice consisting of professionals having expertise in dispute resolutions and mediation;
  5. Clearly defining the roles of mediator e.g., facilitating the discussion between the parties, creating and maintaining congenial environment, defining issues in dispute, regulating the discussion within parameters of necessary and relevant matters, etc.;
  6. Strictly enforcing the provisions of section 41Ta of the Value Added Tax Act, 1991, conferring confidential status to the ADR proceedings, documents and information presented in the ADR proceedings so as to encourage taxpayers to resolve disputes through ADR without fear of further persecution.

In addition to the above revisions, to promote resolution of disputes through ADR, it is imperative that National Board of Revenue (NBR) organises awareness campaigns and training for its internal officers, dispute resolution professionals and taxpayers to help them better understand the alternative dispute resolution mechanisms for VAT and its benefits.

Such educative initiatives will dispel confusions and fear of unknown surrounding the ADR mechanisms, helping stakeholders to adopt the mechanism more spontaneously. This will, in the long run, produce the desired effect of lessening case-log and recovering a large chunk of revenue stuck with the cases.

Dr. Md. Abdur Rouf is Founder Chairman, Bangladesh VAT Professionals Forum (VAT Forum). Barrister Farhana Khan is an advocate of the Supreme Court of Bangladesh.



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