SVLDR Scheme 2019 | For closing past litigations or to create new litigations?

Whether Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, is for closing of the past litigations or to create new litigations?

It has been more than two and half years since implementation of GST in India. However, there are huge pending litigations from pre-GST regime. Therefore, with a view to quick closure of these litigations, various State Governments including the Maharashtra Government, has already announced the amnesty scheme in respect of state taxes which got subsumed in GST. Following the same, in the Union Finance Bill 2019, the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (“SVLDR Scheme”) has been proposed. The said Finance Bill has received Presidential Assent and became ‘The Finance (No. 2) Act, 2019‘ (“Finance Act, 2019”). Section 120 to section 135 i.e. Chapter V of the Finance Act, 2019 contains the detailed provisions in respect of SVLDR Scheme.

Section 120(2) of the Finance Act, 2019 provides that the provisions of SVLDR Scheme would come into force with effect from such date as the Central Government may appoint, by way of Notification. In this regard, the Central Government has issued Notification No. 04/2019 Central Excise-NT dated 21^st August, 2019, which provides that the SVLDR Scheme would be effective from 1^st September, 2019.

It is pertinent to note that the SVLDR Scheme is applicable only in respect of central taxes which are subsumed into the GST such as Central Excise, Service Tax, etc. The SVLDR Scheme broadly provides for the waiver of certain portion of amount of such central taxes. The SVLDR Scheme also provides for full waiver of interest and penalty in respect of such central taxes.

Section 124(1) of the Finance Act, 2019, provides extent of relief which can be claimed under various categories. Further, section 124(1) of the Finance Act, 2019 is subject to section 124(2) of the Finance Act, 2019, which provides that the relief calculated under section 124(1) shall be subject to the condition that any amount paid as pre-deposit at any stage of appellate proceedings under the indirect tax enactment or as deposit during enquiry, investigation or audit, shall be deducted when issuing the statement indicating the amount payable by the declarant.

Therefore, it is crystal clear that one has to firstly deduct the amount of relief from total amount in dispute and thereafter the pre-deposit should be deducted to arrive at final amount payable under the SVLDR Scheme. There was no ambiguity whatsoever in the said provision. Later on, Central Board of Indirect Taxes and Customs (“CBIC”) has issued Circular No. 1072/05/2019-CX dated 25^th September, 2019. Para (iv) of the said Circular states that in case of arrears category, relief should be calculated after deducting the pre-deposit amount. Para (iv) of Circular further provides that in cases other than arrears category, relief should be calculated firstly and thereafter pre-deposit amount should be deducted to arrive at final amount payable under the SVLDR Scheme.

In our view, the said Circular has tried to create differentiation between arrears category and other categories which has not been created by the SVLDR Scheme itself. Therefore, the Circular is ultra-virus the SVLDR Scheme, to the extent it is creating differentiation between arrears category and other categories and therefore is not sustainable in law.

Further, as per section 125(1) of the Finance Act, 2019, all persons shall be eligible to make declaration under SVLDR Scheme except following:

a. who have filed an appeal before the appellate forum and such appeal has been heard finally on or before 30^th June, 2019;

b. who have been convicted for any offence punishable under any provision of the indirect tax enactment for the matter for which he intends to file a declaration;

c. who have been issued a show cause notice, under indirect tax enactment and the final hearing has taken place on or before 30^th June, 2019;

d. who have been issued a show cause notice under indirect tax enactment for an erroneous refund or refund;

e. who have been subjected to an enquiry or investigation or audit and the amount of duty involved in the said enquiry or investigation or audit has not been quantified on or before 30^th June, 2019;

f. a person making a voluntary disclosure,—

i. after being subjected to any enquiry or investigation or audit; or

ii. having filed a return under the indirect tax enactment, wherein he has indicated an amount of duty as payable, but has not paid it;

g. who have filed an application in the Settlement Commission for settlement of a case; and

h. persons seeking to make declarations with respect to excisable goods set forth in the Fourth Schedule to the Central Excise Act, 1944.

On perusal of section 125(1) of the Finance Act, 2019, it is very clear that the cases other than excluded by clause (a) to (h) of section 125(1) of the Finance Act, 2019, would be eligible to claim the benefits given under the SVLDR Scheme. One of such case is the show cause notice received after 30^th June, 2019. In this regard, CBIC has issued Circular No. 1074/07/2019-CX dated 12^th December, 2019. Para (viii) of the said Circular provides that in case of show cause notice received after 30^th June, 2019 and it is not on account of enquiry, investigation or audit then the person can opt for SVLDR Scheme after passing of order by adjudicating authority.

In our view, the case of show cause notice received after 30^th June, 2019 has not been excluded by clause (a) to (f) of section 125(1) of the Finance Act, 2019. Therefore, even if the show cause notice is received after 30^th June, 2019, the person can opt for the SVLDR Scheme in respect of such show cause notice, irrespective of passing of order by adjudicating authority. To opt for SVLDR Scheme, it is not necessary to pass order by adjudicating authorities. As the Para (viii) of the said Circular is taking away the benefits granted by the SVLDR Scheme itself, it is not sustainable in law.

It is pertinent to note that in the case of Commissioner of Central Excise, Bolpur vs. Ratan Melting Wire Industries, reported in (2008) 12 STR 416 (SC), Hon’ble Supreme Court has held that the departmental circulars are binding on the officers of CBIC and the same should be followed strictly. In view of this, the revenue authorities are following the aforementioned Circulars issued by CBIC, which is causing reduction in benefits conferred by the SVLDR Scheme.

Further, section 133(1) of the Finance Act, 2019, empowers the CBIC to issue orders, instructions and directions to the authorities, for the proper administration of SVLDR Scheme. The section does not empower the CBIC to issue such clarifications which are contrary to the SVLDR Scheme.

It is also pertinent to note that it is a settled position of law that the circulars issued by CBIC are binding on the revenue authorities and not on the assesse. This view has been repeatedly upheld by various courts including Hon’ble Supreme court. Further, it is settled position of law that the benefits conferred by the Statue cannot be taken away by way of issue of the Circular. In the case of Tata Teleservices Ltd. vs. Commissioner of Customs, reported in (2006) 1 SCC 746, the Hon’ble Supreme Court has held that the Circular is not sustainable in law if it imposes new restrictions which were not there in the exemption notification itself. Applying the ratio of above principle laid down by the Hon’ble Supreme Court, in our view, Para (iv) of the Circular No. 1072/05/2019-CX dated 25^th September, 2019 and Para (viii) of the Circular No. 1074/07/2019-CX dated 12^th December, 2019 are ultra-virus the SVLDR Scheme and therefore are not sustainable in law.

Therefore, considering the amount involved in each case the person may opt to file writ petition in the jurisdictional High Court, against the Para (iv) of the Circular No. 1072/05/2019-CX dated 25^th September, 2019 and Para (viii) of the Circular No. 1074/07/2019-CX dated 12^th December, 2019.

In addition to the above, the system designed by the Government is committing many errors in the calculation of final amount payable by the person under SVLDR Scheme, thereby reducing the benefits available under the SVLDR Scheme. These are also the fit cases for filing writ petitions in the jurisdictional High Court.

On the basis of above background, in our view, while closing the pre-GST litigations, the SVLDR Scheme is creating new litigations, which is not the legislative intent.