Declaration filed by petitioner in Form SVLDRS-1 is final: HC

Jagadish Advertising Vs Designated Committee (Karnataka High Court)

The petitioner in this petition has sought for quashing of the statement issued by the Designated Committee in Form Nos. SVLDRS-2 & SVLDRS-3 and is seeking for a direction to the Designated Committee to accept the declaration made by him in Form No.SVLDRS- 1 as final.

In my view, if it is to be held that the Designated Committee had no jurisdiction to adjudicate upon any entitlement as claimed in the declaration, the remarks column created in Annexures-A & B cannot be sustained and would have to be quashed. The petitioner has basically sought for quashing of Annexures A and B because it contained the decision of the Designated Committee. I am, therefore, of the view that the prayers made by the petitioner have not become infructuous either by the manner in which they are made or by the expiration of Scheme.

 The net result of this discussion would therefore be that Form No.SVLDRS-1 filed by the petitioner as per Annexure-F would have to be accepted as final.

The Designated Committee is directed to accept the declaration filed by the petitioner in Form SVLDRS-1 (Annexure-F) as final and issue a modified Form No SVLDRS- 3 giving credit to the sum of Rs.4,15,14,081/- as deposit and collect the remaining sum as  tax dues  and on payment of the said dues, issue the petitioner a Discharge Certificate that the petitioner is entitled to under the Scheme.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. The facts which give rise to filing of the writ  petition are as follows:

2. The petitioner is an Advertising Agency engaged in the business of providing advertising services.

3. On 07.09.2018, the Directorate General of GST Intelligence issued a Show Cause Notice (for short, ‘SCN’), in which the petitioner was asked to show cause as to why the petitioner was not liable to pay a sum of Rs.13,06,07,173/- as service tax.

4. The said SCN also called upon the petitioner to show cause as to why an amount of Rs.91,87,632/-  which had been paid by the petitioner be appropriated towards the above mentioned demand.

5. The SCN also called upon the petitioner to show cause as to why a total CENVAT credit of Rs. 4,15,14,081/, taken as per the ST-3 Returns filed in July 2018 and August 2018 for the period from October 2012 to June 2017, should not be denied.

6. Various other contentions and demands were also made, which are, however, not relevant for the purpose of this writ petition and hence, are not stated herein.

7. As the matter stood thus, the Parliament enacted a Scheme called Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (for short, ‘the Scheme’) as a part of Finance (No.2) Act, 2019. The said Scheme came into force with effect from 01.09.2019. The said Scheme consisted of a mechanism which sought to bring to an  end the legacy issues relating to payment of service tax. The object of the Scheme was twofold. Firstly, it was for Dispute Resolution and, secondly it was for granting Amnesty. The Scheme envisaged that if  the  duty involved was more than Rs.50 lakhs, the assessee on payment of 50% of the demand would be eligible to receive a Discharge Certificate. In other words, if an assessee, in order to put an end to any dispute  or  liability that he had against the Department, he could avail the Scheme and by paying 50% of the amount, be relieved of all liabilities.

8. The petitioner took advantage of the said Scheme and made an application as provided in the Scheme on 28.12.2019.

9. It is the case of the petitioner that when he availed of the Scheme by applying electronically, he  had declared that the estimated amount of tax liability would be Rs.13,38,22,524/- and electronically he had been notified that he would be liable to pay a sum of Rs.1,45,87,081/- (as per Annexure-F).

10. The petitioner contends that thereafter he was notified that the estimated amount of tax liability would be Rs.13,38,22,524/- and he would be liable to pay Rs.5,62,21,162/- by issuance of the Form No SVLDRS-2. He contends that Cenvat credit of Rs.4,15,14,081/- claimed by him in his declaration was disallowed by the Designated Committee by insertion of a column titled ‘Remarks” in the Form No.SVLDRS-2 (vide Annexure-A).

11. The petitioner contends that he exhibited disagreement to the said estimate and sought for personal hearing which was also granted to him, but thereafter, the Designated Committee proceeded  to  issue Form No.SVLDRS-3 which also indicated that  he was liable to pay a sum of Rs.5,62,21,162/- (vide Annexure-B). In arriving at the said sum, the petitioner contends that the Designated Committee disallowed the Cenvat credit of Rs.4,15,14,081/-.

12. The petitioner is aggrieved by this action of the Designated Committee in disallowing the Cenvat credit and contends that the Designated Committee, under the Scheme, had no jurisdiction to embark upon any adjudication as to the entitlement or disentitlement of an assessee and Designated Committee was basically bound to merely verify the correctness of the declaration and assess the liability as per the declaration.

13. The petitioner has sought for quashing of Annexures-A & B (Form No.SVLDRS-2 & Form No.SVLDRS-3) and seeks for a direction to the Revenue to accept the declaration made by it as per Annexure-F as final and also permit him to re-file Form No.SVLDRS-1 by including the Cenvat credit of Rs.4,15,14,081/-.

14. The Revenue, on being notified of this writ petition, has filed statement of objections contending that the petitioner was not entitled to avail of the Cenvat credit since it had not complied with the requirements of Cenvat Credit Rules, and therefore, the Form No. SVLDRS- 3 raised against the petitioner was perfectly in order.

15. In order to adjudicate upon the issues involved in this writ petition, a brief overview of the Scheme would be necessary.

16. The Parliament, with the object of bringing to an end the disputes relating to the liability of service tax, enacted the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The object of the said Scheme was both Dispute Resolution and also Amnesty.

17. The intent behind the Scheme is as stated in paragraph 3 of the Circular dated 27.08.2018 issued by the Department which reads as follows:

“3. Dispute resolution and amnesty are the two components of this Scheme. The dispute resolution component is aimed at liquidating the legacy cases locked up in litigation at various forums whereas the amnesty component gives an opportunity to those who have failed to correctly discharge their tax liability to pay the tax  dues.  As may be seen, this Scheme offers substantial relief to the taxpayers and others who may potentially avail it. Moreover, the scheme  also focuses on the small tax payers as  would be evident from the fact that the extent of relief provided is higher in respect of cases involving lesser duty (smaller taxpayers can generally be expected to face disputes involving relatively lower duty amounts).”

18. The Scheme is basically designed to ensure minimum interface between the assessee and the Department and is designed in such a way that the dispute is resolved by the assessee by filing a declaration electronically and his tax liability is also determined electronically.

19. Section 124 of the Finance (No.2) Act, 2019 (for short, ‘the Act’) declares that whenever the tax dues relatable to a SCN pending as on 30.06.2019, was more than Rs.50 lakhs, relief of 50% of the tax dues would be granted to the assessee.

20. Sub-section (2) of Section 124 of the  Act states that the relief calculated under sub-section (1) shall be subject to the condition that any amount paid as pre- deposit at any stage of the 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.

21. Section 125 of the Act mandates that all persons eligible to make a declaration under the Scheme are required to file a declaration in such electronic form as may be prescribed.

22. Sub-section (1) of Section 126 of the Act states that the Designated Committee shall verify the correctness of the declaration made by the declarant under Section 125.

23. Section 127 of the Act states that the Designated Committee shall issue a statement after verifying the correctness of the declaration indicating the amount payable by the declarant and on payment of the amount indicated in the statement, the declarant would become entitled for being issued a ‘Discharge Certificate’ in electronic form which would be the conclusive proof that the declarant would not be liable to pay any further duty, interest or penalty, and that he would also not be prosecuted under the Indirect Tax Enactment with respect to matter and time period covered in the declaration.

24. Thus, basically a person whose liability to pay service tax was in dispute, such a person could avail the Scheme by making a declaration in the electronic form and the Designated Committee would verify the declaration and thereafter, issue a statement indicating the amount payable and on the said amount being paid, the person would be discharged of all liabilities i.e., both financial as well as penal.

25. In the instant case, it is not in dispute that the SCN was issued raising a demand of Rs.13,06,07,137/-. It is also not in dispute that the petitioner filed a declaration in Form No.SVLDRS-1 declaring that he was liable to pay a sum of Rs.13,38,22,524/- (Annexure-F).

26. It is also not in dispute that the Designated Committee after verifying the correctness of the declaration, did not dispute the tax dues of the declarant at Rs.13,38,22,524/-. However, the only dispute raised  by the Designated Committee was that  the  petitioner was not entitled to consider the sum of Rs.4,15,14,081/- as pre-deposit, as the said sum was an input credit that the petitioner was not entitled to.

27. It is, therefore, clear that the tax dues that the petitioner was liable to pay was not in dispute, by both the Revenue as well as by the petitioner.

28. The only bone of contention between the parties is, as to whether the petitioner could contend that he was entitled to take advantage of Cenvat credit on input services amounting to Rs.4,15,14,081/- and consider the same as a pre-deposit under the scheme.

29. It is not in dispute that after the SCN was issued, the petitioner had filed service tax returns and  in the said returns, it claimed the Cenvat credit amounting to Rs.4,15,14,081/-. It is pertinent to state here that the Revenue does not dispute the entitlement of the petitioner to avail of this Cenvat credit. The contention, however, of the Revenue, is that the petitioner became disentitled to Cenvat credit for the reasons stated at paragraph 17.2 of the SCN, which reads as follows:

“17.2  In this connection, it can be  seen from the provisions of Rule 3(1) and first proviso to Rule 3(4) of the Cenvat  Rules, 2004 that a provider of output service is allowed to take credit of service tax paid  on input service received by him, only on or after the date of receipt of the invoice, bill  or, as the case may be, challan referred to   in Rule 9; to retain the Cenvat credit and subsequently to utilize to the extent of such credit is available on the last day of the month or quarter, as the case may be, for payment of service tax on  any  output service or for payment of an amount determined under Rule 6(3) of Cenvat Credit Rules, 2004 relating to that month or the quarter, as the case may be. Second proviso to Rule 4(7) of the Cenvat Rules, 2004 stipulates that payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the  case may be, challan referred to in Rule 9, is made within three months of the date of the invoice, bill or, as the case may be, challan. In case the payment of the value of input service and the service tax paid or payable  as indicated in the invoice, bill or, as the  case may be, challan referred to in Rule 9, is not made within three months of the date of the documents, the said proviso mandates that the service provider pays an amount equal to the Cenvat credit availed on such input service and once the said payment is made, the output service provider is entitled to take the credit of the amount equivalent  to the Cenvat credit paid earlier subject to the other provisions of these rules. However, fifth proviso to Rule 4(7) of the Cenvat  Credit Rules, 2004 lays down a condition  that no Cenvat credit is allowed to be taken after one year of the date of issue of any of the documents specified in Sub-rule (1) of Rule 9 of Cenvat Credit Rules, 2004. It is pertinent note that with effect from 01st July, 2017, the Cenvat Credit Rules, 2004 have been superseded and replaced with new Cenvat Credit Rules, 2017 vide Notification No.20/2017 C.E. (NT) dated 30.06.2017 as per which the provider of output service is allowed to transfer the credit of service tax paid on input services under the negative list regime only to the extent of such credits whose details are declared in TRAN-1 or TRAN-2 filed in accordance with Section 140 of Central Goods and Services Tax Act, 2017 read with Rule 15 of the Cenvat  Credit  Rules, 2017.”

30. It is, therefore, clear that one of the subject matters of the SCN was, as to whether  the  petitioner was entitled to Cenvat credit. As could be seen from paragraph 17.2, the Revenue contended that since the returns were not filed within the prescribed time  and since the entitlement to avail of the input credit had lapsed, the petitioner could not be permitted to take advantage of the Cenvat credit.

31. The Circular dated 27.08.2019 issued by the Department categorically states that one of the objectives of the Scheme was to give an opportunity to those who had failed to correctly pay the tax. The  Circular states that to this extent the Scheme comprised of an Amnesty component. The Circular also clarified a few issues raised after the Scheme was notified.

32. Sub-clause (c) of Clause 10 of the said Circular, which relates to tax already paid through input credit, reads as follows:

“(c) This Scheme provides for adjustment of any amount paid as pre- deposit during appellate proceedings or as deposit during enquiry, investigation or audit [Sections 124(2) and 130(2) refer].  In certain matters, tax may have been paid by utilizing the input credit, and the matter is under dispute. In such cases,  the  tax already paid through input credit shall be adjusted by the Designated Committee  at the time of determination of  the  final amount payable under the Scheme.”

33. Thus, a reading of the said clause would clearly indicate that in certain matters when tax had been paid by utilizing the input credit and the matter was under dispute, the tax already paid through input credit should be adjusted by the Designated Committee at the time of determination of the final amount payable under the Scheme. Therefore, even if there was a  dispute  regarding the tax paid through input credit, the Circular mandated that the Designated Committee should adjust the tax already paid through input credit. It, therefore, follows that the Designated Committee cannot embark upon an exercise of adjudication and state  that it was  not permissible for the declarant to claim that he had  paid the tax through input credit.

34. In other words, the question as to whether the petitioner was entitled to claim that he had paid tax through input credit was itself the subject matter of the dispute under the SCN and in view of the clarification issued in the Circular, the Designated Committee was bound to adjust the tax paid through input credit and it could not disallow the tax paid through input credit.

35. As stated above, it was not in dispute that the petitioner was entitled to avail of the input credit. However, the only contention of the Revenue was that the petitioner became disentitled to avail of the input credit because the requisite forms were not filed within the prescribed period and his right to claim input credit had lapsed. In my view, from a reading of  the clarification issued in the Circular, it is clear that the tax paid by utilizing the input credit which was under dispute had to be taken into consideration by the Designated Committee while issuing Form SVLDRS-3.

36. It may also be profitable to appreciate the function of the Designated Committee under the Act by ascertaining the intent of the Legislature as found in the language employed in the statute.

37. Section 126 of the Act and Rule 6 of the Sabka Vishwas (Legacy Dispute Resolution) Scheme Rules,  2019 (for short, ‘the Rules’) which define the functions of the Designated Committee reads as follows:

“126. (1) The designated committee shall  verify  the correctness of the declaration made by the declarant under Section 125 in such manner  as  may be prescribed:

Provided that no such verification shall be made in case where a voluntary disclosure of an amount of duty has been made by the declarant.

(2) The composition and functioning of the designated committee shall be such as may be prescribed.

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6. Verification by designated committee and issue of estimate, etc.-

(1) The declaration made under section 125, except when it relates to a case of voluntary disclosure of an amount of duty, shall be verified by the designated committee based on the particulars furnished by the declarant as well as the records available with the Department.

(2) The statement under sub-sections (1) and (4) of section 127, as the case may be, shall be issued by the designated committee  electronically, within  a period of sixty days from the date of receipt of  the declaration under sub-rule (1) of rule 3,  in  Form SVLDRS-3 setting forth therein the particulars of the amount payable:

Provided  that no such statement shall be issued in  a case where the  amount payable, as determined by the designated committee is nil and there is no appeal pending in a High Court or the Supreme Court.

(3) Where the amount estimated to be payable by the declarant exceeds the amount declared by the declarant, then, the designated committee shall issue electronically, within thirty days of the date of receipt of the declaration under sub-rule (1) of rule 3, in Form SVLDRS-2, an estimate of the amount payable by the declarant along with a notice of opportunity for personal hearing.

(4) If the declarant wants to indicate agreement or disagreement with the estimate referred to in sub-rule (3) or wants to make written submissions or waive personal hearing or seek an adjournment, he shall file electronically Form SVLDRS- 2A indicating the same:

Provided that if no such agreement  or  disagreement is indicated till the date of personal hearing and the declarant does not appear before the designated committee for personal hearing, the committee shall decide the matter based on available records.

(5) On receipt of a request for an adjournment under sub-rule (4), the designated committee may grant the same electronically in Form SVLDRS-2B:

Provided if the  declarant does not appear before  the designated committee for personal  hearing  after adjournment, the committee shall decide the matter based on available records.

(6) Within thirty days of the date of issue of Form SVLDRS-3, the designated committee may modify its order only to correct an arithmetical error or clerical error, which is apparent on the face of record, on such error being pointed out by the declarant or suo motu by issuing electronically a revised Form SVLDRS-3.

38. The statute uses the term “verify the correctness of the declaration”, while the Rule uses the term “shall be verified by the designated committee based on the particulars furnished by the declarant as well as the records available with the Department”. A plain reading of the provisions would mean that the Designated Committee would be required only to examine the accuracy of the statement made in the declaration with reference to the records available with it and this would basically mean that the Designated Committee can only satisfy itself as to whether the Tax liability admitted by the declarant was accurate or not. The term “verify the correctness” cannot be stretched to mean that the Designated Committee can embark upon an adjudication regarding the entitlement or otherwise of the declarant.  In my view, the Committee, in the guise of verifying the accuracy of the declaration, cannot adjudicate upon any  of the contentious issues which existed between the Revenue and the Assessee before the Scheme was enacted.

39. It is to be borne in mind that the Designated Committee created under the Scheme is only meant to verify the correctness of the declaration made. On verification, if the Designated Committee was to find any inaccuracies in the declaration, it was bound to take note of it and issue a statement to the declarant and the declarant could either accept the estimate or indicate his disagreement and seek for a personal hearing. This  entire process would necessarily be in relation to the correctness of the declaration and not in relation to the entitlement of the declarant. If the  Designated Committee were to be permitted to embark upon an adjudication process after a declaration is made,  the  very object behind the Scheme i.e., resolving an existing dispute voluntarily would be defeated in as much as the Designated Committee can despite a declaration of a person to suffer a tax liability voluntarily, would still be empowered to embark on an adjudicatory process and proceed to decide on the entitlement or disentitlement of a declarant’s right under the Indirect Tax enactment. The effect of this interpretation is that the declarant would have absolutely no remedy against an adjudication  by  the Designated Committee and he would be virtually bound by the decision of the Designated Committee. The declarant, in fact, would be entering into a situation  where he would suffer a liability for making a declaration voluntarily accepting a tax liability.

40. The Designated Committee has been created only to verify and ensure that the Tax Liability of  the  declarant is accurate and once the tax liability with reference to the records were verified, the declarant was required to pay the tax dues and obtain a Discharge certificate. As stated earlier, the power conferred to “verify the correctness” cannot be used to determine or adjudicate upon a contentious issue, which existed earlier to the enactment of the scheme between the Revenue and Declarant.

41. It may also be pertinent to state that the Revenue had also published a Frequently Asked Questions  column, in which, it was stated as follows:

“Q52. I have already paid duty/tax by utilizing the input credit, and the matter is under dispute. Will this duty/tax  already  paid through input credit be adjusted against my duty/tax liability calculated under the Scheme?

Ans.  Yes.  In  such  cases,   duty/tax  already paid through input credit shall be adjusted by the Designated Committee  at the time of determination of final amount payable under the Scheme.”

42. A reading of the said question and answer would also indicate that tax already paid through input credit would have to be adjusted by the Designated Committee.

43. The argument of the Revenue that the Designated Committee had not embarked upon an adjudication process and it merely verified to correctness of the declaration and on verification, it had been found that the petitioner was not eligible to avail of the input credit, cannot be accepted.

44. The Designated Committee, in fact, while issuing Form No.SVLDRS-2, has created a ‘Remarks’ column which is not actually provided for in the prescribed statutory form. This, by itself, indicates that the Designated Committee wanted to express as to why it was disallowing the claim made by the declarant. The Designated Committee, under the Scheme, can  only verify the correctness of the figures furnished by the declarant and it cannot decide whether  the  entitlement of a declarant was justified or not.

45. This may also be viewed from another angle. The Revenue had issued a SCN stating that the petitioner was not entitled for availing of the input credit and in response the petitioner was contending that this view of the Revenue was incorrect and he was entitled to the input credit. Therefore, a dispute regarding entitlement was raised and was pending when the Scheme had been enacted.

46. By virtue of the beneficial provisions of  the Scheme, the declarant would be entitled to contend that his entitlement cannot be adjudicated by the Designated Committee at all. The Designated Committee can only estimate the tax dues payable and verify the correctness of the tax dues that are payable and also allow for deductions to the taxes paid, and only to this extent, verification was permissible under the Scheme.

47. In fact, in order to ensure that the Designated Committee does not dispute the tax through input credit, a specific clarification was issued in the Circular. This clarification was obviously to alleviate any doubts regarding the tax paid through input credit. If a  declarant, on the basis of the clarification, chose to take advantage of the scheme and availed of the scheme, he cannot be deprived of this benefit conferred by the scheme, by the Designated Committee by taking a decision that the petitioner was not entitled to input credit. It is, therefore, clear that the action of the Designated Committee in coming to the conclusion that the petitioner was disentitled to tax paid through input credit by inserting a remarks column in Form Nos. SVLDRS-2 and 3, was one which was totally without jurisdiction.

48. Learned Counsel for the Revenue contended that the prayers made in the writ petition had itself become infructuous and no relief could be granted to the petitioner, especially, since the Scheme itself had come  to an end on 30.06.2020.

49. The petitioner in this petition has sought for quashing of the statement issued by the Designated Committee in Form Nos. SVLDRS-2 & SVLDRS-3 and is seeking for a direction to the Designated Committee to accept the declaration made by him in Form No.SVLDRS- 1 as final.

50. In my view, if it is to be held that the Designated Committee had no jurisdiction to adjudicate upon any entitlement as claimed in the declaration, the remarks column created in Annexures-A & B cannot be sustained and would have to be quashed. The petitioner has basically sought for quashing of Annexures A and B because it contained the decision of the Designated Committee. I am, therefore, of the view that the prayers made by the petitioner have not become infructuous either by the manner in which they are made or by the expiration of Scheme.

51. The net result of this discussion would therefore be that Form No.SVLDRS-1 filed by the petitioner as per Annexure-F would have to be accepted as final.

52. Learned Counsel for the Revenue places reliance on the judgment rendered by this Court in W.P.No.51929/2019. In my view, the said decision did not consider the question as to whether the Designated Committee can disallow an entitlement of a declarant while verifying the correctness of the  Learned Counsel also placed reliance on the judgment of the Supreme Court in the case of COMMISSIONER OF CUSTOMS  (IMPORT),  MUMBAI   VS   DILIP   KUMAR   AND  COMPANY & OTHERS – AIR 2018 SC 3606. In  my  view,  the said judgment could have no application since it is a decision which relates to interpretation of a notification granting tax exemption.

53. As a consequence, the petitioner is entitled to succeed and the writ petition is allowed.

54. The decision rendered by the Designated Committee as found in the remarks column in Annexures-A & B which reads as follows stand quashed.

55. The Designated Committee is directed to accept the declaration filed by the petitioner in Form SVLDRS-1 (Annexure-F) as final and issue a modified Form No SVLDRS- 3 giving credit to the sum of Rs.4,15,14,081/- as deposit and collect the remaining sum as  tax dues  and on payment of the said dues, issue the petitioner a Discharge Certificate that the petitioner is entitled to under the Scheme.