Orissa HC Orders Review of Tax Relief Eligibility under SLVDR in SCN Dispute

Orissa Stevedores Ltd. Vs Designated Committee (Orissa High Court)

In a recent decision, the Orissa High Court addressed a dispute involving Orissa Stevedores Ltd. and the Designated Committee concerning tax relief eligibility under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The case centers on a show cause notice (SCN) issued in 2015, which alleged short payment of service tax by Orissa Stevedores Ltd. for the financial year 2013-14, leading to a substantial tax demand.

Background of the Case

Orissa Stevedores Ltd., represented by senior advocate Mr. Sahoo, received an SCN on April 23, 2015, demanding service tax exceeding ₹16.15 crores for 2013-14. In response, the company applied for relief under the Sabka Vishwas Scheme in 2019, submitting Form SVLDRS-1, a mandatory document for the scheme. Through this form, Orissa Stevedores Ltd. acknowledged a significant tax liability and stated it had deposited around ₹10 crores in duty payments.

However, the Revenue department responded with Form SVLDRS-2, indicating the total tax was due, citing no pre-deposit. Mr. Sahoo countered this assertion by presenting evidence of a combined cash payment of approximately ₹26 crores and an additional CENVAT credit adjustment of ₹19.15 crores, all reportedly covering the financial year in question. He argued that this combination of payments should satisfy the pre-deposit requirement under the scheme.

Key Legal Argument and Circular Reference

Mr. Sahoo directed attention to a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on August 27, 2019, which addressed the treatment of disputed CENVAT credit within the Sabka Vishwas Scheme. Clause (c) in paragraph 10 of the circular clarifies that disputed CENVAT credits can be considered as pre-deposits during the final determination of payable tax. According to the circular, such credits should be adjusted by the Designated Committee when finalizing the payable amount under the scheme. Orissa Stevedores Ltd. contends that this clause directly supports its claim for relief, as it had made substantial payments through both cash and credit channels.

Further Proceedings and Departmental Notice

Despite these claims, the Designated Committee issued Form SVLDRS-3, rejecting the company’s pre-deposit assertion. Subsequently, during the ongoing legal proceedings, the Revenue department issued a notice on February 5, 2021, offering an opportunity for a personal hearing. Orissa Stevedores Ltd. viewed this notice as the department’s attempt to reinforce its stance that the company was not eligible for relief under the scheme, leading to further contention in court.

Arguments by Revenue

In response, the Revenue, represented by Senior Standing Counsel Mr. Satapathy, argued against the company’s eligibility for the scheme. Mr. Satapathy claimed that the cash payments presented by Orissa Stevedores Ltd. included sums paid for different financial periods, thus not relevant to the specific year under dispute. Additionally, he stated that the CENVAT credits in question had been disallowed and, therefore, could not be applied to the current tax demand.

Court’s Directions and Resolution

After examining the case details, the Orissa High Court directed the Designated Committee to reconsider Orissa Stevedores Ltd.’s claims, with a focus on whether 50% or more of the demand had already been met through cash and CENVAT credit adjustments. The court emphasized that the committee must issue a reasoned order, addressing the claims made by the petitioner and any arguments presented during the personal hearing. Furthermore, the court directed the committee to avoid ambiguity and assess all relevant documentation comprehensively.

If the Designated Committee finds that Orissa Stevedores Ltd. is not eligible for relief under the scheme, it will be required to issue a fresh notice, specifying the grounds for this decision. The court’s directive referred specifically to the CBIC circular’s clause on CENVAT credits, underscoring the requirement for a clear reconciliation process to be undertaken by the department.

Conclusion

This ruling by the Orissa High Court underlines the importance of thorough documentation and clarity in tax disputes, especially those involving complex relief schemes such as the Sabka Vishwas Scheme. By ordering a comprehensive review, the court aims to ensure that the Designated Committee’s decision is well-grounded, fair, and transparent.

FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT

Mr. Sahoo, learned senior advocate appears on behalf of petitioner and submits his client was issued show cause notice (SCN) dated 23^rd April, 2015 alleging short payment of service tax for period 2013-14. Pursuant to receiving the SCN his client applied under Sabka Vikas (Legacy Dispute Resolution) Scheme, 2019 in prescribed form SVLDRS-1. He demonstrates from the form, SCN date is 23^rd April, 2015 and demand for tax in excess of ₹16.15 crores. In the form his client had claimed deposit of duty at almost ₹10 crores.

2. Revenue issued SVLDRS-2 reiterating tax due on allegation that there was zero pre-deposit. He points out from disclosures in the writ petition, his client had applied for information and it was obtained. The information was, his client had claimed adjustment of CENVAT credit at approximately ₹19.15 crores and made cash payment of ₹26 crores. He submits, thereby stands demonstration that the adjustment and payments were for financial year 2013-14. This was not taken into account in issuing, SVLDRS-2 and thereafter SVLDRS-3.

3. Sahoo then draws attention to circular dated 27^th August, 2019 issued by Government of India, Ministry of Finance Department of Revenue, Central Board of Indirect Taxes and Customs. He points out from clause (c) in paragraph 10 that even disputed amount of CENVAT credit is to be adjusted under the scheme. The clause is reproduced below.

“(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.”

(emphasis supplied)

His client has thus moved Court to show pre-deposit by aggregate of cash and credit. Inspite thereof, upon issuance of SVLDRS-3 and during pendency of the writ petition, notice dated 5^th February, 2021 was issued, purportedly to give opportunity of personal hearing. This notice is perpetration of the department’s contention that his client is not entitled to the relief under the scheme. Hence, the SCN and subsequently issued notice for personal hearing, brought on record by amendment, are under challenge. He submits, the notice be set aside for the matter to be restored to the Department/Designated Committee, for reconciliation.

4. Satapathy, learned advocate, Senior Standing Counsel appears on behalf of revenue and opposes the writ petition. He submits, particulars of the cash payments, brought on record from information obtained include payments made for other period(s). So far as the CENVAT credit is concerned, it was disallowed. It cannot be adjusted.

5. Considering pursuant to the SCN petitioner had applied under the scheme and in view of aforesaid facts, we direct that the personal hearing will be for purpose of the Department/Designated Committee to conclude on petitioner’s assertion that 50% or more of the demand was paid and it is entitled to relief against the balance, under the scheme. The Department/Designated Committee will do well to pass a reasoned order such that points urged by petitioner in the writ petition and as may be urged before it regarding the scheme applying to it, are dealt with without leaving any ambiguity. In event the Department/Designated Committee concludes that petitioner is not entitled to relief under the scheme, it will then issue fresh notice for personal hearing on the demand. We make this direction in view of clause (c) in aforesaid circular dated 27^th August, 2019 and absence of anything on record or submission made that exercise of reconciliation was undertaken in respect of the particulars of the cash payments.

6. Be it recorded that there was no issue before us regarding petitioner having duly applied under the scheme.

7. The writ petition is disposed of.