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The Sabka Vishwas Legacy Dispute Resolution Scheme, 2019, that was initiated by the government from the 1st of September 2019, has since been the cynosure in the indirect tax spectrum.

Indirect tax litigation pertaining to the pre-GST regime is an ocean and this scheme is mainly aimed at containing the said ocean in a bottle. Where the government with the main aim of reducing litigation, has come up with this scheme promising enormous tax discounts for those who wish to put an end to their past litigations by paying up the dues; thereby, aiming to attract into the treasury, the funds that are tied up in litigation.

The scheme broadly categorises the potential declarants under four heads.  One is the assessee who does not accept the department’s contention and is fighting the legal battle to prove a point; other is the assessee who has lost a battle with the department or has not chosen to fight back, but has also not submitted to the order and paid in full; the last is the assessee who is now coming forward to make a fresh voluntary disclosure stating his previous tax dues.

Category 1 comes under – Pending litigation

Category 2 comes under – Arrears

Category 3 comes under – Audit

Category 4 comes under – Voluntary Disclosure.

This scheme treats each of these categories differently with specific rules for each of them and differential benefits offered. 

Category 1 – Pending Litigation.

Since the scheme looks at cutting short litigation, the maximum benefit is given to a file where an actual pending appeal/show cause notice will be closed. This category is treated as the men in war, where the stand of the department is yet to be proven right. Hence they get the maximum benefit of doubt and the biggest discount for opting for peace. The scheme offers 70% discount in tax apart from full waiver of interest and Penalty for pending appeals where the total levy is below 50 Lakhs.

Therefore when an assessee who all along had chosen to not accept the department’s stand, now comes up to close the chapter peacefully, all he has to do is intimate in writing to the authority before whom the appeal/SCN is pending and file a declaration undertaking to pay 30% of the dues with complete waiver of interest and penalty. The biggest advantage is that all deposits and other payments made earlier are to be adjusted towards the discounted dues payable.

For the purpose of this scheme, the percentage calculations for categories 1, 2 & 3 are based on the total levy.

In cases where the levy is above 50 Lakhs, in category 1, the tax discount that assessee gets is 50%.

Category 2 – Arrears

These are the category of assessees, who lost the battle midway and chose to stay put (where appeal period lapsed or assessee gave in writing that they choose to not contest) or who fought till the end and still lost, and finally did not pay up the entire amount.

Hence this category is treated more strictly as the department has been proven right at the end of the battle.

The assessee here is given a slightly lower tax discount of 60% for cases where total levy is less than Rupees 50 Lakhs where now 40% of the dues are payable (and in cases where the total levy exceed 50 Lakhs, 60% tax dues remain payable.)

However, the key difference in treatment between category 1 & 2 is that here in category 2, the payments already made prior to the scheme will only be adjusted towards the total levy and not towards the discounted tax dues offered by this scheme.

Hence, the net outstanding dues as on the date of declaration under the scheme will enjoy the tax discount. Thereby, even if the assessee has paid up predominant portion of the dues prior to the scheme, those would be treated as dues that were rightfully payable.

For the purpose of this scheme, the percentage calculations for categories 1, 2 and 3 are based on the total levy and the calculations of the exact amount payable is based on the net outstanding dues payable.

That is if the total levy is 1 Crore and the assessee has already paid 80 Lakhs prior to filing of declaration under this scheme, then he falls within the 60% category where the assessee is expected to pay 60% of the levy meaning Rupees 12 Lakhs, since the total levy is higher than 50 Lakhs, despite the net outstanding payable being only 20 Lakhs.

Category 3 – Audits

This is almost like a sub-category of Pending litigation where the matter can be settled by filing a declaration under this scheme merely on the levy quantified vide an audit/assessment/investigation provided the same has been calculated prior to 30.06.2019. The rates are identical to that of Category 1. 

Category 4 – Voluntary Disclosure

This is the category where the assessee voluntarily comes forward to disclose the tax dues that they have not paid previously and promises to pay the same by filing a declaration under this scheme. Here they do not get any tax discount as these are the dues that are agreed by the assessee. However they are free from penalty and interest. The scheme accepts such disclosures with complete faith on the assessees. However, the scheme expects that such assessees must have a track record of trustworthiness where the assesse should have previously complied with all their voluntary disclosures in their returns. If an assessee has not paid up the dues despite accepting the same in their returns, such assessees are not considered trustworthy enough to be encouraged to file a declaration for voluntary disclosure.

Though the Scheme looks at giving enormous discounts and waivers and is seen as being assessee friendly, it also shrewdly protects the department from possible raw deals.

  • In cases where an application is pending before the settlement commission to amicably settle the dispute, this scheme cannot be opted for, as the assessee by opting for settlement commission has already chosen the route other than litigation and Settlement Commission is intended to settle the dispute in an amicable manner. However, this does not excluded matters where the settlement commission’s order is further litigated upon.
  • In cases where the assessee is convicted, declaration cannot be filed under this scheme, as it is against legal ethics to initiate settlement when a criminal charge has been proven.
  • In cases where previous disclosures have not been paid up, declaration under voluntary Disclosure cannot be done, as it is construed that previously the assessee has not lived up to the trust the system had on him.
  • In order to not waste the authority/Judicial body’s efforts, in cases where final hearing has been completed before 30.06.2019 and orders are not passed, declaration cannot be filed under this scheme.
  • In matters relating to levy on Petroleum and Tobacco products where the assessment, levy and collection is still authorised by law, this scheme cannot be opted for.

Apart from these few dead ends, the scheme lays down a smooth path for settling legacy disputes. It forms as an effective catalyst for redressing the key issue of enormous back log in cases and for releasing the revenue locked up in litigation in to the government treasury.

As per the time line given by the government and Ministry of Finance, a great deal of cases will be settled by the end of 2019, enabling a fresh start in the year 2020 with zero burden of past liabilities and greater inclination towards compliance.


Advocate – VMJ Associates



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July 2024