SVLDRS 2019- A Scheme to reduce litigation is creating litigation of its own

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 – A scheme which was intended to substantially scale down pending litigations under IDT, led to litigation of its own

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 announced as Dispute Resolution cum Amnesty Scheme by Hon’ble Finance Minister, Smt. Nirmala Sitharaman on 05 July 2019 and inculcated in Finance Bill, 2019 was introduced with a primary intention to dispose off huge pending litigations under erstwhile Indirect Tax regime, by providing certain relief to the taxpayers.

Hon’ble Minister of Finance, Smt. Nirmala Sithraman, in her budget speech, while introducing the Scheme said “GST has just completed two years. An area that concerns me is that we have huge pending litigations from pre-GST regime. More than 3.75 lakh crore is blocked in litigations in service tax and excise. There is a need to unload this baggage and allow business to move on. I, therefore, propose, a Legacy Dispute Resolution Scheme that will allow quick closure of these litigations. I would urge the trade and business to avail this opportunity and be free from legacy litigations”.

A scheme which came into effect from 01 September 2019 vide Notification No. 04/2019 Central Excise – NT dated 21 August 2019 was opted by many taxpayers. As per the data shared by CBIC, a total of 189,214 declarations were filed under the Scheme from 01 September 2019 to 15 February 2020 wherein duty involved was Rs. 89,823 crores. (Source – CBIC’s tweet dated 10 June 2020).

However, total cases pending as on 31 December 2019 before various forums, i.e.  Supreme Court, High Court, CESTAT, Commissioner (Appeals) and in Adjudication were 144,556 having amount involved under litigation as Rs. 4,15,172.83 crores.

S. No.	Forum	Number	Amount (Rs. in Cr.)
1	Supreme Court	2,327	31,088.96
2	High Court	9,952	45,893.47
3	CESTAT	51,841	1,84,860.65
4	Commissioner (Appeals)	16,068	8,015.86
5	Adjudication (upto Commissioner)	64,368	1,45,313.85
Total		1,44,556	4,15,172.79

(Source – Data posted by PIB on 10 February 2020)

A brief about the Scheme

SVLDRS scheme, applicable on many erstwhile Indirect Tax enactments, mainly being Central Excise Act and Service Tax, provided relief to the taxpayers in the form of both Dispute Resolution as well as Amnesty. Under Dispute Resolution, pending litigations could be brought to an end by paying a certain percentage of tax dues under the scheme and waiver from the remaining tax dues and full waiver of interest and penalty shall be granted. Under Amnesty part, a taxpayer sou moto can disclose the tax dues remaining to be paid under the Scheme and can get full waiver of Interest and Penalty.

‘Major categories under the Scheme’ along with relief available are tabulated below as a summary of the Scheme –

Nature of the case	Condition/Remarks	Category	Percentage of tax dues* payable under the Scheme	Relief available under the Scheme**
Enquiry or investigation or Audit pending	Amount of Tax Dues must be quantified on or before 30 June 2020	Investigation, Enquiry or Audit	Where amount < 50 lakhs – 30% of the tax dues Where amount > 50 lakhs – 50% of the tax dues	Waiver from remaining tax dues and full waiver from Interest and Penalty
SCN pending for Adjudication	No final hearing must have taken place on or before 30 June 2020 to be eligible under this category. However, if hearing has taken place, eligible under ‘Arrears’ category provided other conditions are met.	Litigation
Appeal pending before any Appellate Forum
SCN or Appeal pending involving only late fee or penalty only, in dispute			0%, i.e. nothing required to be paid	Waiver of entire Late fee or Penalty
No appeal filed against an Order and/or Order attained finality	–	Arrears	Where amount < 50 lakhs – 40% of the tax dues Where amount > 50 lakhs – 60% of the tax dues	Waiver from remaining tax dues and full waiver from Interest and Penalty
Tax shown as payable in return but not paid yet	Also covers cases wherein only interest and/or penalty stands payable as per return while tax dues have been paid in full
Sou Moto disclosure of pending tax dues to be paid	–	Voluntary Disclosure	100%, i.e. entire tax dues are required to be paid	Waiver of entire Interest and Penalty, as applicable

*Tax dues defined in Section 124 of the Finance Act, 2019.

**Reliefs under the Scheme given in detail under Section 129 of the Finance Act, 2019.

Where above table depicts the cases covered under the Scheme, Section 125 of the Finance Act, 2019 provides that all persons are eligible to make a declaration under the scheme except some cases which are specifically mentioned therein, like,

• Where a SCN has been issued which is pending for adjudication or an appeal is filed before the appellate forum and the final hearing has taken place on or before 30 June 2019;
• Who has been convicted for any offence punishable under provisions of IDT regime;
• SCN issued for erroneous refund or refund; or,
• Who has been subjected to an enquiry or investigation or audit and the amount of duty involved has not been quantified on or before the 30 June 2019, etc.

With respect to the procedure for filing declaration under the Scheme along with important forms, the same are given in detail under SVLDRS Rules, 2019, a summary of which is depicted via a flow chart as given below –

Apart from above, CBIC with time, issued various circulars, press notes and FAQs providing various clarifications on multiple aspects under the Scheme.

Judicial Pronouncements related to SVLDRS

This Scheme, albeit, offered huge relief to various taxpayers whose cases were long pending under litigation, but also led to litigation of its own before various High Courts, majorly due to the anomalous actions taken by different jurisdictional Designated Committees, who are entrusted with the power to process the declarations filed by various taxpayers.

1. Rejected the declaration or passed adverse decision sans affording an opportunity of being heard to the declarant – As against the well-established and widely followed Principles of Natural Justice laid down in latin phrase ‘Audi Alteram Partem’ providing that an opportunity of being heard must be granted to the assessee before taking any adverse decision in its case, Designated Committees in various cases did not grant hearing to the declarants before taking an adverse decision which prompted the declarants to approach their jurisdictional High Courts, for relief.

In the matter of Hitech Projects Pvt. Ltd. v. Union of India, reported in [2020] 117 taxmann.com 774 (Gujarat); MANU/GJ/0948/2020, facts involved were that the Writ Applicant filed declaration under SVLDRS to avail its benefit in respect of which Writ Applicant was asked to appear before the Designated Committee. However, Writ Applicant could not appear before the Designated Committee due to the nationwide lockdown but Designated Committee proceeded to process the declaration of the Writ Applicant and issued SVLDRS – 3 accordingly.

Hon’ble High Court of Gujarat at Ahmedabad in this matter while setting aside ex – parte Form SVLDRS – 3 remanded the matter back to Designated Committee with a direction to issue a date of personal hearing and consider the declaration afresh.

Similarly, Hon’ble High Court of Karnataka at Bengaluru in the matter of Kiran Borewells v. Union of India & Others, in Writ Petition No. 51929/2019 (T-RES) observed that any order passed by quasi judicial authority adversely affecting the rights of the parties should be strictly in adherence to the principles of natural justice. The Rejection Order passed by Designated Committee in this matter without grating a hearing, was quashed and set aside and the declaration was restored to the file of Designated Committee to re-consider the matter after providing personal hearing as per the date fixed by Hon’ble Court.

Further, in the matter of Chaque Jour HR Services Pvt. Ltd. v. Union of India, reported in 2020 (372) E.L.T. 522 (Del.), the declaration filed by Petitioner was ex-parte rejected by Designated Committee holding that they are not eligible to file declaration under this scheme on the ground that an investigation is pending against the Petitioner for which no Service tax dues were either quantified or communicated to the Petitioner till 30 June 2020.

Petitioner in this matter contended that their declaration was rejected sans any prior notice as well as granting hearing or considering the Petitioner’s letter addressed to Designated Committee wherein Petitioner categorically quoted the relevant provision under which they are eligible to file declaration as well as referred to letter of Investigative Authority quantifying the amount of admitted Service tax liability.

Hon’ble High Court of Delhi in this matter also set aside the order passed by Designated Committee and directed the Committee to pass a reasoned order after granting a date of personal hearing to the Petitioner.

Exactly similar to above were the facts and decision in the matter of Industrial Personnel & Security Services Pvt. Ltd. v. Commissioner of Central Goods & Services Tax, Delhi South and Ors., before Hon’ble Delhi High Court, cited in MANU/DE/1301/2020.

Hon’ble Delhi High Court in another matter of Pro – Interactive Services (P.) Ltd. v. Commissioner of Central Goods & Services Tax Delhi South, reported in [2020] 117 taxmann.com 591 (Delhi) also set aside the ex-parte order passed by Designated Committee with the direction that an opportunity of being heard as per the time & date decided by the Hon’ble Court must be given to the Petitioner.

2. Interpretative Issues – There were certain interpretative issues as regards the newly introduced Scheme wherein Courts have taken a liberal stand to uphold the spirit of the Scheme.

In the matter of Synpol Products (P.) Ltd. v. Union of India, reported in 2020 (371) E.L.T. 439 (Guj.); 2020 [32] G.S.T.L. 705, appeals of the Petitioner were pending in appellate forum against adjudication order wherein demand of duty, interest and penalty was confirmed along with confiscation of goods and imposing fine in lieu of confiscation. In respect of such pending appeals, Petitioner opted SVLDRS and filed declarations for which separate Show Cause Notices were received from Designated Committee calling them to show cause as to why Petitioner’s declarations should not be treated as void as the Scheme permits waiver of duty, interest and penalty, but not fine in lieu of confiscation.

After granting hearing, Designated Committee was of the view that their declarations cannot be entertained under this Scheme as cases involving confiscation and redemption fine have not been covered under the Scheme.

The major issue of Interpretation put before Hon’ble Court in this matter was that whether the Scheme allows waiver from payment of redemption fine. Where Counsel for the Petitioner argued in extenso regarding the admissibility of declarations of the Petitioner, the whole defence of the Counsel for Respondent was premised on a Board’s letter dated 20 December 2019 wherein it was stated that Scheme provides immunity from ‘fine’ imposed under Section 9 of Central Excise Act, 1944 and not from ‘redemption fine’ imposed under Section 34 of the Act. Further, it was put forth by Respondent that discharge certificate in cases involving redemption fine can only be issued after settlement of such ‘redemption fine’ by the declarant.

Hon’ble High Court of Gujarat after considering the provisions of the Scheme in toto observed that –

a. Section 125 of the Finance Act, 2019 provides that ‘all persons’ are eligible to make declaration except those cases specifically mentioned therein and cases involving ‘confiscation’ and fine in lieu of confiscation, i.e. ‘redemption fine’ are not excluded from the benefit of this Scheme;

b. While under the Scheme (Section 129), there is no express mention that upon issuance of discharge certificate, declarant shall not be liable to pay fine/redemption fine, CBIC has issued FAQ’s, flyers and press notes wherein it is specifically stated that Scheme provides substantial relief in tax dues tax along with full waiver of interest, ‘fine’ and penalty;

c. Whereunder Board’s communication dated 20 December 2019, it has been stated that waiver of ‘fine’ imposed under Section 9 of the Central Excise Act, 1944 is admissible under the Scheme, thus, it clearly means that Scheme provides waiver of fine imposed upon taxpayers, however, the interpretative aspect being whether waiver of ‘fine’ includes ‘redemption fine’ also;

d. Section 9 of the Central Excise Act, 1944 specifies the categories of offences and the punishment thereunder, which may be punishable with imprisonment and/or fine. Thus, the question of imposing fine arises only upon conviction for an offence specified in Section 9 of the Act. However, clause (b) of section 125 of the Finance Act, clearly excludes persons 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 declaration. Thus, Hon’ble Court observed that legislature could not have contemplated waiver of fine under Section 9 of the Act which leaves with only fine under Excise Act, being ‘redemption fine’; and,

e. Hon’ble High Court was of the prima facie opinion that argument put forth by Respondent that such declarations involving redemption fine can only be processed and discharge certificate can be issued after settlement of redemption fine, is not in consonance with the Scheme.

Accordingly, the orders of Designated Committee were stayed by the Hon’ble Court and Respondents were directed to permit Petitioner to file a fresh declaration under the Scheme which shall not be turned down on the ground that Scheme does not cover such cases.

In another matter of Ramesh Electricals v. Union of India, cited in 2020 (371) E.L.T. 625 (Kar.), the declarant filed the declaration under ‘Arrears’ category whereas Hon’ble Karnataka High Court after considering the facts involved, held that, albeit, Petitioner is not eligible to file declaration under ‘Arrears’ category inasmuch as, their arrears of tax are yet to be assessed and the adjudication is still pending, but since the Scheme was introduced for benefit of Assessee, it needs to be construed liberally to effectuate the purpose and therefore, the Petitioner was permitted to avail the benefit under ‘Voluntary Disclosure’ category, if they so opt.

Nidhi Gupta v. Union of India and Ors., cited in MANU/DE/4649/2019 – A writ petition was filed challenging the validity of Circular bearing No. 1072/05/2019 – CX dated 25 September 2019 as issued in violation of the Scheme. The Petitioner contended that the cut – off date of 30 June 2019 as envisaged in the Scheme is not being maintained by the Respondent by way of allowing certain cases in which demand is computed after 30 June 2019.

Afore stated Circular dated 25 September 2019, inter – alia, clarified that cases wherein appeal or adjudication order is pending but final hearing has been concluded on or before 30 June 2019, though not covered under ‘Litigation’ category shall still be eligible for the scheme under ‘Arrears’ category provided other requirements, as provided in the Scheme, are met. Further, it was also clarified that such cases where a taxpayer does not want to file an appeal but time period for filing appeal is not over yet, are also eligible under ‘Arrears’ category provided procedure as mentioned in the said Circular is complied with by the declarant.

Hon’ble High Court of Delhi held that such Circular is not violative of the Scheme and such cases as mentioned in circular ibid. are rightly eligible under ‘Arrears’ category as per the provisions contained in Statute. Further, after taking cognizance of Rule 3 of Sabka Vishwas (Legacy Dispute Resolution) Rules, 2019, it was held that cut – off date is prescribed only for those cases wherein SCN/Appeal/Enquiry/Investigation or Audit is pending on or before 30 June 2019 whereas such cut – off date is not applicable to ‘Arrears’ & ‘Voluntary Disclosure’ category.

Opel Auto Products Private Limited v. Union of India, reported in [2020] 117 taxmann.com 646 (Punjab & Haryana) – The facts of the case were that the Petitioner during an enquiry in January 2018, informed the Anti Evasion team that Service tax liability of Rs. 20 lakhs is pending to be paid. Petitioner made part payment and requested some time for balance payment and received a letter from Anti evasion team in December 2018 that its case is being enquired into.

In between the enquiry, SVLDRS Scheme was introduced and Petitioner opted for the same, however, the same was rejected holding that an enquiry was still pending and amount due is not determined yet by the Revenue. In rebuttal, Petitioner relied upon a letter issued in September 2019 upon the Petitioner’s vendor informing about Petitioner’s default of Service tax to the tune of Rs. 20 lakhs and calling upon it to stop payment to the Petitioner and the amount due may be paid directly to the credit of CGST Department.

Hon’ble Court while dismissing the plea of the Petitioner and upholding the decision of Designated Committee held that such figure mentioned in letter issued by Revenue in September 2019 to Petitioner’s vendor does not show final quantification and is rather a preliminary figure at best.

Silpa Projects & Infrastructure (I) (P.) Ltd. v. Principal Commissioner of Central tax & Central Excise, reported in [2020] 118 taxmann.com 116 (Kerala) – The Scheme makes a clear distinction between those taxpayers who have filed their Service tax returns disclosing the tax payable by covering them under ‘Arrears’ category and those who did not file any return or disclosed the tax payable to Government exchequer are covered under ‘Voluntary Disclosure’ category.

Petitioner in this matter, sought to file their Service tax returns belatedly in manual form so as to get the benefits under the Scheme applicable to persons who had filed returns. However, the Revenue dismissed the manual returns filed by the Petitioner as after 01 October 2011, returns could only be filed electronically.

Hon’ble High Court, after taking cognizance of Rule 7 of Service Tax Rules, 1994, held that returns were mandatorily prescribed to be filed in electronic form w.e.f. 01 October 2011 and thus, petitioner cannot now be heard to contend that he can file the return in manual form for the purposes of obtaining the benefit applicable to the said category of persons, under the SVLDRS.

Conclusion

While there are some cases, as discussed supra, wherein the relief sought by majority of the declarants has been granted by High Courts, there are many other declarations wherein writs have been filed before various High Courts seeking relief and certain directions to Designated Committee, and which are pending for final order. Also, it is expected that some cases wherein High Courts have ruled in favour of either party will be appealed by the other party to the Apex Court.

In order to sum up, while the Scheme granted huge relief to the taxpayers in the form of Dispute Resolution or Amnesty and successfully led to many pending litigations before various forums, come at a closure, it is going to take some time for the Scheme to meet the ends in all aspects vis-à-vis declarations wherein the matters are pending before Hon’ble High Court or Supreme Court.