A declarant seeking remedy under SVLDR Scheme, 2019 shall be given an opportunity of being heard if their declaration is rejected
The Hon’ble Madhya Pradesh High Court in M/s Balaji Publicity vs. Union of India and others [WP No.3133/2021 and W.P. No.3130/2021 decided on October 5, 2021] has held that the Designated Committee under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS), while examining declarations of applicants seeking benefits under the SVLDRS, is entitled to give the declarants an opportunity to be heard in case their declaration under the SVLDRS is rejected by the Designated Committee due to any flaw.
M/s Balaji Publicity (“the Petitioner”) is a propriety firm which decided to take benefit of the SVLDRS.
While filling the SVLDRS-1, application, they committed a mistake in regard of period of April 2014 to June 2017 against the column the date on which return was filed, as instead of dates of actual filling of each return for the period between April, 2014 to June, 2017, a single date was mentioned. The said mistake occurred because the online system was not accepting so many entries.
The Designated Committee under SVLDRS did not issue any SVLDRS-2 in respect of the declaration filed by the Petitioner as per the provision of SVLDRS and rejected the declaration by putting a remark ‘Incorrect application’.
Amongst other contentions, the Petitioner contended that, in any event, it deserved an opportunity to be heard in regard to the rejection of its application and that their declaration under the SVLDRS should be accepted as a valid declaration.
Whether a declarant is entitled to an opportunity of being heard once their application under SVLDRS is rejected?
The Hon’ble Madhya Pradesh High Court in WP No. 3133/2021 and W.P. No. 3130/2021 decided on October 5, 2021 held as under:
FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT
In these petitions, the petitioners have assailed the communication of respondents whereby the petitioners’ applications preferred under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (hereinafter referred as ‘Scheme’) were rejected by respondents on 18.12.2019. At the outset, learned counsel for the parties urged that both the matters contains similar questions and therefore, the matters may be analogously heard.
2. On the joint request of the parties, the matters were analogously heard and decided by this common order.
3. Facts are taken from WP No.3133/2021. The relevant facts as pleaded are that the petitioner a propriety firm decided to take benefit of the Scheme, which was introduced to unload the baggage relating to legacy taxes viz Central Excise and Service Tax. The scheme is aimed to ensure that if conditions of scheme are fulfilled, it will be incumbent upon all officers and staff of respondent/department to partner with the trade and industry to make the scheme a grand success. The scheme has a potential to liquidate the huge outstanding litigation and free the tax payers from the burden of litigation and investigation under the legacy tax. The administrative machinery of government will also be able to fully focus on helping the tax payers in the smooth implementation of GST.
4. The petitioners averred that while filling the SVLDRS-1, application, they committed a mistake to mention under heading Return period as 2015-02 instead of April 2014 to June 2017 against the column the date on which return was filed, it was mentioned as 25.04.2015 instead of date of actual filling of each return for the period between April, 2014 to June, 2017. The said mistake occurred because the online system was not accepting so many entries. It is averred that the petitioners visited the CGST Office and filed this SVLDRS-1 with the assistance of departmental officers.
5. The petitioners correctly mentioned the amount of arrears and the amount of tax dues minus the tax relief as per the scheme in the SVLDRS-1 application which was verified by the respondent no.5. It is further stated that the petitioners declared their service tax liability of Rs.17,28,119/- in ST-3 returns for the period of April, 2014 to June, 2017. Thus, the service tax to the tune of Rs.17,28,119/- was short paid during the relevant period. As per the scheme, the said amount falls within the ambit of “Arrears” and thus, the petitioners were eligible to file declaration to get the relief of 60% of the said amount alongwith the interest and penalty. Hence, the petitioners filed SVLDRS-1 on 08.12.2019 under the receipt of acknowledgment Annexure P/9.
6. The petitioners were shocked and surprised to receive a message from their bank namely Oriental Bank of Commerce on 08.10.2020 that their bank account no.01834021000034 has been freezed by the respondent no.5. The petitioners then preferred an application to Public Information Officer, CGST and Central Excise, Division V, Indore for getting information under section 6(1) and 7 of the Right to Information Act, 2005.
7. In turn, respondent no.5 by letter dated 25.11.2020 Annexure P/5 informed the petitioners that the office of Assistant Commissioner, CGST and Central Taxes, Division V, Indore were entrusted only with the work of verification of information mentioned by the tax payers in their SVLDRS-1 application with regard to the show cause notice/order in original/order in appeal or its pendency at CESTAT or at the High Court. Alongwith letter of respondent no.5, certain documents were furnished to the petitioners. Upon perusal of those documents, it became clear that the respondent no.5 accepted that the tax not paid falls under “Arrears” category. Reliance is placed on Annexur R/5.
8. It is urged that the declaration filed by the petitioners were found to be correct because no objection was raised by the respondent no.5 while forwarding the case to the designated committee. The rejection of application SVLDRS-1 of the petitioners is reflected in the portal with a remark Incorrect application by designated committee is arbitrary and illegal.
9. Shri R.S Roy Choudhary, learned counsel for the petitioners placed reliance on sub-rule-1 and sub-rule-3 of Rule 6 of the Sabka Vishwas (Legacy Dispute Resolution) Rules, 2019 to contend that the designated committee was under an obligation to issue a notice electronically to the petitioners and should have provided them a personal hearing. The respondent no.3 did not issue any SVLDRS-2 in respect of the declaration filed by the petitioners as per the provision of SVLDRS and mechanically rejected the declaration by putting a remark Incorrect application’.
10. It is categorically pleaded that the said information came to the knowledge of the petitioner only when they visited the portal after receipt of telephonic message from Oriental Bank of Commerce on 08.10.2020 regarding freezing of their account. The petitioners were under a bonafide impression that in the event their application is pregnant with any discrepancy, they will receive a message from the department and, in turn, they will rectify the same.
11. Learned counsel for the petitioner criticized the said rejection of application by contending :-
1. The decision of respondent runs contrary to the aim and object of the scheme.
2. Under category of Arrears, the petitioners were given relief of 60% from payment of the arrears of service tax dues as per section 124(1)(c)(3).
3. The petitioners were eligible to make a declaration under this scheme because their cases do not fall in the exclusion clause (a) to (h) of section 125 of the Act.
4. As per Section 125 of the Act R/w Rule 3(2)(b) of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, the petitioners filed online applications in the prescribed form of SVLDRS-1 which should have been accepted.
5. Due to technical glitch, the petitioners could not mention return-wise details which should not have been rejected. The circular of department dated 27.08.2019 (Annexure P/12 with the rejoinder) permitted the petitioners to avail the facility of SVLDRS-19. This gives a clear impression that the department agreed to provide the benefit of the scheme for the period of April, 2014 to June, 2017.
12. Technical glitch or online defects in a new system cannot be permitted to defeat the purpose for which the scheme was brought into force. The respondents have rejected the application without following the principles of natural justice and with utter disregard of section 126 of the Act. In support of this contention, learned counsel for the petitioner placed reliance on the following judgments :-
Seventh Plane Networks Pvt. Ltd Vs. Union of India reported in 2020 (41)GSTL 165 (Del), Vaishali Sharma Vs. Union of India reported in 2020 (40) GSTL 441 (Del), Though Blurb Vs. Union of India reported in 2020(43) GSTL 449 (Bom), Integrated Project Logistics Pvt. Ltd, Vs. Union of India reported in 2021 (51) GSTL 3 (Del), Union of India Vs. Umesh Dhaimode reported in 1998 (98) ELT 584(SC), Shiv Kishor Construction Pvt. Ltd Vs. Union of India reported in 2020 (40) GSTL 443 (Pat), Thoppil Agencies Vs. Ast. Commr. Of Commercial Taxes Hubballi reported in 2020 (41) GSTL 30 (Kar), Industrial Personnel And Security Services Pvt. Ltd Vs. Commrr. Of CGST, Delhi South reported in 2020 (373) ELT 44(Del), G.R Palle Electricals Vs. Union of India reported in 2021 (45) GSTL 10 (Bom), Elaf Tours and Travells Vs. Union of India reported in 2021 (47) GSTL 237 (Bom), Indian Machine Tool Manfrs. Association Vs. Union of India reported in 2021(45) GSTL 28 (Kar), M/s Hitech Projects Pvt. Ltd Vs Union of India (Special Civil Application NO.7292/2020 decided on 06.07.2020)reported in 2020 (39) GSTL 388 (Guj), Nagen Hospitality Services Pvt. Ltd Vs. Central Board of Indirect Taxes and Customs reported in 2021(50) GSTL 518 (Ori) and Security and Intelligence services (India) Ltd Vs. Union of India reported in 2021(51) GSTL 28 (Ori.).
13. In addition, learned counsel for the petitioner has also filed note of submission/return submissions.
14. Countering the aforesaid arguments, Shri V.N Dubey, learned counsel for the respondents placed reliance on certain paras of the return. It is urged that a conjoint reading of section 127 of Finance (No.2) Act, 2019 and Rule 6(3) of SVLDRS Rules leaves no room for any doubt that where the amount estimated to be payable by the declarant exceeds the amount declared by him, the designated committee shall issue in electronical form the estimate of the amount payable by the declarant within 30 days of the date of declaration. The stand of respondent is that an opportunity of hearing is envisaged only in the case when the amount estimated for payment by the petitioners exceeds or if there is any disagreement between the amount estimated to be payable by the designated committee and the amount payable declared by the declarant. As per the provision of said Act and Rules, this facility is not available in cases where the declarant is ineligible. The Act and the Scheme nowhere mentions that the designated committee has to provide a opportunity of hearing in case of ineligibility, and therefore, no fault can be found in the impugned remark/rejection. Since everything is online form the stage of filling of application in form SVLDRS-1 to the issuance of discharge certificate ie. Form SVLDRS-4 or rejection, no mistake in the action of respondents can be found. The petitioners have failed to file separate declarations as per the circular dated 29.10.2019. The petitioners themselves admitted their mistake in filling the application in form SVLDRS-1.
15. In rejoinder submissions, learned counsel for the petitioners submits that in furtherance of Court orders, the department has issued a circular dated 17.03.2021 Annexure P/15, whereby the offline applications were entertained. Since principles of natural justice are not followed and bonafides of petitioners are not in dispute, the petitioners can not be deprived from availing the benefit of scheme on hyper technical grounds.
16. The parties confined their arguments to the extent indicated above.
17. We have bestowed our anxious consideration on rival contentions and perused the record.
18. At the outset, it is relevant to note that the mistake committed by the petitioners is not termed by the respondents as malicious or deliberately committed by them with any ulterior motive. Thus, twin questions need our consideration. Firstly, whether in a situation like this principles of natural justice are to be followed and secondly, whether the petitioners can be left remedyless when this kind of mistake takes place ?
19. The applicability of principles of natural justice were considered by the Bombay High Court in the case of Thought Blurb (supra). The principle laid down in Thought Blurb (supra) was followed in the case of R. Palle Electricals and Elaf Tours & Travels (supra). It is apposite to quote relevant para from the judgment of Bombay High Court in the case of G.R. Palle Electricals (supra) which reads as under:-
“22. Under sub section (1) of section 127, where an amount estimated to be payable by the declarant, as estimated by the Designated Committee, equals the amount declared by the declarant, then the Designated Committee shall issue a statement in the prescribed electronic form indicating the amount payable by the declarant. Under sub section (2), where the amount estimated to be payable by the declarant as estimated by the Designated Committee exceeds the amount declared by the declarant, then the Designated Committee shall issue the estimate in the prescribed electronic form to the declarant informing him about the estimated amount. Under sub section (3), after the issue of estimate under sub section (2), the Designated Committee shall give an opportunity of being heard to the declarant and after hearing the declarant, the Designated Committee shall issue a statement in the prescribed form indicating the amount payable by the declarant.
23. From a conjoint reading of sub sections (1), (2) and (3) of section 127, the picture that emerges is that if the amount estimated by the Designated Committee is equal to the amount declared by the declarant, then the Designated Committee shall issue a statement in electronic form indicating the amount payable by the declarant. However, if the amount estimated by the Designated Committee is higher than the amount declared by the declarant, the Designated Committee shall give an opportunity of hearing to the declarant.
24. Once the determined amount is paid, discharge certificate is issued by the Designated Committee under sub section (8) of section 127.
25. Respondents have relied upon section 125(1) (e) to contend that a person who has been subjected to an enquiry or investigation or audit and the amount of duty involved in the said enquiry or investigation or audit had not been quantified on or before 30.06.2019 would not be eligible to make the declaration. On this ground, declaration of the petitioner has been rejected by the Designated Committee, which has been justified.
26. In the circular dated 27.08.2019 relied upon by learned counsel for the petitioner, Board had issued instructions clarifying certain issues pertaining to the scheme. Clause (a) of paragraph 4 is relevant and is extracted hereunder :-
“4. The relief extended under this Scheme is summed up, as follows:
(a) For all the cases pending in adjudication or appeal (at any forum), the relief is to the extent of 70% of the duty involved if it is Rs.50 lakhs or less and 50% if it is more than Rs.50 lakhs. The same relief is available for cases under investigation and audit where the duty involved is quantified and communicated to the party or admitted by him in a statement on or before 30.06.2019.
* * * * *”
26.1. It means that in a case which is pending under investigation and audit and where the duty involved is quantified and communicated to the declarant or admitted by the declarant in a statement on or before 30.06.2019, the relief available would be 70% of the duty involved if it is Rs.50 lakhs or less and 50% if it is more than Rs.50 lakhs.
26.2. Likewise, clause (g) of paragraph 10 is relevant and the same is extracted hereunder :-
“10. Further, the following issues are clarified in the context of the various provisions of the Finance (No.2) Act, 2019 and Rules made thereunder:
* * * * * *
(g) Cases under an enquiry, investigation or audit where the duty demand has been quantified on or before the 30th day of June, 2019 are eligible under the Scheme. Section 2(r) defines “quantified” as a written communication of the amount of duty payable under the indirect tax enactment. It is clarified that such written communication will include a letter intimating duty demand; or duty liability admitted by the person during enquiry, investigation or audit; or audit report etc.”
26.3. Clause (g) of paragraph 10 makes it abundantly clear that cases under an enquiry, investigation or audit where the duty demand has been quantified on or before 30.06.2019 would be eligible under the scheme. The word “quantified” has been defined under the scheme as a written communication of the amount of duty payable under the indirect tax enactment. In such circumstances, Board clarified that such written communication would include a letter intimating duty demand or duty liability admitted by the person during enquiry, investigation or audit etc.
27. We have already noticed that proprietor of the petitioner in his statement recorded on 11.01.2018 by the investigating authority admitted the service tax liability of Rs.60 lakhs (approximately) to be outstanding for the period from 2015-2016 to June, 2017. This was corroborated by the departmental authority in the letter dated 24.01.2018 which we have already noted and discussed. Therefore, present is a case where there is acknowledgment by the petitioner of the duty liability as well as by the department in its communication to the petitioner. Thus, it can be said that in the case of the petitioner the amount of duty involved had been quantified on or before 30.06.2019. In such circumstances, rejection of the application (declaration) of the petitioner on the ground of being ineligible with the remark that investigation was still going on and the duty amount was pending for quantification would not be justified.
28. This position has also been explained by the department itself in the form of frequently asked questions (FAQs). Question Nos.3 and 45 and the answers provided thereto are relevant and those are reproduced hereunder :-
“Q3. If an enquiry or investigation or audit has started but the tax dues have not been quantified whether the person is eligible to opt for the Scheme ?
Ans. No. If an audit, enquiry or investigation has started, and the amount of duty/duty payable has not been quantified on or before 30th June, 2019, the person shall not be eligible to opt for the Scheme under the enquiry or investigation or audit category. ‘Quantified’ means a written communication of the amount of duty payable under the indirect tax enactment [Section 121(g)]. Such written communication will include a letter intimating duty demand; or duty liability admitted by the person during enquiry, investigation or audit; or audit report etc.
“Q45. With respect to cases under enquiry, investigation or audit what is meant by ‘written communication’ quantifying demand ?
Ans. Written communication will include a letter intimating duty/tax demand or duty/tax liability admitted by the person during enquiry, investigation or audit or audit report etc.”
29. This aspect of the matter was gone into in considerable detail by us in Thought Blurb Vs. Union of India, decided on 27.10.2020, whereafter in the facts of that case it was held as under :-
“49 Reverting back to the facts of the present case, we find that on the one hand there is a letter of respondent No.3 to the petitioner quantifying the service tax liability for the period 1 st April, 2016 to 31st March, 2017 at Rs.47,44,937.00 which quantification is before the cut off date of 30 th June, 2019 and on the other hand for the second period i.e. from 1 st April, 2017 to 30th June, 2017 there is a letter dated 18 th June, 2019 of the petitioner addressed to respondent No.3 admitting service tax liability for an amount of Rs.10,74,011.00 which again is before the cut off date of 30 th June, 2019. Thus, petitioner’s tax dues were quantified on or before 30th June, 2019.
50. In that view of the matter, we have no hesitation to hold that petitioner was eligible to file the application (declaration) as per the scheme under the category of enquiry or investigation or audit whose tax dues stood quantified on or before 30th June, 2019.”
51. There is one more reason which would justify our intervention in this case. We have already noticed that in a case where the amount estimated by the Designated Committee exceeds the amount declared by the declarant, then a hearing is given by the Designated Committee to the declarant before determining the amount to be paid by the declarant. In a situation where Designated Committee grants hearing to a declarant when the amount estimated by it exceeds the amount declared by the declarant, then it would be wholly inconceivable that before an application (declaration) is rejected on the ground of ineligibility, no hearing is granted to the declarant. In Thought Blurb (supra), it was held as under :-
“51. We have already discussed that under sub sections (2) and (3) of section 127 in a case where the amount estimated by the Designated Committee exceeds the amount declared by the declarant, then an intimation has to be given to the declarant in the specified form about the estimate determined by the Designated Committee which is required to be paid by the declarant. However, before insisting on payment of the excess amount or the higher amount the Designated Committee is required to give an opportunity of hearing to the declarant. In a situation when the amount estimated by the Designated Committee is in excess of the amount declared by the declarant an opportunity of hearing is required to be given by the Designated Committee to the declarant, then it would be in complete defiance of logic and contrary to the very object of the scheme to outrightly reject an application (declaration) on the ground of being ineligible without giving a chance to the declarant to explain as to why his application (declaration) should be accepted and relief under the scheme should be extended to him. Summary rejection of an application without affording any opportunity of hearing to the declarant would be in violation of the principles of natural justice. Rejection of application (declaration) will lead to adverse civil consequences for the declarant as he would have to face the consequences of enquiry or investigation or audit. As has been held by us in Capgemini Technology Services India Limited (supra) it is axiomatic that when a person is visited by adverse civil consequences, principles of natural justice like notice and hearing would have to be complied with. Non-compliance to the principles of natural justice would impeach the decision making process rendering the decision invalid in law.”
31. As has been held by us in Thought Blurb (supra), the scheme is a beneficial one with the prime object of unloading the baggage of pending litigations centering around service tax and excise duty. The focus is to unload this baggage of pre-GST regime and thereby allowing business to move ahead but at the same time to also ensure that the administrative machinery can focus fully in the smooth implementation of GST. This is the broad picture which should be kept in mind while considering a declaration seeking amnesty under the scheme. Therefore, a liberal view embedded with the principles of natural justice is called for. The approach should be to ensure that the scheme is successful.”
20. A plain reading of the aforesaid paragraphs makes it clear that the ‘Scheme’ is a beneficent one and aim and object of the ‘Scheme’ is to unload the baggage of pending litigation relating to service tax and excise duty. While interpreting a beneficent provision, its aim and object cannot be ignored.
21. Considering the aforesaid in Thought Blurb (supra), it was held that it will be completely illogical and contrary to the object of the ‘Scheme’ to reject an application on the ground of ineligibility without giving an opportunity to the declarant to explain as to why his declaration should not be accepted and why relief is not due to him. Thus, principles of natural justice were read into the provision by the Bombay High Court in all the aforesaid judgments.
22. Pertinently, the judgment of Elaf Tours and Travells (supra) were relating to ‘arrears category’ to which present petitioners belong. In the said case, the Bombay High Court set aside the impugned orders therein and permitted the petitioner to file declaration under the ‘arrears category’. The matter was remitted back to the respondents to consider the declaration of petitioner again by treating it to be a valid declaration and grant him consequential relief in terms of the ‘Scheme’ after giving an opportunity to the petitioner by fixing date, time, date of hearing etc.
23. We are in respectful agreement with the view taken by the Bombay High Court and deem it proper to follow the same course. Petitioners cannot be left remediless.
24. The other judgments cited by learned counsel for the petitioners are not directly related to the ‘arrears category’. However, the judgment of M/s Hitech Projects Private Limited (supra) makes it clear that if a mistake has taken place during lock down period, the hyper technical approach should not be adopted. In the case of Nagen Hospitality Services Private Limited (supra), the Orissa High Court opined that hyper technical approach is not correct. If there is any difficulty in accepting the online form because of any technicality reason, offline form / procedure through manual process be followed. The documents filed with the rejoinder 17.03.2021 (Annexure-P/15) shows that pursuant to Court orders, the respondents have decided to accept offline / manual application.
25. In view of the foregoing analysis, the respondents were not justified in rejecting the petitioners’ application without giving them an opportunity. Resultantly, the said impugned decision of respondents in both the cases are set aside. The petitioners may file online / offline fresh applications before the respondents. In turn, the respondents shall consider them as valid applications and take a decision on it expeditiously. In the event the respondents think that there is any flaw in the applications so preferred, the petitioners be heard on that point and after following principles of natural justice, a fresh decision in the shape of a speaking order be passed within a reasonable time.
26. The Writ Petitions are allowed to the extent indicated above.
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