Director’s Admission of Tax Liability Validates Quantification Under SVLDRS: Bombay HC

Sai Siddhi Hospitality Pvt. Ltd. Vs Union of India (Bombay High Court)

Bombay High Court: Statement of Director admitting tax liability prior to cut off date amounts to Quantification as per section 125 of SVLDRS Scheme hence rejection of declaration by designated committee is unjustified.

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS Scheme) – Rejection of declaration – Ground taken for rejection was that tax dues was not quantified as on cut-off date of 30-6-2019 – Statement of Director of assessee company recorded by Director General of GST Intelligence would clearly qualify as admission and would be considered for quantification under SVLDRS Scheme as per Clause (r) of Section 121 with Clause (c) of Section 123 of Finance (No. 2) Act, 2019, read with Circular dated 27-8-2019 – Thus, Petitioner eligible to make declaration in terms of Section 125 of SVLDRS Scheme – Fact that show cause notice was issued after 30-6-2019 makes no difference to eligibility of Petitioner – Therefore, Designated Committee was completely unjustified in rejecting Form SVLDRS-1 filed by Petitioner. [paras 19 to 21]

Procedural History: The Petitioner filed a Writ Petition against Respondent No. 4 Designated committee for rejecting Form SVLDRS-1 filed by Petitioner.

Facts: Petitioner is a company providing outdoor catering ser- vices by way of running corporate cafeteria services for various companies, industries etc. Respondent No. 2 initiated an inquiry against Petitioner for not depositing service tax collected from its clients with the Government Exchequer. The Sabka Vishwas (Legacy Dispute Resolution) Scheme Rules, 2019 (“SVLDRS Rules”) required declarants to electronically file Form SVLDRS-1 to avail benefits of the scheme. Petitioner filed Form SVLDRS-1, but it was rejected by Respondent No. 4 on the ground that the tax dues were not quantified as on 30th June 2019, which is the cut-off date prescribed in the SVLDRS scheme.

Issue: Whether the tax dues of the Petitioner were quantified on or before 30th June 2019 as per the provisions of the SVLDRS scheme?

Reasoning: Mr. Shrivastava along with Saurabh Mashelkar, in support of contention stated that the impugned communication was contrary to the SVLDRS scheme, first invited our attention to Section 123 thereof, which defines tax dues. The Circular dated 27th August 2019 issued by Central Board of Indirect Taxes and Customs (CBITC) clarified for all cases pending in adjudication or appeal (at any forum), the relief is to the extent of 70 percent of duty involved if it is Rs.50 lakhs or less and 50 percent if it is more than 50 lakhs. When we read the said provisions of Section 121(r) with Clause (c) of Section 123 read with Circular dated 27th August 2019 and the answer given to Question 1 and 45 of the FAQs, the same leaves no manner of doubt that there has been a valid quantification and admission of duty/tax by Petitioner before 30th June 2019.

Disposition: From the submissions Court view that it is pertinent to note that the purpose of the scheme is quantification and acceptance by a declarant of tax dues before the cut-off date. In this case, not only has there been a valid quantification before the cut-off date, but the quantification is in fact of a higher amount. We therefore hold that Respondent No.4 was completely unjustified in rejecting the Form SVLDRS-1 filed by Petitioner for the reason so stated in the impugned communication. We accordingly set aside the same and remand the matter back to the designated committee for reconsideration. Writ petition disposed off accordingly.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

Petitioner has impugned a communication dated 10^th October, 2020 (“the impugned communication”) by which Respondent No. 4 has rejected Form SVLDRS-1 (“the said Form/Form SVLDRS-1”) filed by Petitioner under the provisions of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (“the SVLDRS scheme”). The sole reason given by Respondent No. 4 for holding Petitioner ineligible was that the tax dues (as stated by Petitioner in the said Form) were not quantified as on 30^th June, 2019, which is the cut off date prescribed in SVLDRS scheme. The only issue which therefore arises for determination in the present Writ Petition is,

i. Whether the tax dues of the Petitioner were quantified on or before 30^th June, 2019 as per the provisions of the SVLDRS scheme?

In order to arrive at a determination of the above issue, it is essential to set out the facts leading upto the filing of the said Form SVLDRS-1 as also to consider the relevant provisions of the SVLDRS scheme and relevant notifications issued in respect thereof.

2. Petitioner is a company providing outdoor catering services by way of running corporate cafeteria services for various companies, industries etc. Petitioner at all relevant times was registered under the Finance Act (Service Tax), 1994 and held Registration No. AAKCS3672BST001. When the new Central Goods and Service Tax Act, 2017 (“CGST Act”) came into force, Petitioner registered itself under the provisions thereof. Thereafter certain intelligence was gathered by the officers of Respondent No. 2 that Petitioner was charging and collecting service tax from its clients and not depositing the same with the Government Exchequer. In view of this an inquiry was initiated by Respondent No. 2 and a summons dated 13^th March, 2018 was issued to Petitioner calling upon Petitioner to tender oral evidence and submit relevant documents pertaining to said inquiry. The said enquiry was under the provisions of Section 14 of the Central Excise Act, 1944 as made applicable to service tax matters under Section 83 of Chapter V of the Finance Act, 1994.

3. Thereafter on 13^th March, 2018 and in pursuance of the said summons, Respondent No. 2 (under Section 83 of Chapter V of the Finance Act, 1994 read with Section 14 of the Central Excise Act, 1944 and Section 70 and 174 of the CGST Act, 2017), recorded the statement of Petitioner’s Director, one Shri. Manjunath Nagayya Shetty. In his statement Shri. Shetty on behalf of Petitioner inter alia disclosed as follows, viz.

“Que.3: Please state the Service Tax payment status of the company during the period 2016-17 and 2017-18 (upto June 2017).

Ans: I state that Service Tax payment for the period October 2016 to June 2017 is outstanding due to poor financial status of the company. The outstanding Service Tax amount on this account works out to be Rs. 60 Lakhs (approximately), out of which, the Company is paying Rs. 50 Lakhs under GAR-7 Challan today and hereby submit a copy of Bank Statement evidencing debit of Rs. 50 Lakhs from the Bank Account of the company bearing A/c No.371179588 maintained at Kotak Mahindra Bank at Branch Andheri Naka, Mumbai. We would submit the Service Tax payment challan to this effect tomorrow, as the same is yet to be provided by the Bank. Further, Company undertake to pay the balance Service Tax amount alongwith interest within a  weeks time. Company would also file the ST-3 return for the above period within a week time. Company would also submit a reconciliation statement of outstanding Service Tax liability and interest within a week time.” (Emphasis Supplied)

Petitioner thereafter on the very same day under cover of its letter dated 13^th March, 2018 submitted copies of the balance sheet, sales ledger, purchase ledger, client list and client contract copy.

4. On 28^th March, 2018 a further statement of Petitioner’s director Shri. Shetty was recorded by Respondent No. 2 in which he, inter alia, explained the nature of Petitioner business and admitted as follows, viz.

Que.7: While going through the value declared in Profit & Loss Account of the company and the gross value declared in the ST-3 Returns, there is apparently a huge difference during the years 2013-14 to 2016­17. Please state the reasons for the same.

Ans: I accept that there were apparently differences in the value as declared in Profit & Loss Account vis-a-vis the value declared in the ST-3 Returns. In this regard, we have done reconciliation and have fully paid the differential Service Tax amounting to Rs. 90 Lakhs after your visit to our premises on 14.03.2018 on such  differential value. I further undertake to pay appropriate interest and penalty on such differential Service Tax liability. The worksheet for the differential service tax liability is as under:

(Emphasis supplied)

–

5. About two months later, on 21^st May, 2018 another statement of one of the directors of Petitioner was recorded wherein Petitioner had re­worked the actual MRP sale price and provided the details, ledger in respect thereof etc. Petitioner also undertook to pay the applicable service tax on the balance at the earliest.

6. On 12^th December, 2018 and 29^th January, 2019 further summons were issued to Petitioner by Respondent No. 2. These were adjourned at the request of Petitioner. Petitioner by its letter dated 20^th March, 2019 addressed to Respondent No. 2 submitted that they had made full payment up to 2013-14 along with interest and penalty and also submitted other financial documents as more particularly mentioned in the said letter.

7. Vide a letter dated 20^th March, 2019, Petitioner informed Respondent No. 2 that they had made an additional payment and also submitted other financial documents such as ST-3 returns, sales ledger, sales invoice, Form 26AS and audited financial statements in respect of the financial years 2014-15 to January, 2017. Petitioner, therefore, vide a letter dated 11^th April, 2019 addressed to Respondent No. 2 submitted that it had discharged its service tax liability in full as per the letter dated 28^th March, 2019 and assured Respondent No. 2 that they would pay penalty and interest in a few days.

8. In the year 2019 the Central Government enacted the Finance (No. 2) Act, 2019. Chapter V of the said Act introduced the SVLDRS scheme. The SVLDRS scheme was introduced with the objective of affording those tax payers who had pending issues in respect of any one or more of the indirect tax statutes (more particularly mentioned in Section 122 of the SVLDRS scheme) with an opportunity (and mechanism) to once and for all resolve the same. The object of the SVLDRS scheme was to provide amnesty to those in default and/or who had outstanding dues under the old regime of indirect tax before migrating to the new regime, i.e., the Goods and Service Tax Regime. The benefits under the said scheme inter alia were as follows;

i. Tax payers would pay the outstanding tax amounts due and be free from any other consequences in law;

ii. Tax payers would get substantial relief in the form of full waiver of interest, penalties and fine.

iii. There would be a complete amnesty from prosecution proceedings.

The mechanism for availing of the benefit of the SVLDRS scheme was set out in the Sabka Vishwas (Legacy Dispute Resolution) Scheme Rules, 2019 (“SVLDRS Rules”) which required declarants who chose to avail of the benefits of the said scheme to electronically file Form SVLDRS-1.

9. On 27^th August, 2019, the Central Board of Indirect Tax and Customs (CBITC) issued a circular (being circular No.1071/4/2019-CX.8) which clarified as follows:

“4(a) For all cases pending in adjudication or appeal (at any forum), the relief is to the extent of 70 percent of duty involved if it is Rs.50 lakhs or less and 50 percent if it is more than 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.” (Emphasis Supplied)

Also, for the smooth implementation of the said SVLDRS scheme and to clarify any doubts that prospective declarants may have, the CBITC published Frequently Asked Questions (“FAQ’s”) which, inter alia, clarified as follows:

Q1. Who is eligible to file declaration under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019?

Ans. Any person falling under the following categories is eligible, subject to other conditions, to file a declaration under the Scheme:

(a)…. (b)…. (c)….

(d) Who has cases under investigation and audit where the duty/tax involved has been  quantified and communicated to him or admitted by him in a statement on or before 30 ^th June, 2019 .

(Emphasis Supplied)

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 duly/tax demand or duty/tax liability admitted by the person during enquiry, investigation  or audit or audit report, etc.  (Emphasis Supplied)

10. Petitioner deeming itself eligible and being desirous of availing of the benefits of the SVLDRS scheme, on 15^th January, 2020 filed Form SVLDRS-1 declaring therein an amount of Rs.1,30,37,261/- as service tax. However, on or about 10^th October, 2020, Petitioner received the impugned communication from Respondent No. 4 rejecting Form SVLDRS-1 filed by Petitioner and recording therein that Petitioner was ineligible on the ground that “Tax Dues Not Quantified as on 30.6.2019 ”.

11. Aggrieved by the impugned communication Petitioner made separate representations to Respondent No. 4 (on 17^th February, 2020), and to Respondent No. 3 (on 4^th March, 2020). On 1^st June, 2020, Petitioner received a Show Cause Notice issued by Respondent No. 2 recording that Petitioner had charged and collected service tax from its customers (for the period of October, 2014 to June, 2017) but had not paid the same to the Government Exchequer. The amount of service tax mentioned in the said show cause notice was quantified at Rs.1,02,28,973/-. Petitioner thereafter once again made representations to the various Respondents, viz. Respondent No. 3 & 4 (on 19^th October, 2020), to the Grievance Cell, Central Board of Indirect Taxation (on 22^nd October, 2020) and Respondent No.3 (18^th

November, 2020). However, these representations were also met with no response from the authorities. It was thus that Petitioner approached this Hon’ble Court and impugned the rejection of Form SVLDRS–1 filed by Petitioner.

12. Mr. Shrivastava, learned counsel appearing on behalf of Petitioner assailed the impugned communication/rejection of Petitioner’s Form SVLDRS-1 principally on the following ground that the rejection of Petitioner’s Form SVLDRS – 1 was in the teeth of the SVLDRS scheme and circular dated 27^th August, 2019. Mr. Shrivastava, in support of contention that the impugned communication was contrary to the SVLDRS scheme, first invited our attention to Section 123 thereof, which defines tax dues. He pointed out that Section 123 (c) specifically contemplated as follows :-

“123(c) where an enquiry or investigation or audit is pending against the declarant, the amount of duty payable under any of the indirect tax enactment which has been quantified on or before the 30th day of June, 2019;”

(Emphasis Supplied)

He then invited our attention to Section 121(r) of the SVLDRS scheme, which defines ‘quantified’ as follows :-

“121(r) “quantified” with its cognate expression means a written communication of the amount of duty payable under the indirect tax enactment;”

(Emphasis Supplied)

Mr. Shrivastava, then invited our attention to Section 125 of the said scheme and pointed out therefrom that all persons were eligible to make a declaration under the SVLDRS scheme with the exception of those who fell within Clause (a) to Clause (h) of Sub-clause (1) of Section 125 of the said scheme. Mr. Shrivastava pointed out that the FAQs issued under the said scheme further made clear that a written communication included an admission made by a person during inquiry, investigation or audit report.

13. Thus, Mr. Shrivastava submitted that it was beyond a shadow of doubt that Petitioner was entitled to make a declaration under Section 125 of the said scheme by virtue of the fact that the Director of Petitioner had on 28^th March, 2019 admitted during inquiry and investigation to service tax being payable by Petitioner and therefore the duty/tax involved had been quantified before 30^th June, 2019. He, therefore, submitted that rejection of Petitioner’s Form SVLDRS-1 on the ground that “Tax Dues Not Quantified as on 30.6.2019” was entirely untenable and contrary to the provisions of the said scheme. Respondent No.4 therefore was bound to have accepted Form SVLDRS-1 submitted by Petitioner and after duly verifying same take the necessary further steps under the SVLDRS scheme by either issuing to Petitioner Form SVLDRS-2. He submitted that Respondent No. 4 in rejecting Petitioners’ Form SVLDRS-1 had acted contrary to the very object of the said scheme and in a totally arbitrary manner. He further submitted that Respondent No.4 was bound by the Circular dated 27^th August, 2019 and thus could not have rejected Form SVLDRS-1 filed by Petitioner. He thus submitted that Petitioner was entitled to the reliefs prayed for in the present Writ Petition.

14. Per contra Mr. Jetly, learned Senior Counsel appearing on behalf of Respondents supported the impugned communication and submitted that the same had been correctly issued by Respondent No.4. He submitted that Petitioner was not eligible as per the provisions of Section 125 (e)¹, as there was no final quantification and an enquiry/investigation was pending. In support of his contention he first invited our attention to the statement given by Petitioners’ director on 28^th March, 2019 and then to Form SVLDRS-1 filed by Petitioner and pointed out that the amounts mentioned in both differed. He thus submitted that given this discrepancy, there was no final and conclusive quantification of the amount of service tax. He therefore submitted that Respondent No.4 was absolutely correct and justified in rejecting the said Form holding Petitioner in-eligible as the tax dues were not quantified as on 30^th June, 2019. Mr. Jetly invited our attention to Paragraph 26 of the Affidavit-in-Reply in which Respondent had set out the reasons for the said rejection, the same read thus viz.,

“26. In this connection, I say and submit that the reference no.DGCEI//MZU/I&IS’E’/12 dated 29.01.2019 is actually summons issued by the DGCI, Mumbai to Mr. Manjunath Shetty, Director of the petitioner, to record oral evidence and to submit the documents mentioned therein. However, the said reference no.DGCEI//MZU/I&IS’E’/12 dated 29.01.2019 did not quantify any service tax liability. Further this fact is corroborated by the DGCI vide its report F. No.DGGSTI/MZU/I & IS ‘E’/12(4)49/ 2018/121 DATED 26.02.2020 submitted that the final quantification was not done before 30.06.2019 and the case file investigation is under progress and SCN is yet to be issued.”

15. Mr. Jetly, when asked by the Court, in light of the clarification given in FAQs, that as to why the statement given by Petitioner’s Director on 28^th March, 2019 would not be quantification of tax dues on or before 30^th June, 2019 as per Section 123(c) of the said scheme, he very fairly submitted that the same would be. He, however, only reiterated that post this statement the amount mentioned by Petitioner in Form SVLDRS-1 differed. He, thus, submitted that there was no final quantification of the amount.

16. We have heard learned Counsel for both sides and with their assistance have gone through the pleadings, the SVLDRS scheme, the SVLDRS Rules and the relevant Circular dated 27^th August, 2019 and have come to the conclusion that the rejection of Petitioner’s Form SVLDRS-1 by Respondent No.4 was contrary to the provisions of the said scheme and thus bad in law.

17. We note that Section 125 of the Finance Act, 2019 provides that all persons are eligible to make a declaration under the SVLDRS scheme with the exception of those falling within the exceptions set out in clauses (a) to (h) of sub-section (1) of Section 125. ‘Tax dues’ referred in section 124 is defined in section 123. It specifies various situations. Clause (c) of Section 123 is relevant to case in hand and it reads thus:

“123. For the purpose of the Scheme, “tax dues” means-

xxxxx

(c) “where an inquiry or investigation or audit is pending against the declarant, the amount of duty payable under any of the indirect tax enactment which has been quantified on or before the 30th day of June, 2019”.

“What is “quantified” is defined in clause (r) of section 121. It reads thus:

“with its cognate expression, means a written communication of the amount of duty payable under the indirect tax enactment”.

18. The Circular dated 27^th August, 2019 issued by Central Board of Indirect Taxes and Customs (CBITC) clarified for all cases pending in adjudication or appeal (at any forum), the relief is to the extent of 70 percent of duty involved if it is Rs.50 lakhs or less and 50 percent if it is more than 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. CBITC also issued a clarification by way of answers to Frequently Asked Questions (FAQs) in which question 1 and 45 and answers thereto further clarified that any person who has cases under investigation and audit where the duty/tax involved has been quantified/and admitted by him via settlement on or before 30^th June, 2019 and 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.

19. When we read the said provisions of Section 121(r) with Clause (c) of Section 123 read with Circular dated 27^th August, 2019 and the answer given to Question 1 and 45 of the FAQs, the same leaves no manner of doubt that there has been a valid quantification and admission of duty/tax by Petitioner before 30^th June, 2019. The statement of Petitioner’s Director Mr. Shetty recorded by Respondent No.2 on 28^th March, 2019 would clearly qualify as admission and quantification under the SVLDRS scheme. We thus find that Petitioner was eligible to make a declaration in terms of Section 125 of the SVLDRS scheme. Respondent No.4 holding Petitioner ineligible for the reason that the tax dues were not quantified as on 30^th June, 2019 is entirely misconceived and unjustified.

20. Additionally, the fact that a show cause notice has been issued after 30^th June, 2019, i.e., on 1^st June, 2020, should make no difference to the eligibility of Petitioner. To determine eligibility, the relevant date is 30^th June, 2019 and as already found by us above, Petitioner had quantified and admitted to its service tax liability before that date. Another fact, which also indicates non-application of mind is the fact that, Petitioner, on 20^th March, 2019, in his statement before Respondent No.2 had quantified the service tax and that amount was much more than the amount claimed in the said show cause notice dated 1^st June, 2019. It is pertinent to note that the purpose of the scheme is quantification and acceptance by a declarant of tax dues before the cut-off date. In this case, not only has there been a valid quantification before the cut-off date, but the quantification is in fact of a higher amount.

21. We therefore hold that Respondent No.4 was completely unjustified in rejecting the Form SVLDRS-1 filed by Petitioner for the reason so stated in the impugned communication. We accordingly set aside the same.

22. Respondent No.4 shall within four weeks of this order being uploaded take further steps under the said scheme and issue to Petitioner either Form SVLDRS-3 or Form SVLDRS-2. In the event the same cannot be issued electronically, Respondent No.4 shall issue the requisite Forms in physical format.

23. Writ Petition disposed. No order as to costs.

Note:

¹ Section 125(e) – who have been subjected to an enquiry or investigation or audit and the amount of duty involved in the said enquiry or investigation or audit has not been quantified on or before the 30th day of June, 2019;