Materially False Particular in SVLDR Declaration Must Be Found Before Initiating Proceeding

M. Ramzan and Co. Vs Union of India and Ors. (Bombay High Court)

In a landmark judgment, the Bombay High Court quashed an inquiry initiated under the Sabka Vishwas (Legacy Dispute) Resolution Scheme, 2019 (SVLDRS) against M. Ramzan & Co. The court held that the inquiry was invalid in the absence of a finding that any material particulars furnished by the petitioner in the declaration were false. This ruling reinforces the scheme’s objective to end litigation and prevent fresh disputes.

The petitioner, M. Ramzan & Co., applied under the SVLDRS, 2019, for voluntary disclosure of a service tax matter. Following the due process, Form 3 was issued, and the required amounts were paid. Subsequently, Form 4, the discharge certificate, was issued, signifying the completion of the process. However, the petitioner received a communication demanding further details and documents to verify the correctness of the declaration, prompting the challenge in the writ petition.

Petitioner’s Contention: The petitioner, represented by learned counsel Bharat Raichandani, argued that the inquiry was contrary to the scheme’s purpose of minimizing litigation. The counsel emphasized that the SVLDRS was designed to resolve legacy disputes and not to create new ones. The petitioner maintained that the authorities had no basis for conducting a roving inquiry without a specific finding that any material particular in the declaration was false.

Respondents’ Standpoint: The respondents, represented by Mr. Adik, argued that under Section 129(2)(c) of the SVLDRS, the declaration could be reopened if any material particular furnished in the declaration was found to be false. However, they conceded that the impugned letter did not establish any finding of false material particulars, thus supporting the petitioner’s position.

Court’s Observations and Judgment

Purpose of SVLDRS: The court highlighted that the SVLDRS was intended to end legacy disputes and reduce litigation. Any action contrary to this objective would undermine the scheme’s purpose.

Authority to Conduct Inquiry: The court scrutinized Section 129(2)(c) of the SVLDRS, which permits reopening a declaration if any material particular furnished is subsequently found to be false. However, the court noted that such a finding was a prerequisite for initiating any inquiry.

Findings on the Inquiry: The court found that the inquiry initiated against M. Ramzan & Co. lacked a foundational finding of false material particulars in the declaration. The communication from the authorities was deemed a roving inquiry, which is impermissible under the scheme. The court stressed that the authority must first determine the falsehood of a material particular before proceeding with any inquiry.

Conclusion of the Judgment: The court quashed the impugned communication dated November 9, 2020, and the follow-up communication dated November 13, 2020. The court ruled that the absence of a specific finding rendered the inquiry invalid and contrary to the SVLDRS’s intent.

Conclusion

The Bombay High Court’s judgment in M. Ramzan & Co. Vs Union of India and Ors. underscores the importance of adhering to the intended purpose of the SVLDRS, 2019. By quashing the unwarranted inquiry, the court reaffirmed that the scheme aims to resolve disputes and not to create new litigation avenues. This ruling sets a precedent for future cases, ensuring that authorities cannot conduct inquiries without substantiated findings of false material particulars in declarations. The judgment protects the interests of taxpayers seeking resolution under the SVLDRS and reinforces the principles of fairness and due process.

The matter was argued by Ld. Counsel Bharat Raichandani

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Since the pleadings in the petition are completed, with the consent of the parties, we decided to dispose the petition at this stage itself.

2. The issue in the matter is very short, i.e., whether in a case of voluntary disclosure under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS, 2019) can any proceedings be initiated under Section 129(2)(c) of the Finance Act, 2019 without a finding that any material particular furnished by the declarant in the declaration is false. In our view, the answer is no.

3. Admittedly, petitioner had filed an application SVLDRS-1 on the GST portal under Section 125(f) of the SVLDRS, 2019 read with Rule 3(d) of the SVLDRS Rules, 2019 under the category of voluntary disclosure for service tax matter in terms of Section 123(d) of the Finance (No.2) Act, 2019.

4. Admittedly, the declaration was processed, Form 2 and 3 were issued, the amounts determined to be payable under Form 3 has been paid and Form 4 certificate of discharge under Section 127(8) with respect to the amount payable under the SVLDRS, 2019 has been issued. The discharge certificate was issued on 17^th March 2020. This form was issued by the designated committee.

5. Subsequently, petitioner received a communication dated 9th November 2020, which is impugned in this petition, calling upon petitioner to produce the documents mentioned therein.

6. Mr. Raichandani submitted that the re-investigation or calling for further documents after issuance of discharge certificate is contrary to the purport, intent and object of the SVLDRS, 2019. Mr. Raichandani further submitted, and correctly so, that the SVLDRS, 2019 was intended to minimize litigation and not create fresh litigation.

7. Mr. Adik appearing for respondents submitted that Section 129(2)(c) of the SVLDRS, 2019 permits reopening of the declaration in a case of voluntary disclosure. Mr. Adik further submitted that since admittedly this was a case of voluntary disclosure, the officer was empowered in issuing the letter which is challenged in this petition.

8. Section 129 of the SVLDRS, 2019 reads as under :

129. (1) Every discharge certificate issued under section 126 with respect to the amount payable under this Scheme shall be conclusive as to the matter and time period stated therein, and-

(a) the declarant shall not be liable to pay any further duty, interest, or penalty with respect to the matter and time period covered in the declaration;

(b) the declarant shall not be liable to be prosecuted under the indirect tax enactment with respect to the matter and time period covered in the declaration;

(c) no matter and time period covered by such declaration shall be reopened in any other proceeding under the indirect tax enactment.

(2) Notwithstanding anything contained in sub-section (1),-

(a) no person being a party in appeal, application, revision or reference shall contend that the central excise officer has acquiesced in the decision on the disputed issue by issuing the discharge certificate under this scheme;

(b) the issue of the discharge certificate with respect to a matter for a time period shall not preclude the issue of a show cause notice,-

(i) for the same matter for a subsequent time period; or

(ii) for a different matter for the same time period;

(c) in a case of voluntary disclosure where any material particular furnished in the declaration is subsequently found to be false, within a period of one year of issue of the discharge certificate, it shall be presumed as if the declaration was never made and proceedings under the applicable indirect tax enactment shall be instituted.

Therefore, under Section 129(2)(c) of the SVLDRS, 2019, in a case of voluntary disclosure, where any material particular furnished in the declaration is subsequently found to be false within a period of one year of issue of discharge certificate, it shall be presumed as if the declaration was never made and proceedings under the applicable indirect tax enactment shall be instituted.

9. Therefore, before instituting proceedings under the applicable indirect tax enactment, there has to be a finding, in a case of voluntary disclosure, that a material particular that was furnished in the declaration was false. In fairness, Mr. Adik submitted that in the impugned letter, there is no finding that in the declaration a material particular was found to be false and which was that material particular. Infact from the impugned letter dated 9^th November 2020 we find it to be a roving enquiry which is not permissible. The Authority should first come to a finding based on the declaration filed that a material particular (and not any particular) furnished in the declaration was false. In the impugned letter, the Authority only refers to Section 126(1) of the Finance (No.2) Act, 2019 read with Rule 6(1) of the SVLDRS, 2019 and Section 129(2)(c) of the SVLDRS, 2019 read with Clause 8 of a Circular and straight away proceeds to say in view of the above you are requested to provided the following documents.

10. In the circumstances, as there is no finding that a material particular in the declaration was false and which was that material particular, we hereby quash and set aside the impugned communication dated 9^th November 2020 and follow up communication dated 13^th November 2020.

11. Petition disposed.