2025 (7) TMI 5 - HC - Service Tax

Eligibility of benefit under Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019 - inability to deposit the dues in view of the peculiar circumstances during COVID situation - seeking sufficient time to clear the outstanding dues as the petitioner was a bona fide assessee and not attempting to deflect from its responsibility and wishes to settle its liability for which it requires some more time - HELD THAT - A perusal of the impugned order would indicate that the sole ground on which the case of the petitioner has been rejected by the respondents is that the scheme had come to an end. However in light of the judgment of the Hon ble Supreme Court with regard to the extension of limitation referred to herein above and the coupled with the fact that the judgments rendered by the Hon ble High Courts of Madras Bombay Gujarat and Delhi granting benefits of SVLDRS in favour of the petitioner/assessee therein on the ground of the prevailing COVID-19 pandemic even cases where payments were made subsequent to 30.06.2020 we are of the considered view that the impugned order rejecting the case of the respondents cannot sustain and deserves to be quashed and necessary directions are required to be issued to the concerned respondents to accept the payment made by the petitioner and issue discharge certificate in its favour. The aforesaid conclusion is based upon the objective of the SVLDR scheme which had been introduced by the Central Government as a one time measure for liquidation of past disputes of central excise and service tax the SVLDR scheme had also been issued to ensure disclosure of unpaid tax by an eligible person. This appears to have been associated as the levy of central excise and service tax had now been subsumed in a new GST Regime - on the facts of the present case denying the benefits of SVLDR Scheme would not only contrary to object of the scheme but also would also be injustice to the petitioner declarant who otherwise was eligible. Whether the provisions under the Finance Bill with regard to the fixation of time limit for availing the benefit of scheme and with regard to extension of time for making payment of tax are directive in nature? - HELD THAT - This precise question has been considered by the learned Single Judge of Madras High Court in N. Sundarajan vs. Union of India Ors. 2023 (11) TMI 899 - MADRAS HIGH COURT wherein the scheme was held to be directive. This Court is of the considered view that the petitioner deserves to be granted another chance to make the payment after associating it so as to arrive at the amount due payable. The Annexures P-15 and P-16 i.e. demand notices 10 SVLDRS-3 Forms issued on 28.01.2020 (forming part of Annexure P-10 (Colly) 10 SVLDRS-3 Forms issued 25.02.2020 and letter Annexure P-13 whereby the respondent department has upheld its calculation are quashed and set aside - Petition allowed.

Summary

The core legal questions considered in this judgment include:

1. Whether the petitioner, having filed declarations under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS), and having its category changed from 'investigation' to 'arrears' by the respondents, was correctly assessed and demanded to pay a higher tax amount than calculated under the investigation category.

2. Whether the petitioner was entitled to an extension of time to pay the tax dues under the SVLDRS scheme beyond the prescribed deadline of 30.06.2020, especially in light of the COVID-19 pandemic and related lockdowns affecting the petitioner's business.

3. Whether the provisions under the Finance Act, 2019, particularly Section 127 relating to the time limits for payment under the SVLDRS scheme, are mandatory or directory in nature.

4. Whether the petitioner's representation seeking extension of time and recalculation of tax liability under the scheme was wrongly rejected by the respondents.

5. The applicability and effect of the Supreme Court's suo motu orders extending limitation periods during the COVID-19 pandemic on the petitioner's case.

6. The legal consequences of delayed payment under the SVLDRS scheme and the entitlement to issuance of discharge certificates (Form SVLDRS-4) upon payment.

Issue-wise Detailed Analysis

1. Correct Categorization and Calculation of Tax Liability under SVLDRS

The petitioner initially filed 10 declarations under the investigation category, which entitled it to certain reliefs (70% relief if tax due was <= 50 lakh). The respondents, however, re-categorized the petitioner's case as arrears and issued demand notices (Form SVLDRS-3) demanding a higher amount of Rs. 5,31,107/- against the petitioner's calculation of Rs. 1,90,094/-. The petitioner contended that payments made earlier were under directions of the respondents and included penalty, thus should not be treated as voluntary deposits, and should be deducted from the net payable amount.

The Court noted that the petitioner's payments were made under official instructions and not voluntarily, implying that the penalty inclusion was inappropriate if the payments were voluntary. The petitioner's request to revise the SVLDRS-3 forms was rejected by the respondents, who maintained their calculation as per law.

In application of law to facts, the Court found merit in the petitioner's contention that the categorization and calculation were flawed and directed the respondents to re-calculate the correct tax liability after associating the petitioner and affording an opportunity to present its case.

2. Extension of Time for Payment under SVLDRS Scheme Due to COVID-19

The Finance Act, 2019 and the SVLDRS scheme prescribed a deadline of 30.06.2020 for payment of dues. The petitioner's hotel business was closed from 24.03.2020 due to lockdown and could not generate revenue, thus unable to pay dues by the deadline. The petitioner made representations for extension, which were rejected.

The Court examined the impact of the COVID-19 pandemic on limitation periods and compliance deadlines. It referred to the Supreme Court's suo motu orders extending limitation periods from 15.03.2020 to 28.02.2022 across all judicial and quasi-judicial proceedings, including tax matters. The Court also reviewed various High Court decisions (Madras, Bombay, Gujarat, Delhi) which granted relief and extended deadlines under SVLDRS in similar pandemic-related circumstances.

These precedents established that the time limits under the scheme were to be construed liberally and extensions granted considering the extraordinary pandemic situation. The Court found that the petitioner, being a bona fide assessee affected by the pandemic, deserved extension and relief.

3. Mandatory vs. Directory Nature of Time Limits under Finance Act, 2019

The Court considered whether the time limits for availing and paying under the scheme were mandatory or directory. It relied extensively on the Madras High Court's detailed analysis in N. Sundarajan's case, which held that the provisions were directory. The reasoning was that the Central Government was empowered to notify and extend time limits, which would not be possible if the provisions were strictly mandatory.

The Court noted that the Supreme Court's extension of limitation periods during the pandemic further supported a directory interpretation. It emphasized that the scheme's objective was to facilitate amicable resolution of legacy disputes and maximize revenue collection, which would be defeated by rigid adherence to deadlines in extraordinary circumstances.

The Court concluded that the provisions under the Finance Act with regard to time limits were directory, allowing judicial intervention to grant extensions and condone delays in appropriate cases.

4. Rejection of Petitioner's Representation and Refusal to Issue Discharge Certificate

The petitioner's representations for extension and recalculation were rejected by respondents, and demand notices for recovery of dues were issued. The Court found this rejection contrary to the scheme's objectives and the pandemic-related reliefs granted by other High Courts.

It was observed that refusal to issue discharge certificates (Form SVLDRS-4) despite payment, as seen in analogous cases, was unjustified. The Court relied on judgments where courts directed issuance of discharge certificates upon payment, even if delayed, subject to interest.

Applying these principles, the Court quashed the impugned notices and directed the respondents to accept payment and issue discharge certificates after recalculation and due opportunity to the petitioner.

5. Effect of Supreme Court's Extension of Limitation Orders

The Supreme Court's suo motu orders extending limitation from 15.03.2020 to 28.02.2022 were held to be binding on all courts and authorities. The Court emphasized that these extensions applied to all judicial and quasi-judicial proceedings, including tax compliance deadlines.

The Court held that these orders justified extension of time for payment under SVLDRS in pandemic-affected cases, including the petitioner's. It noted that failure to consider these orders and reject extension requests was contrary to law.

6. Treatment of Competing Arguments

The respondents argued that the scheme's time limits were final and no extension was permissible beyond 30.06.2020. They contended that the petitioner failed to comply with mandatory deadlines and thus forfeited benefits, and that payments made after deadlines could only be appropriated against original tax dues with penalty and interest.

The Court rejected this rigid stance, relying on the directory nature of the provisions, pandemic-related Supreme Court orders, and consistent judicial precedents granting relief to similarly situated taxpayers. It held that denying benefits in such circumstances would defeat the scheme's purpose and cause injustice.

Key Evidence and Findings

- Petitioner filed declarations under SVLDRS within prescribed timelines.

- Respondents re-categorized petitioner's case and demanded higher amount.

- Petitioner's business closure due to COVID-19 lockdown and inability to pay dues by 30.06.2020.

- Supreme Court's extension of limitation orders from 15.03.2020 to 28.02.2022.

- Judicial precedents from various High Courts granting extension and relief under similar facts.

- Petitioner's bona fide efforts to comply and seek extension.

Conclusions

The Court concluded that:

- The respondents erred in re-categorizing the petitioner's liability and miscalculating the tax dues.

- The petitioner was entitled to extension of time for payment under SVLDRS due to the COVID-19 pandemic and related Supreme Court orders extending limitation periods.

- The time limits prescribed under the Finance Act, 2019 and SVLDRS scheme are directory, not mandatory, allowing judicial discretion to grant relief in extraordinary circumstances.

- The petitioner's representations for extension and recalculation were wrongly rejected and demand notices issued prematurely.

- The respondents must re-calculate the correct liability after affording opportunity to the petitioner and accept payments made, issuing discharge certificates accordingly.

Significant Holdings

"Therefore, it is clear that the provisions under the Finance Bill, with regard to the fixation of time limit for availing the scheme and with regard to the extension of time for making payment of tax, is directory in nature. If it is mandatory, there will not be any delegation with regard to the Central Government to fix the time limit for availing the scheme and payment of tax. Since there is delegation with regard to the Central Government, it will only be directory in nature and that is the reason why the Central Government depends upon the situation prevailing in the country and extended the time limit from time to time."

"The scheme conceived as a one time measure, has the twin objectives of liquidation of past disputes pertaining to central excise and service tax on the one hand and disclosure of unpaid taxes on the other hand. Both these were equally important: amicable resolution of tax disputes and interest of revenue. As an incentive, those making the declaration and paying the declared tax verified as determined in terms of the scheme would be entitled to certain benefits in the form waiver of interest, fine, penalty and immunity from prosecution. This is the broad picture the concerned authorities were required to keep in mind while dealing with a claim under the scheme."

"In our considered view, therefore, on the facts of the present case, denying the benefits of SVLDR Scheme would not only contrary to object of the scheme but also would also be injustice to the petitioner declarant who otherwise was eligible."

"The Hon'ble Supreme Court's suo motu orders extending the period of limitation from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings."

"The respondents are directed to re-calculate the correct liability of the petitioner under the amnesty scheme after associating and affording an opportunity to the petitioner to present its case."