2010 (9) TMI 31 - HC - Customs

KVS Scheme - Kar Vivad Samadhan Scheme 1998 - Commissioner (Appeals) on 29th May 1998 against the demand made by the Assistant Commissioner of Customs under section 72(1)(b) of the Act. During the pendency of this appeal declaration was filed which came to be rejected on the ground that the demand notice was issued to the importer under section 72 consequent to the expiry of warehousing period as permitted under section 61 of the Act as such declaration filed was not covered under the KVS Scheme Held that - no sub-classification can be made in respect of the class of litigating assessees in arrears with reference to the assessment of duty arising out goods warehoused. Once the liability to pay duty is incurred and determined on or before 31st March 1998 the assessee would be treated to be in tax arrears irrespective of the nature of the duty demanded. All the litigating assessees who are in tax arrears belong to one class. Any attempt to carve out further classification with reference to the nature of duty demanded in the pending litigation is not permissible - order of the Designating Authority rejecting declaration is quashed and set aside.

Issues Involved:
1. Validity of the rejection of the petitioners' declaration under the Kar Vivad Samadhan Scheme, 1998 (KVS Scheme).
2. Interpretation of "tax arrears" under the KVS Scheme.
3. Applicability of section 72 of the Customs Act, 1962 in the context of the KVS Scheme.

Detailed Analysis:

1. Validity of the Rejection of the Petitioners' Declaration under the KVS Scheme:
The petitioners challenged the order dated 2nd December 1998, whereby the Commissioner of Customs (Adjudication) and Designated Authority under the KVS Scheme rejected their declaration. The rejection was based on the ground that the declaration filed by the petitioners was not covered under the KVS Scheme. The petitioners contended that they met all the preconditions for availing the benefit of the KVS Scheme, including the issuance of a demand notice prior to 31st March 1998, the non-payment of the tax in respect of the said demand notice, and the pending appeal against the demand notice before the Commissioner (Appeals). The court found that the impugned order rejecting the declaration was unsustainable and liable to be quashed and set aside.

2. Interpretation of "Tax Arrears" under the KVS Scheme:
The court examined the definition of "tax arrears" under section 87(m) of the KVS Scheme, which includes the amount of duties, cesses, interest, fine, or penalty determined as due or payable under an indirect tax enactment as on 31st March 1998 but remaining unpaid as on the date of making a declaration under section 88. The court concluded that the demand raised against the petitioners fell within the definition of tax arrears in relation to the indirect tax enactment. The court emphasized that all litigating assessees who are in tax arrears belong to one class, and any attempt to create further classification with reference to the nature of duty demanded is not permissible. This interpretation aligns with the twin objectives of the KVS Scheme: reducing litigation and realizing revenue.

3. Applicability of Section 72 of the Customs Act, 1962 in the Context of the KVS Scheme:
The court analyzed section 72 of the Customs Act, which allows the proper officer to demand the full amount of duty chargeable on goods, along with penalties, rent, interest, and other charges, if certain conditions are met. The petitioners argued that the demand raised under section 72(1)(b) of the Act was well within the sweep of the definition of tax arrears under the KVS Scheme. The court agreed, stating that once the liability to pay duty is incurred and determined on or before 31st March 1998, the assessee should be treated as being in tax arrears, irrespective of the nature of the duty demanded. The court held that the impugned order rejecting the declaration was unsustainable and directed the Designated Authority to accept the petitioners' declaration as legal and valid, subject to compliance with the terms of deposit.

Conclusion:
The court quashed and set aside the impugned order of the Designated Authority rejecting the petitioners' declaration under the KVS Scheme. The court directed the petitioners to make payment in terms of the KVS Scheme within the prescribed period, and the Revenue was directed to accept the same and treat the declaration as legal and valid. No order as to costs.

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