FILING APPEAL WHILE AMNESTY APPLICATION IS PENDING FOR CONSIDERATION – JUSTIFIABLE?

[Mr. M. GOVINDARAJAN]

Tax Amnesty

Tax amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period or periods and without fear of criminal prosecution. Tax amnesty is one of voluntary compliance strategies to increase tax base and tax revenue. Tax amnesty is different from other voluntary compliance strategies in part where tax amnesty usually waives the taxpayers' tax liability. The main purpose is to replicate the economy and encouraging individuals and corporations to declare their wealth as it may arises. Under this scheme the beneficiary just has to pay some tax on the total assets which are declared. States introduce this scheme when they believe that individuals are hiding their wealth from the tax authorities.

Conditions to avail tax amenity

Since the amnesty scheme provides for outright settlement of arrears, the assessee who opts for the scheme shall withdraw all the cases pending before any appellate or revisional authority, tribunal or courts unconditionally and shall file a declaration to this effect through online. In the case of appeals filed by the State which is pending for final orders as on the date of option, this scheme can be opted based on the demand in original assessment order. Once the outstanding dues are settled under this scheme, there shall be no refund or adjustment subsequently for the amount settled under this scheme.

The assessee shall specify whether payment under this scheme is made lump-sum or installments. On receipt of the willingness of the assessee, within seven days the assessing authority shall verify and approve the option. After getting confirmation from the assessing authority, the amount payable under the amnesty scheme can be made and due receipt may be obtained from the Assessing Authority either manually or e-receipt.

In the case of assesses who opted payment under this scheme on installments, fails to make any payment on the respective due date, such assessee shall deemed to be skip out of this scheme. The relief granted under the scheme shall be revoked by an order in writing by the assessing authority after giving such dealer an opportunity of being heard within fifteen days of the default. Revenue recovery steps should be continued against such defaulter immediately.

Filing appeal pendency of amnesty application

 The issue to be discussed in this article whether the appeal filed by the assessee before the Appellate Authority is justifiable while the amnesty application filed by him before the Authority is justifiable with reference to decided case law.  

In ‘State of Kerala v. Bobby Jacob, Technoglazing, Memury, Pampakuda’ – TA (VAT) No. 59/2021 – Kerala Value Added Tax Appellate Authority, Additional Bench, Ernakulum, decided on 20.10.2021, the respondent is a works contract on the role of Commercial Tax Officer. The respondent has not filed any returns for the year 2009 – 10. The Intelligence Wing imposed a penalty on the respondent for not declaring the TIN number in the invoice. Further the Assessing Authority found that the respondent has effected local purchase from the registered dealers for ₹ 37,35,232/-. The Assessing Authority completed the assessment on ‘best judgment method’ on the suppressed value and by adding 25% of profit. The resultant turnover was taxed at 12.5% and Cess at 1%.

The respondent challenged the order of the Assessing Authority before the Joint Commissioner (Appeals). The first Appellate Authority vide his order dated 06.01.2021 refixed the sale value of purchase suppression as 20% gross profit and the addition to cover up probable purchase from unregistered dealers was reduced to 10%. The First Appellate Authority further admitted the input tax credit to the assessee local purchase may also be given to the dealer if the dealer admits the same.

The above said order of First Appellate Authority was challenged by the State before the VAT Appellate Tribunal. The State submitted the following before the Tribunal-

• The original assessment of the dealer (respondent) for the year 2009 – 10 was finalized on 20.07.2016.
• The respondent filed a writ petition before the High Court challenging the above said assessment order on the ground of limitation.
• The High Court dismissed the writ petition filed by the respondent and directed the respondent to file appeal before the Appellate Authority.
• Subsequently the respondent filed appeal before the Appellate Authority on 15.12.2020.
• The respondent has opted the amnesty scheme, 2020 announced in the Finance Act, 2020 by online on 30.07.2020 to settle the arrears due and the same was approved on 24.08.2020.
• The approval expired on 07.10.2020 since the respondent did not pay the amnesty demanded.
• Again the respondent applied for amnesty scheme on 27.11.2020 which was approved on 28.01.2021.
• The Appellate Authority on the file of the appeal filed by the respondent modified the assessment order.
• One of the conditions for opting amnesty scheme was that the respondent should withdraw appeals/revisions/court cases relating to arrears pending before various courts and judicial authorities.
• The respondent did not withdraw the cases as required for opting amnesty scheme.
• The appeal filed before the Appellate Authority after filing amnesty scheme is totally illegal and unsustainable.
• Therefore the order passed by the Appellate Authority is also illegal.
• The direction of Appellate Authority reducing four times addition for probable omission and suppression is also unsustainable.

The respondent submitted the following before the Tribunal-

• The application for amnesty scheme should be filed before the Assessing Authority on or before 31.07.2020 which has been further postponed to 30.11.2020.
• On receipt of application the Assessing Authority should issue a permission/order within 7 days from the date of receipt of application.
• The respondent filed the application for amnesty scheme on 27.11.2020. Therefore the permission/order ought to be issued within 04.12.2020.
• The Assessing Authority did not communicate the same within the above deadline.
• The Assessing Authority intimated the said order only on 28.01.2021.
• In the meantime the Appellate Authority rendered its order on 06.01.2021 in favor of the respondent and the outcome of the said order has been intimated to the Assessing Authority.
• The pendency of application is not at all a ground to oppose the vested right of the respondent in filing the appeal.
• While issuing the amnesty order dated 28.01.2021, the Assessing Authority is well known about the outcome of the order of the Appellate Authority.
• The respondent filed its appeal before the First Appellate Authority on 15.12.2020 and the same is in order.

In regard to input tax credit the respondent in his cross objection contended that the respondent is entitled to avail the benefit of input tax credit under section 25AA of the Kerala Value Added Tax Act. The respondent had submitted a specific request to this effect by filing a letter before the Assessing Authority. The State objected the contentions raised by the respondent in regard to input tax credit.

The Appellate Tribunal considered the following points to be decided in the present appeal-

• Whether there is any sufficient ground to interfere with the findings of the first Appellate Authority?
• Whether the prayer for cross objections is allowable?
• What is the order to be passed?

The Appellate Tribunal observed that as per the Finance Act, 2020, one of the conditions for opting the amnesty scheme is that the appellant shall withdraw appeals/revisions/Court cases relating to the arrears pending before various courts and judicial authorities. The respondent did not withdraw any case as per the Finance Act, 2020 which is the subject matter of the appeal. The respondent filed appeal before the First Appellate Authority after filing the application for amnesty scheme.

The Appellate Tribunal further observed that the Assessing Authority shall communicate to the applicant about the order for accepting the amnesty application within 7 days from the date of application. In this case the respondent filed the amnesty application on 27.11.2020. The Assessing Authority is to give the order by 04.12.2020. But the Assessing Authority issued the said order only 28.01.2021. The respondent filed appeal before Appellate Authority on 15.12.2020 i.e., before the issuance of amnesty order by Assessing Authority. Therefore the Tribunal held that the respondent is entitled to file appeal before the First Appellate Authority, which is a statutory right.

In regard to availing input tax credit the Tribunal observed that the respondent had already applied for the benefit under section 25AA. In that letter the respondent accepted the mismatched figures shown in the assessment order as his actual purchase. He requested the Authority to accept the same and to pray the benefit of input tax credit. The respondent contended that the Assessing Authority failed to take into consideration of the above.

The Tribunal held that the appellant is entitled to input tax credit since the respondent admitted the mismatched purchases as his own. The purchases are from registered dealers within the State. Therefore section 25AA(2)(a) is clearly applicable to the respondent. The Appellate Authority accepted the request of the Department to verify the veracity of the invoices before allowing input tax credit to the respondent.

The Appellate Tribunal dismissed the appeal filed by the State and partly allowed the cross objections filed by the respondent. The Assessing Authority was directed to give benefits to the respondent under section 25AA of the KVAT Act. Further the Appellate Tribunal directed the Assessing Authority to complete the assessment proceeding by adding 20% of the gross profit in the purchase value. The input tax credit shall be granted on such purchases after verifying the genuineness of the invoices.