2025 (5) TMI 1026 - HC - Service Tax

Voluntary disclosure made under the Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019 (SVLDRS) - failure to pay the declared amount within the stipulated time - seeking permission to pay the remaining dues in installments with interest after the Scheme s deadline has passed - challenge to notice issued under section 87 of the Finance Act 1994 demanding payment along with interest and penalty after the lapse of the Scheme s time limit - HELD THAT - It appears that the petitioner had made voluntarily disclosure under the SVLDRS and did not deposit the amount required to be paid within 30 days from the date of issuance of FORM SVLDRS-03 accepting the payment of Rs. 10 Lakh. Therefore there is clear breach of the provision of sub-section (5) of section 127 of the SVLDRS Scheme as per the Finance Act No. 2/2019. As per FORM SVLDRS-3 the petitioner was required to pay Rs. 39, 56, 239/-. However the petitioner paid Rs. 10 Lakh on 11.04.2022 which is already accepted by the respondents without any demur and thereafter the notice was issued by respondent on 02.05.2022 under section 87 (b) (i) of the Finance Act 1994 imposing the interest of Rs. 56, 11, 139/- and penalty under section 78 of the Finance Act, 1994 quantified at Rs. 39, 56, 239/- for recovery of the balance amount of Rs. 29, 56, 239/- which was not paid by the petitioner. Circular No. 1071 dated 27.08.2019 further provides that if the tax payer makes a voluntary disclosure of Rs. 1 Crore then he is required to deposit Rs. 1 Crore to settle his case and clause (j) of para 10 of the Circular provides that as per section 127 (5) of the Scheme if the declarant does not pay amount within the stipulated time due to any reason declaration will be treated as lapse. Therefore it appears that case of the petitioner is squarely covered by the provision of section 127 (5) of the Act however the clarification issued by the Circular No. 1071 in para 10 (j) is not found in SVLDRS Scheme. There is no time limit prescribed under the Scheme or there is no prohibition prescribed under the Scheme for making the payment by the petitioner more particularly when the respondents did not refuse to accept the part payment of Rs. 10 Lakh on 11.04.2022 paid by the petitioner in respect of SVLDRS Scheme, 2019 which is through GST DRC-03. Considering the facts of the case it appears that if the petitioner is permitted to pay balance amount of Rs. 29, 56, 239/- with interest on 9% per annum in respect of the voluntary disclosure made by the petitioner under the SVLDRS the objective of the Scheme would be met more particularly when the petitioner has come forward to make disclosure under the Scheme by making the entire payment of tax dues as per the provisions of sections 123 and 124 of the Scheme. Conclusion - The petitioner had made voluntarily disclosure under the SVLDRS and did not deposit the amount required to be paid within 30 days from the date of issuance of FORM SVLDRS-03 accepting the payment of Rs. 10 Lakh. Therefore there is clear breach of the provision of sub-section (5) of section 127 of the SVLDRS Scheme as per the Finance Act No. 2/2019. The petitioner shall deposit the amount of Rs. 29, 56, 239/- with 9% interest per annum from 30.06.2020 till the amount is realized by the respondent from the current bank account of the petitioner in ICICI Bank which is already attached by the respondent authority for recovery of the dues pertaining to the voluntary disclosure made by the petitioner - Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the petitioner, who made a voluntary disclosure under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS), but failed to pay the declared amount within the stipulated time, can be permitted to pay the remaining dues in installments with interest after the Scheme's deadline has passed;

(b) Whether the notice issued under section 87 of the Finance Act, 1994 demanding payment along with interest and penalty after the lapse of the Scheme's time limit is valid and enforceable;

(c) Whether the garnishee notice issued to the petitioner's customer under section 87(b)(i) of the Finance Act, 1994 for recovery of dues is legally justified;

(d) Whether the petitioner's claim of unawareness of the voluntary disclosure made by a deceased partner of the firm can excuse the delay in payment and entitle the petitioner to relief;

(e) The applicability of provisions of the Indian Partnership Act, 1932 regarding binding acts of partners on the firm in the context of voluntary disclosure and payment obligations under SVLDRS;

(f) Whether the petitioner can seek quashing of the recovery notice and garnishee notices issued by the respondents;

(g) The extent to which the Court can exercise its extraordinary jurisdiction under Article 226 of the Constitution of India to grant relief in the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Permissibility of payment of remaining amount under SVLDRS after lapse of time limit

Relevant Legal Framework and Precedents: The SVLDRS, notified under the Finance (No. 2) Act, 2019, provides for voluntary disclosure of legacy disputes with a requirement to pay the declared amount within 30 days from issuance of the statement by the designated committee (Section 127(5) of the Finance Act). Circular No. 1071/4/2019-CX.8 dated 27.08.2019 clarifies that failure to pay within the stipulated time results in the declaration being treated as lapsed and loss of Scheme benefits. The Apex Court decision in Yashi Constructions vs. Union of India (2022) holds that extending time beyond the Scheme's deadline is contrary to its object.

Court's Interpretation and Reasoning: The Court observed that the petitioner had made voluntary disclosure and was required to pay Rs. 39,56,239/- as per FORM SVLDRS-3 by 30.06.2020. The petitioner paid only Rs. 10,00,000/- on 11.04.2022, well beyond the deadline. The respondents rightly issued a demand notice under section 87 of the Finance Act for recovery of the balance amount along with interest and penalty. However, the Court noted that the Scheme itself does not explicitly prohibit payment beyond the deadline, nor does it prescribe a bar on acceptance of part payment. The respondents accepted the Rs. 10 Lakh payment without demur.

Key Evidence and Findings: The petitioner filed an additional affidavit confirming a credit balance of Rs. 30,12,750.30/- in their bank account attached by the respondents. The petitioner expressed willingness to pay the balance amount with interest at 9% per annum from 01.07.2020.

Application of Law to Facts: Despite the statutory provision and circular indicating lapse of benefits on non-payment within 30 days, the Court balanced the strict statutory scheme with the petitioner's willingness to pay voluntarily disclosed dues with interest. It held that permitting payment with interest would serve the Scheme's objective of dispute resolution and revenue realization.

Treatment of Competing Arguments: The respondents argued that allowing payment after the deadline would extend the Scheme impermissibly and violate the Apex Court's ruling. The petitioner emphasized the death of a partner who made the disclosure and the firm's unawareness of the disclosure until notices were received. The Court found the petitioner's plea of ignorance untenable under Section 22 of the Indian Partnership Act, which binds the firm by acts of its partners. Yet, the Court showed leniency by allowing payment with interest.

Conclusion: The Court permitted the petitioner to pay the remaining amount of Rs. 29,56,239/- with interest at 9% per annum from 30.06.2020 onwards, thereby meeting the Scheme's object of settling dues voluntarily.

Issue (b): Validity of notice under section 87 of the Finance Act, 1994 demanding payment with interest and penalty

Relevant Legal Framework and Precedents: Section 87 of the Finance Act, 1994 empowers recovery of dues where voluntary disclosure payments are not made. Circular No. 1071 clarifies that non-payment within 30 days leads to lapse of declaration and recovery under section 87. The Karnataka High Court decision cited by respondents held that section 73 of the GST Act is not applicable in this context.

Court's Interpretation and Reasoning: The Court found the notice dated 31.03.2022 issued under section 87 to be in accordance with law since the petitioner failed to pay the full declared amount within the prescribed time. The Court emphasized the mandatory nature of section 127(5) of the Scheme requiring payment within 30 days.

Key Evidence and Findings: The respondents issued notices and summons repeatedly, and the petitioner did not respond adequately until a partial payment was made in April 2022.

Application of Law to Facts: The Court upheld the validity of the recovery notice but stayed its operation subject to the petitioner making the full payment with interest as directed.

Treatment of Competing Arguments: The petitioner challenged the notice as unjust, citing unawareness and death of partner; the respondents stressed strict compliance with Scheme timelines. The Court balanced these by allowing payment with interest but did not invalidate the notice outright.

Conclusion: The notice under section 87 is valid and enforceable, but its operation is stayed conditional on payment.

Issue (c): Legality of garnishee notice issued to petitioner's customer for recovery

Relevant Legal Framework: Section 87(b)(i) of the Finance Act, 1994 authorizes issuance of garnishee notices to recover dues.

Court's Interpretation and Reasoning: The Court held the garnishee notice dated 02.05.2022 to the petitioner's customer to be legally justified under the statutory provisions for recovery of outstanding dues.

Key Evidence and Findings: The petitioner sought quashing of the garnishee notice, but the Court noted that it was issued in accordance with section 87 and the Finance Act's mandate.

Application of Law to Facts: Since the petitioner had not paid full dues, the garnishee notice was a legitimate recovery measure.

Treatment of Competing Arguments: The petitioner prayed for quashing the notice; the respondents justified it as per law. The Court did not quash the notice but allowed the petitioner to pay dues to avoid further recovery action.

Conclusion: The garnishee notice is lawful and justified.

Issue (d) and (e): Effect of death of partner and applicability of Indian Partnership Act, 1932

Relevant Legal Framework: Section 22 of the Indian Partnership Act, 1932 provides that acts done by a partner on behalf of the firm bind the firm.

Court's Interpretation and Reasoning: The Court rejected the petitioner's contention that the firm was unaware of the voluntary disclosure made by the deceased partner. The firm is bound by the acts of its partners, including disclosures under SVLDRS.

Key Evidence and Findings: The petitioner admitted the partner who made disclosure died on 14.11.2020, after the deadline for payment had expired.

Application of Law to Facts: The Court held that the firm cannot claim ignorance due to the death of the partner, and is liable for payment under the Scheme.

Treatment of Competing Arguments: The petitioner's plea of ignorance was dismissed as legally untenable.

Conclusion: The firm is bound by the voluntary disclosure made by its partner and liable to pay dues accordingly.

Issue (f): Quashing of recovery and garnishee notices

Court's Interpretation and Reasoning: The Court did not quash the recovery notice or garnishee notice outright. Instead, it stayed the operation of the recovery notice on condition of payment of dues with interest. The garnishee notice was held to be legally valid.

Conclusion: No quashing of notices granted; conditional relief granted on payment.

Issue (g): Exercise of extraordinary jurisdiction under Article 226

Court's Interpretation and Reasoning: The Court exercised its power under Article 226 to provide equitable relief by permitting payment of dues with interest beyond the Scheme deadline to meet the Scheme's object of dispute resolution and revenue recovery.

Conclusion: The Court exercised discretion to balance strict statutory provisions with principles of equity and justice.

3. SIGNIFICANT HOLDINGS

"The petitioner had made voluntarily disclosure under the SVLDRS and did not deposit the amount required to be paid within 30 days from the date of issuance of FORM SVLDRS-03 accepting the payment of Rs. 10 Lakh. Therefore, there is clear breach of the provision of sub-section (5) of section 127 of the SVLDRS Scheme as per the Finance Act No. 2/2019."

"Section 22 of the Indian Partnership Act, 1932 provides that an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm. Therefore, contention of the petitioner that the firm was unaware of the voluntary disclosure is legally not correct."

"Para 10 (j) of the Circular No. 1071 dated 27.08.2019 says that section 127(5) of the scheme provides that the declarant shall pay the amount indicated in the Statement issued by the Designated Committee within a period of thirty days, if the declarant does not pay the amount within the stipulated time, due to any reasons, the declaration will be treated as lapsed."

"Considering the facts of the case, it appears that if the petitioner is permitted to pay balance amount of Rs. 29,56,239/- with interest on 9% per annum in respect of the voluntary disclosure made by the petitioner under the SVLDRS, the objective of the Scheme would be met, more particularly, when the petitioner has come forward to make disclosure under the Scheme by making the entire payment of tax dues as per the provisions of sections 123 and 124 of the Scheme."

Final determinations:

(i) The petitioner is liable to pay the balance amount of Rs. 29,56,239/- with interest @ 9% per annum from 30.06.2020.

(ii) The recovery notice dated 31.03.2022 under section 87 of the Finance Act shall stand quashed and not be operated upon after full payment is made.

(iii) The garnishee notice issued under section 87(b)(i) is valid and justified.

(iv) The petitioner cannot claim ignorance of voluntary disclosure made by its partner and is bound by such acts under the Indian Partnership Act.