2025 (6) TMI 361 - HC - Service Tax

Challenge to demand notices and SVLDRS-3 forms issued by the respondents which changed the petitioner s category from investigation to arrears and increased the tax liability - time limit prescribed under Section 127(5) of the Finance Act 2019 - 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 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 - 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. 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. Conclusion - The petitioner is entitled to have its tax liability recalculated under the Scheme to make payment beyond the original deadline in view of the pandemic and to receive the discharge certificate. Petition disposed off.

The core legal questions considered in this judgment include:

1. Whether the demand notices and SVLDRS-3 forms issued by the respondents, which changed the petitioner's category from investigation to arrears and increased the tax liability, were valid and correctly calculated under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS Scheme).

2. Whether the time limit prescribed under Section 127(5) of the Finance Act, 2019 for payment of tax dues under the SVLDRS Scheme is mandatory or directory, particularly in light of the COVID-19 pandemic and related government notifications extending deadlines.

3. Whether the petitioner, who failed to pay the tax dues by the prescribed deadline due to financial hardship caused by the COVID-19 lockdown, is entitled to an extension of time to discharge its liabilities under the SVLDRS Scheme.

4. Whether the respondents' refusal to accept late payment and to issue a discharge certificate under the Scheme amounts to an injustice, especially considering the pandemic-related relief measures and judicial precedents.

5. The applicability and effect of the Supreme Court's suo motu orders extending limitation periods during the COVID-19 pandemic on the timelines prescribed under the SVLDRS Scheme.

6. The extent of the High Court's jurisdiction under Article 226 of the Constitution to grant relief in extraordinary circumstances where statutory timelines have not been met.

Issue-wise Detailed Analysis:

1. Validity and correctness of demand notices and SVLDRS-3 forms:

The petitioner filed nine declarations under the SVLDRS Scheme in the category of investigation, which entitled it to relief of 70% or 50% of the due tax depending on the amount involved. The petitioner's calculated liability after relief was Rs. 3,38,617/-. However, the respondents re-categorized the petitioner's case as arrears and issued SVLDRS-3 forms demanding Rs. 29,48,623/-, significantly higher.

The petitioner contended that payments made earlier (Rs. 40,10,740/-) were under directions of the respondents and included penalties, and thus should be deducted from the net amount payable. The respondents rejected the petitioner's request for revision, maintaining their calculations were as per law.

The Court noted the factual matrix was undisputed and found the respondents' re-categorization and calculation flawed. The petitioner was entitled to have the correct tax liability recalculated under the Scheme, considering the payments already made and the relief provisions.

2. Nature of time limit under Section 127(5) of Finance Act, 2019:

Section 127(5) required declarants to pay the tax dues by 30.06.2020. Due to the COVID-19 pandemic, the petitioner's hotel business was shut down, causing inability to pay by the deadline. The petitioner sought extension to 30.06.2021.

The Court examined the legislative framework and government notifications extending deadlines for compliance under the Scheme due to the pandemic. It also considered the Supreme Court's suo motu orders extending limitation periods from 15.03.2020 to 28.02.2022 to mitigate hardships caused by COVID-19.

Several High Courts (Madras, Bombay, Gujarat, Delhi) had held that the timelines under the SVLDRS Scheme are directory, not mandatory, and that extensions should be granted in view of the pandemic and the object of the Scheme.

The Court relied on these precedents and concluded that the time limits fixed under the Scheme are directory, allowing the Central Government to extend deadlines based on prevailing circumstances, such as the pandemic.

3. Entitlement to extension of time due to COVID-19 hardship:

The petitioner's inability to pay by 30.06.2020 was due to the nationwide lockdown and financial crisis caused by COVID-19. The petitioner had made representations for extension, which were rejected by the respondents.

The Court found that the petitioner was a bona fide declarant seeking to settle liabilities and that the pandemic was an extraordinary circumstance warranting relief. It noted that other courts had granted extensions and accepted payments made after the original deadline, subject to interest.

The Court held that the petitioner deserved an opportunity to make payment and avail the benefits of the Scheme, including issuance of the discharge certificate, after recalculating the correct liability.

4. Respondents' refusal to accept late payment and issue discharge certificate:

The respondents had refused to accept payments made after the deadline and declined to issue the discharge certificate (Form SVLDRS-4), effectively denying the petitioner the Scheme's benefits.

The Court observed that such refusal would defeat the Scheme's object of amicable resolution of legacy disputes and revenue recovery. It emphasized that procedural irregularities or delays caused by the pandemic should not result in denial of substantive justice.

Based on precedents, the Court held that the respondents' rejection of the petitioner's representation and refusal to issue the discharge certificate was unreasonable and liable to be set aside.

5. Effect of Supreme Court's extension of limitation orders:

The Court extensively referred to the Supreme Court's suo motu orders extending limitation from 15.03.2020 to 28.02.2022 due to COVID-19, which applied to all judicial and quasi-judicial proceedings.

The Court reasoned that these extensions should apply to the timelines under the SVLDRS Scheme, as the scheme involves quasi-judicial functions and procedural compliance.

This reinforced the view that the statutory timelines were not rigid and could be relaxed in extraordinary circumstances.

6. High Court's jurisdiction under Article 226 to grant relief:

The Court acknowledged that while departmental authorities may lack power to condone delay, the High Court under its extraordinary writ jurisdiction can pass orders necessary to do complete justice.

It relied on authoritative rulings affirming the High Court's broad powers to grant equitable relief in exceptional cases, especially where no prejudice is caused to the revenue and the relief furthers the Scheme's objectives.

The Court found that the petitioner's case merited such relief due to the pandemic-induced hardship and the petitioner's bona fide conduct.

Application of law to facts and treatment of competing arguments:

The respondents argued that the Scheme's timelines were mandatory and that the petitioner's failure to pay by the deadline disentitled it from benefits. They relied on the absence of statutory provisions for late payment and the principle that conditions of a scheme must be strictly complied with.

The Court, however, distinguished these submissions by highlighting the pandemic's unprecedented impact, the government's own extensions, and the judiciary's intervention to extend limitation periods.

The Court gave significant weight to the object of the SVLDRS Scheme-to amicably resolve legacy disputes and reduce litigation-and held that denying benefits on technical grounds would frustrate this purpose.

It also relied on a series of High Court judgments from various jurisdictions that had granted relief in similar circumstances, including acceptance of late payments and issuance of discharge certificates with interest.

The Court found no mala fide on the petitioner's part and noted that the petitioner had paid substantial sums and sought to comply in good faith.

Conclusions:

The Court quashed the demand notices and SVLDRS-3 forms issued by the respondents, set aside the letter upholding the calculations, and directed the respondents to recalculate the petitioner's correct tax liability under the Scheme after affording the petitioner an opportunity to present its case.

The Court declared that the time period prescribed under Section 127(5) of the Finance Act, 2019 is directory and that the petitioner is entitled to an extension of time to discharge its tax dues, particularly in light of the COVID-19 pandemic and the Supreme Court's extension of limitation orders.

The Court directed the respondents to accept the payment made by the petitioner and issue the discharge certificate under the Scheme, thereby granting the petitioner the Scheme's benefits despite the delay.

Significant holdings and core principles:

"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 object of the SVLDR Scheme is to bring about expeditious and effective resolution of old disputes and recoveries of old outstanding dues of the Government and reduction of administrative costs. Officers acting under the relevant statutes are expected to respect the object of the scheme and to ensure that the assessees get the benefit under the scheme."

"Though respondents have no power to condone the delay in payment, yet this Court in extraordinary writ jurisdiction can pass any order necessary to remedy injustice."

"The Supreme Court's suo motu orders extending the period of limitation from 15th March 2020 till 28th February 2022 apply to all judicial and quasi-judicial proceedings and must be considered in the context of statutory schemes like SVLDRS."

"Denying the benefits of the SVLDR Scheme would not only be contrary to the object of the scheme but also would be an injustice to the petitioner declarant who otherwise was eligible."

The Court's final determination was that the petitioner is entitled to have its tax liability recalculated under the Scheme, to make payment beyond the original deadline in view of the pandemic, and to receive the discharge certificate. The impugned notices and calculations were quashed, and directions were issued to the respondents to act accordingly.

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