2025 (6) TMI 768 - HC - Service Tax

Rejection of Application under the Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019 - non-consideration of CBIC Circular dated 27 August 2019 and the answers to the Frequently Asked Questions (FAQs) prepared by the Department on 24 December 2019 - HELD THAT - Firstly this Petition was not initiated after any unreasonable delay which might have given rise to parallel rights in favour of the Respondents. Moreover it is indisputable that the period between 26 December 2019 and 19 April 2021 was at least partially impacted by the COVID-19 pandemic. The details in Kundan Industries Limited 2022 (5) TMI 571 - BOMBAY HIGH COURT provide no valid comparison. Despite the leniency demonstrated by the authorities the Petitioner Kundan Industries Limited failed to take action or approach the Court within a reasonable timeframe. For all these reasons the objection based on delay or laches cannot be upheld. If the Circular dated 27 August 2019 and the answers to the FAQs prepared by the Department on 24 December 2019 were considered it was clear that the tax dues were duly quantified as of 30 June 2019. On this basis therefore there was no reason to deem the Petitioner ineligible. The record shows that the summons was issued to the Petitioner on 24 December 2018 pursuant to which a statement of the Petitioner s Director was recorded on 04 January 2019. In his statement the Petitioner s Director clearly stated that the Petitioner had quantified the total short-paid liability of service tax as Rs. 120.16 lakhs. The Petitioner s Director reiterated this position in his statement recorded on 17 March 2020. This material if considered in the context of the CBIC Circular dated 27 August 2019 and the answers to FAQs prepared by the Department on 24 December 2019 makes it clear that there was a necessary quantification of the tax dues before the cut-off date of 30 June 2019 as contemplated by the scheme. The ground for declaring the Petitioner ineligible therefore cannot be sustained. This is a case where the Petitioner had quantified the tax liability at Rs. 1.21 Crores and the department upon finalisation and adjustment found that the liability would come to Rs. 1.16 Crores or thereabouts i.e less than the liability quantified by the Petitioner. This could hardly have been a valid ground to declare the petitioner ineligible to avail the benefits of the SVLDRS scheme. The aspect of interest can be considered. Though the rejection of the Petitioner s application under the scheme may not be proper the Petitioner retained and used the amount for all these years. Since the Petitioner seeks equitable relief the Petitioner should also be prepared to do equity and pay interest at some reasonable rate. Conclusion - The rejection of the Petitioner s Application under the SVLDRS Scheme set aside on the ground of the Petitioner s alleged ineligibility - it is declared that the Petitioner was eligible for the benefits under the Scheme - matter remanded to the concerned authority for reconsideration of the Petitioner s SVLDRS Application and computation of the amount payable afresh within eight weeks from the date of uploading this order. Petition allowed by way of remand.

Summary

The core legal questions considered by the Court include:

1. Whether the Petition challenging the rejection of the Application under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 ("SVLDRS Scheme") is barred by delay and laches.

2. Whether the Petitioner was eligible under the SVLDRS Scheme, specifically whether the tax dues were "quantified" as on 30 June 2019 as required by the Scheme.

3. The proper interpretation of the term "quantified" in the context of the SVLDRS Scheme, including the relevance of the CBIC Circular dated 27 August 2019 and the Department's FAQs dated 24 December 2019.

4. Whether the rejection of the Petitioner's Application on the ground of non-quantification of tax dues was legally sustainable.

5. The appropriate relief and conditions, including the payment of interest, if the Petitioner is found eligible under the Scheme.

Issue 1: Delay and Laches

The Respondents contended that the Petition was barred due to delay and laches, as the rejection was communicated on 26 December 2019, but the Petition was filed only on 19 April 2021. Reliance was placed on a precedent where delay was held fatal.

The Court noted that the period in question was partially impacted by the COVID-19 pandemic, which affected the ability to initiate proceedings. The Court distinguished the precedent cited, emphasizing that the Petitioner did not unreasonably delay or create parallel rights for the Respondents. Thus, the objection based on delay and laches was rejected.

Issue 2: Eligibility under the SVLDRS Scheme and Quantification of Tax Dues

The SVLDRS Scheme mandates that tax dues must be "quantified" as on 30 June 2019. The rejection was based on the ground that the tax dues were not quantified by that date, as per a letter from the Directorate General of GST Intelligence (DGGI) dated 3 February 2020.

The Court examined the CBIC Circular dated 27 August 2019, particularly paragraph 10(g), which clarifies that "quantified" means a written communication of the amount payable, including letters intimating duty demand, admissions during enquiry or audit, or audit reports. The Department's FAQs dated 24 December 2019 further elucidated this position.

The Court found that the summons issued on 24 December 2018 and the statements recorded on 4 January 2019 and 17 March 2020 by the Petitioner's Director constituted sufficient written communication of the quantification of tax dues. The Director admitted a short-paid liability of Rs. 120.16 lakhs (approximately Rs. 1.21 Crores) during investigation, which was prior to the cut-off date.

Thus, the Court held that the tax dues were duly quantified before 30 June 2019, satisfying the Scheme's eligibility criteria. The ground for rejection on non-quantification was therefore unsustainable.

Issue 3: Interpretation of Quantification and Precedents

The Court referred to two Coordinate Division Bench decisions which had considered similar issues: Thought Blurb and Landmark Associates. In those cases, the Courts accepted that quantification through statements during investigation sufficed, even if the final liability determined later was higher or lower. The purpose of quantification was to establish eligibility, not to determine the final tax liability or investigate evasion.

In the present case, the final departmental assessment found a liability of approximately Rs. 1.16 Crores, which was less than the amount admitted by the Petitioner. This further strengthened the Petitioner's position.

The Respondents did not dispute the applicability of these precedents but argued that if relief was granted, it should be subject to payment of reasonable interest.

Issue 4: Relief and Interest

The Court acknowledged that although the rejection was improper, the Petitioner had retained and used the disputed amounts for several years. In the interest of equity, the Court directed that the Petitioner should pay the amount determined upon reconsideration along with simple interest at 6% per annum from 1 February 2020 until payment.

The matter was remanded to the concerned authority for fresh computation of the amount payable, taking into account amounts already paid by the Petitioner. The Petitioner was given eight weeks to comply with the payment after the fresh computation.

If the Petitioner paid the computed amount plus interest within the prescribed period, the impugned show cause notice would be quashed. Failure to pay would entitle the Respondents to proceed with the show cause notice.

Significant Holdings and Core Principles:

"(g) Cases under an enquiry, investigation or audit where the duty demand has been quantified on or before the 30th day of June, 2019 are eligible under the scheme. Section 2 (r) defines 'quantified' as a written communication of the amount of duty payable under the indirect tax enactment. It is clarified that such written communication will include a letter intimating duty demand; or duty liability admitted by the person during enquiry, investigation or audit; or audit report etc."

The Court established that the term "quantified" under the SVLDRS Scheme includes admissions of liability during investigation or audit, and not solely formal demand notices issued by the department. This interpretation aligns with the CBIC Circular and Department FAQs, which are integral to understanding the Scheme.

The Court emphasized that the purpose of quantification is to determine eligibility for the Scheme, not to finalize or adjudicate the actual tax liability or investigate evasion.

The Court held that delay and laches cannot be mechanically applied without considering contextual factors such as the COVID-19 pandemic and the absence of prejudice to the Respondents.

Finally, the Court balanced equitable considerations by allowing relief subject to payment of interest, recognizing the Petitioner's benefit from the amounts in question during the pendency of the dispute.