Introduction

One of the flagship agenda of the present Government is to create an ease of doing business in our country. The purpose of creating an ease in doing business is to boost the investment and in turn growth rate for the country. Several reforms undertaken in line with the stated policy led to India jumping the rank in the World Bank’s Ease of Doing Business by 23 places to 77 amongst 190 nations. India is in fact the only country to rank among the top 10 improvers for the second consecutive year. One area however that remains as a bottleneck in creating the ease for existing businesses is the quantum of legacy disputes in indirect taxation which are pending at various stages. It has been estimated that nearly INR 3.75 lakh crores are involved due to disputes pending resolution under legacy indirect taxation system (viz., Central Excise & Service Tax). Hence to move past the said disputes by resolving the same, Hon. Finance Minister of India announced SABKA VISHWAS (LEGACY DISPUTE RESOLUTION) SCHEME, 2019 (hereinafter referred as “scheme”) as part of the Budget Proposal in July 2019. Hon. Minister had this to say on the floor of the Parliament while proposing the scheme:

“GST has just completed two years. An area that concerns me is that we have huge pending litigations from pre-GST regime. More than 3.75 lakh crore is blocked in litigations in service tax and excise. There is a need to unload this baggage and allow business to move on. I, therefore, propose, a Legacy Dispute Resolution Scheme that will allow quick closure of these litigations. I would urge the trade and business to avail this opportunity and be free from legacy litigations.”

Hence the aim as apparent from the above extract is to unload the baggage by allowing the businessmen to close the pending litigations and to move forward. On merits the intent of the Government is laudable and hence advisable for the businessmen to take advantage of the same, wherever found fit. However for deciding whether to opt for the scheme or not the businessmen (with the help of professional) would essentially be required to consider the probable outcome of the dispute, if continued, vis-à-vis resolving the same under the scheme considering the merits and the quantum of each case individually. It may be noted that the success rate of department in higher appeals is very miserable. A win in appeal will give full relief from the tax dues whereas the declaration under the scheme will not give total relief from the tax dues.

Scheme also permits voluntary disclosure and provides certain reliefs in this regard. Hence it would be correct to say that the scheme not only resolves the disputes but also provides for an opportunity to declare the unpaid dues and avail the relief.

Said scheme has been formulated by way of Chapter V of the Finance Act (No. 2), 2019 (hereinafter referred as “Act”). Rules, circulars & FAQ’s have been issued to provide for the procedural aspects/clarifications related to the scheme. Provisions of the Act along with related rules and clarifications are referred at appropriate places in the present book to enable proper understanding of the scheme.

Department is also keen to ensure the success of the scheme as evident from paragraphs 2 & 12 of circular No. 1071/4/2019-CX.8 dt. 27.08.2019 which urges the departmental officers to partner with the trade and industry and help to make the scheme a grand success.

Further paragraph 11 of the said circular also provides the directions to be followed by the department to free the taxpayers from the burden of legacy disputes by popularizing the scheme and enabling smooth execution.

From the reading of scheme it would appear that the same is very generous as relief even with respect to the tax amount is granted. Also the department is keen to make it a success. Therefore the benefit of the scheme must be availed after assessing the merits of each case.

The book examines the provisions of the scheme in detail in the Q & A format for easy understanding. Same shall also aid in resolving specific queries of the readers by reaching to the conclusion swiftly as opposed to reading the entire book although we would urge for full reading of the book to understand all the contours of the scheme. Let us start the exploration.

What is the purpose of the scheme?

Notes on the clauses in the Finance Bill (No. 2), 2019 dealing with the provisions of the scheme reads as under:

“The Scheme is one time measure for liquidation of past disputes of Central Excise and Service Tax as well as to ensure disclosure of unpaid taxes by a person eligible to make a declaration. The Scheme shall be enforced by the Central Government from a date to be notified. It provides that eligible persons shall declare the tax dues and pay the same in accordance with the provisions of the Scheme. It further provides for certain immunities including penalty, interest or any other proceedings under the Central Excise Act, 1944 or Chapter V of the Finance Act, 1944 to those persons who pay the declared tax dues.”

Hence the scheme has twin purposes of -

1. settling the disputes and
2. enabling voluntary disclosure of unpaid taxes to non-compliant taxpayers.

Scheme offers lucrative reliefs to achieve the above stated objectives.

Is the scheme constitutionally valid?

The scheme not only aims to settle the legacy disputes by granting amnesty from partial tax dues, interest, penalty as well as prosecution but also provides for a voluntary declaration granting amnesty from interest, penalty as well as prosecution in this regard. The honest taxpayers would naturally feel that they have been treated unfairly as they would have ended up paying the due tax along with interest and penalties and now the dishonest taxpayers would get the relief. Hence a question would arise as to whether such scheme can be held to be valid considering that Article 14 of the Constitution of India grants equality before the law to every person and therefore a dishonest person cannot be treated favourably.

Before we discuss the legal precedents on the issue, it is worthwhile to note that the scheme has a much larger goal of settling the legacy disputes for smooth implementation of GST. Settling of the disputes would be not only in the interest of trade but even in the interest of the Government as it would remove the uncertainty associated with it. A prudent businessmen as well as forward looking Government would always prefer to remove the uncertainties by proposing a solution fair to both the sides. Hence it can be contended that in such situations (and they are many) the scheme shall pass the moral test of fairness. Therefore an honest tax payer need not be disheartened by such scheme as it serves a much larger purpose of removing the uncertainties and not granting any unfair benefit. Said contention would also draw support from the fact that litigants pursuing justice on an issue backed by clear language of law or legal precedents would not like to make a declaration under the scheme but on the other hand would continue to pursue the litigation for lack of any uncertainty in such cases.

Now let us refer to some legal precedents on the issue of constitutional validity of such schemes. In 1981, Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 was issued by the President (later replaced by an Act) to permit the Central Government to issue special bonds wherein it would be possible for persons in possession of black money to invest the same in the said Bonds. It allowed full protection to such persons from any inquiry or investigation pertaining to the black money invested in such bonds. Validity of the said Ordinance along with the Act (which replaced the Ordinance) was challenged before the Supreme Court in the case of R.K. Garg v. Union of India [1981] 7 Taxman 53 (SC) on the ground that it violates Article 14 of the Constitution of India. Supreme Court upheld the validity of the Ordinance as well as the Act by observing the following:

“The object of the Act being to unearth black money for being utilised for productive purposes with a view to ensuring effective social and economic planning, there had necessarily to be a classification between persons possessing black money and others and such classification could not be regarded as arbitrary or irrational.”

On the issue of whether the aspect of morality is relevant, Supreme Court observed as under:

“Morality can in no case have relevance to the constitutional validity of a legislation. There may be cases where the provisions of a statute may be so reeking with immorality that the legislation can be readily condemned as arbitrary or irrational and hence violative of article 14. But the test in every such case would be not whether the provisions of the statute offend against morality but whether they are arbitrary and irrational having regard to all the facts and circumstances of the case. Immorality by itself is not a ground of constitutional challenge and it obviously cannot be, because morality is essentially a subjective value, except insofar as it may be reflected in any provision of the Constitution or may have crystallised into some well-accepted norm of special behaviour. Hence, it could not be contended that the Act was unconstitutional on the ground that it offended against morality by according, to dishonest assessees, who had evaded payment of tax, immunities and exemptions which were denied to honest taxpayers.”

Also in 1997, Government of India came out with VDIS under the direct taxes. Said scheme permitted voluntary disclosure of unaccounted income and granted several reliefs in terms of tax, interest, penalty as well as prosecution. Said scheme was challenged before the Bombay High Court in the case of All India Federation of Tax Practitioners v. UOI [1997] 93 Taxman 737 (Bombay) on several grounds including the ground that it rewards dishonest tax payers and is also not designed based on intelligible differentia and hence violates Article 14 of the Constitution of India. The Court upheld the validity of the scheme essentially on the ground that the formulation of a scheme is a policy decision of the Parliament and the Court would have very limited jurisdiction going into such policy matters. Said judgment was subsequently also upheld by the Supreme Court ([1998] 231 ITR 24 (SC)).

The Courts may declare the scheme as unconstitutional, only when it is arbitrary and irrational having regard to all the facts and circumstances of the case and not merely on the ground that it may subjectively look immoral to some tax payers. Also Courts would be reluctant to go into the details of the scheme, as it is a policy decision of the legislature, if on an overall basis there is a justification for introducing such schemes.

Thus it appears that the present scheme has spelled out the reasoning for its requirement (dispute resolution + voluntary disclosure to move past legacy taxation) and hence should pass the test of validity based on the above cited precedents.

However there are certain aspects of the scheme which may require to be tested on the pedestal of Article 14. Such aspects are discussed at appropriate places in this book.

From when the scheme will be operational?

Sec. 120(2) of the Act provides that the scheme shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

Hence by exercising the said power, Government has issued Notification No. 04/2019 Central Excise-NT dt. 21.08.2019 appointing 1st of September, 2019 as the date from which the scheme shall be operational.

Till when scheme will remain operational?

Act does not contain any end date till when the scheme shall remain operational. However Sec. 132(1) & (2) of the Act grants the power to the Government to make rules for carrying out the provisions of the scheme. Accordingly by exercising the said powers, Notification No. 05/2019 Central Excise-NT dt. 21.08.2019 has been issued to provide for the Sabka Vishwas (Legacy Dispute Resolution) Scheme Rules, 2019 (hereinafter referred as Rules). As per Rule 3(1) of the said Rules, the declaration to be made under the scheme shall be made electronically at https://cbic-gst.gov.in in Form SVLDRS-1 by the declarant, on or before the 31st December, 2019. Hence the end date for making the declaration under the scheme shall be 31st December, 2019.

The end date of 31st December, 2019 is not for making the payment under the scheme or for issuance of discharge certificate. It is only the end date for making a declaration under the scheme.

What is the basic legal framework of the Scheme?

Before discussing different aspects of the scheme threadbare, it is worthwhile to consider the underlying structure of the provisions contained in the Act related to the scheme. Following table can hence act as a reference point for all the discussions done henceforth:

Which are the taxes, duties & cesses covered under the scheme?

Sec. 122 of the Act provides that the scheme shall be applicable to the dues under the following enactments:

Dues arising under the CENVAT Credit Rules, 2004 will also be covered under the scheme as the said rules have been made by exercising the powers granted by section 37 of the Central Excise Act, 1944 as well as section 94 of the Finance Act, 1994.

Here it may be noted that even the Finance Act, 2004, the Finance Act, 2007, the Finance Act, 2015 & the Finance Act, 2016 have been included so as to cover under the scheme dues with respect to various cesses (Education cess, Secondary and higher education cess, Swachh Bharat cess & Krishi Kalyan cess).

Sec. 122(c) of the Act grants power to the Central Government to specify by way of issuance of notification any other Act which can be covered under the scheme. No such notification has been issued till now and hence only the enactments given supra are covered under the scheme.

Which are other indirect taxes not covered under the scheme?

Tax disputes under following enactments are not covered under the scheme:

What should be approach to assess viability of the Scheme?

Broad perusal of the scheme structure would entail that to understand and apply the scheme, one needs to first obtain the details of the dues under the indirect tax enactments of the person in question. One has to then evaluate the merits of the dues. All the pending cases of a person in question may be divided into two broad categories viz. Strong case and unpredictable case based on following parameters:

Strong case

• Favourable retrospective amendment in the Act
• Subsequent favourable notification / clarification / circular
• Matters settled by Tribunal / High Court / Supreme Court
• Demand arisen out of mis-comprehension of facts and arithmetical errors
• Time-barred demands
• Frivolous demands

Unpredictable case

• Where two interpretations are possible on issue involved
• Absence of clarification from department on legal position
• No settled jurisprudence
• Difference in view between two or more High Courts or Tribunals
• Issue pending before Hon’ble Supreme Court
• Facts do not support the strong legal contentions

Once the cases are bifurcated as above, in unpredictable cases the scheme may be explored considering the cost benefit analysis, risk appetite and liquidity position. For strong cases the benefit may be availed if stake is nominal and litigation hassles and costs are high.

In nutshell, if assessee is uncertain about a particular legal position taken by him and expects liabilities on losing the case, it would be prudent to apply under the scheme then to be brave and assume the risk of uncertainty.

Decision making flow-chart can be as under:

We suggest to adopt the above described thought process while dealing with the scheme to facilitate its application to actual cases.

Who can make the declaration under the scheme?

Sec. 125(1) of the Act provides that all persons shall be eligible to make a declaration under the Scheme barring few exceptions.

Further the word “person” has been defined u/s. 121(q) of the Act to include every kind of assessee. Hence every kind of assessee can make a declaration under the scheme subject to certain restrictions (discussed later). Also it is not necessary that the person intending to make a declaration under the scheme needs to have been registered at the relevant time under the enactments for which dues are being declared. Hence even an unregistered person can make the declaration.

Who is the declarant?

The word “declarant” has been defined u/s. 121(h) of the Act to mean a person who is eligible to make a declaration and files such declaration under section 125. Thus a person eligible to make a declaration under the scheme and who in fact makes the declaration shall be considered as a “declarant”.

What are the categories for which declaration can be made under the scheme?

Following table summarizes the categories under which declaration can be made under the scheme:

What are the restrictions or ineligibility under the scheme?

Clauses (a) to (h) of Sec. 125(1) of the Act provides for certain restrictions as regards the persons who can make the declaration under the scheme. Restrictions and banned cases under each category are as under:

In addition to the above restrictions, following additional restrictions shall apply across all the categories described above:

1. Person who have been convicted for any offence for the matter cannot make a declaration on such matter (Sec. 125(1)(b)).
2. Person cannot make declaration with respect to the excisable goods set forth in the Fourth Schedule to the Central Excise Act, 1944 (125(1)(h)) viz., Tobacco and Manufactured Tobacco substitutes and Petroleum products.

Whether the categories under which declaration can be made are mutually exclusive?

It may happen that a person may be restricted from making a declaration under a particular category. For example, a person has an appeal pending and the final hearing of the same has been done on or before 30th June, 2019. Hence such person is restricted from making a declaration u/s. 125(1)(a) of the Act. Now let us say such person has received an order on 15th July, 2019 wherein the dues stands recoverable. Thus the said dues would fall within the definition of “amount in arrears” u/s. 121(c) if such person does not intend to litigate the case further. Hence the issue before us is whether such person can seek relief under the category of “amount in arrears” when he is debarred under the category of “litigation”?

It may be noted that the provisions of the Act do not provide that the categories under which declaration can be made are mutually exclusive. Hence a debarment under a particular category would not result in debarment under the other category, if the said other category does not restrict making of the declaration.

Said view is also supported by Table No. 8 of the declaration form SVLDRS-1 wherein the restrictions are clearly applied qua the category and not qua the entire scheme.

This position is amply clarified by para no. 2(vii) and 2(viii) of Circular no. 1072/05/2019 – CX dt. 25.09.2019.

Thus in the given example, the “amount in arrears” category will be available to the person in question even if such person is restricted from making a declaration under the “litigation category”.

Whether the declarant has a choice in deciding the category under which declaration can be filed?

There is a possibility that SCN was pending as on 30th June, 2019 but same has been adjudicated on or after 01st July, 2019. The said adjudication order attained the finality on or before 31st December 2019. In given case, assessee falls under “litigation” category as SCN was pending as on 30th June, 2019 and also falls under “amount in arrears” category. The issue here is whether declarant has a choice to decide the category under which declaration can be filed. If he goes for litigation category relief is higher than amount in arrears category.

Act does not expressly provide for such situation. One may take the position that he is entitled to opt for the most beneficial category.

Whether restrictions u/s. 125 are qua the person or qua the case ?

It may also happen that a person in question may be ineligible to file the declaration under any one of the clauses contained u/s. 125(1). As an example a person in question might have been issued a show cause notice under indirect tax enactment for an erroneous refund or refund. Now as per Sec. 125(1)(d) of the Act, such “person” is not eligible to file a declaration under the scheme. Whether this would mean that such person cannot even file a declaration in respect of other show cause notices or appeals for which he is otherwise eligible? In other words, are the restrictions given u/s. 125(1) of the Act qua the person or qua the case?

Now restriction u/s. 125(1)(b) of the Act pertaining to the person who have been convicted for any offence punishable under any provision of the indirect tax enactment for a matter clearly provides that the said restriction is only with respect to the said matter and not for other matters. However other clauses u/s. 125(1) do not provide for such language.

Circular No. 1071/4/2019-CX.8 dt. 27.08.2019 however beneficially clarifies as under:

“(b) Section 125(1)(d) mentions that the Scheme is not available to an applicant who has been issued a show cause notice relating to refund or erroneous refund. It has potential to lead to an interpretation that such persons will not be able to opt for the Scheme for any other dispute as well, since the restriction is on ‘the person’ in place of ‘the case’. It is clarified that the exception from eligibility is for ‘the case’ and not ‘the person’. In other words, if a person has been issued a show cause notice for a refund/erroneous refund and, at the same time, he also has other outstanding disputes which are covered under this Scheme, then, he will be eligible to file a declaration(s) for the other case(s). Same position will apply to persons covered under Sections 125(1)(a), (b), (c), (e) and (g).”

Above clarification thus provides that the restrictions contained u/s. 125 shall be read as qua the case and not qua the person. Clause (f) of Sec. 125 do not permit a person to make a voluntary disclosure in certain scenario (discussed later in the book). He would not be debarred from making a declaration under other clauses. Similarly clause (h) restricts the person from making a declaration pertaining to excisable goods set in fourth schedule (petroleum products & tobacco). However, such person would not be debarred from making a declaration under other clauses for goods not covered by the fourth schedule.

Are not are the above clarifications going beyond the provisions of the Act? Can the word “person” used in Sec. 125(1) be read as a “case” as sought by the circular?

The word “person” can indeed be read as “case”. There could be two plausible explanations in this regard. Even though the definition of “person” u/s. 121(q) provides for the legal entity in question and not the case as a person, still the said definition is subject to first line in Sec. 121 of the Act which reads as under:

“Sec. 121. In this Scheme, unless the context otherwise requires,—“

Thus the definitions given under the said Sec. 121 can be departed with if the context requires otherwise. The scheme if seen in entirety operates case-wise. The declaration under the scheme as well as reliefs, benefits, immunities and restrictions are qua the case. In such scenario it becomes inevitable that the restrictions given u/s 125(1) are also to be read case-wise. This is what the circular does. Hence there seems to be no infirmity in the said circular.

Second explanation is that the power granted to the Board u/s 133 of the Act can be exercised to tone down the rigour of the law by way of an executive action. The legality of the same has been upheld by Supreme Court in the case State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC). For detailed discussion on this please refer to the question in this book related to the powers granted to the Board to issue such circulars.

What is the meaning of the term “appeal”?

Sec. 125(1)(a) of the Act provides that the person who has filed an appeal before the appellate forum and such appeal has been heard finally on or before the 30th day of June, 2019, such person cannot make a declaration under the litigation category.

The term “appeal” has not been defined in the Act. However the said term has been used in conjunction with the term “appellate forum”. The term “appellate forum” has been defined u/s. 121(f) of the Act as follows:

“(f) “appellate forum” means the Supreme Court or the High Court or the Customs, Excise and Service Tax Appellate Tribunal or the Commissioner (Appeals)”

Hence the term “appeal before the appellate forum” would mean the appeals filed before the Supreme Court or the High Court or CESTAT or the Commissioner (Appeals).

The issue however will arise as to whether the cases wherein writs have been filed before the High Courts or Supreme Courts would also be considered under the term “appeal” or only the tax appeals filed under the express provisions of law would only be considered ?

To resolve the issue one needs to consider Sec. 127(7) of the Act dealing with the issuance of discharge certificate. It provides that if the declaration is pertaining to the tax dues in respect of which any writ petition or reference has been filed before the High Court or the Supreme Court against any order, the declarant must withdraw the same and furnish the proof along with the proof of payment to obtain the discharge certificate. Hence clearly the intent is to cover writs as well as reference, pending before the High Court or Supreme Court, under the scheme provided said matters have not been heard finally on or before 30th June, 2019.

When appeal can be considered to have been finally heard?

Now the term “appeal has been heard finally” has not been defined in the Act. The word “final” has been held to be last; that which absolutely ends (38 Mad 41). Ballentine’s Law Dictionary has defined the word “final hearing” as the hearing which results in a final decision or the adjudication.

It has been held under the Code of Civil Procedure that the word “hearing” would mean all the stages of a trial including taking the evidence, hearing the arguments, other proceedings till the final adjudication of the suit (see Kanaran Nambiar v. Ramunni Nambiar (AIR 1961 Ker 290)). Hence the word “hearing” would imply not only the oral hearing but even the opportunity granted to make written submissions in connection with the given proceedings. Having said that, the term “final hearing” would then mean the last opportunity exercised by the assessee to make a representation (oral or written) concerning the case.

The determination of whether appeal has been heard finally or not on or before 30th June, 2019 is a question of fact. One way to determine whether the hearing was final or not is whether the pronouncement of order takes place without any more submissions/hearings. If the answer is yes, the hearing can be said to be final. In cases pending before CESTAT, the status of appeal can be viewed on the portal and hence cases where the hearings have happened on or before 30th June, 2019 and only pronouncement of order is pending would also be considered as heard finally, provided such cases are not reheard. In all other cases, the factum of final hearing needs to be ascertained.

In cases where oral hearing has taken place on or before 30th June, 2019 but the assessee has requested to make an additional submission and such submission is made on or after 1st July, 2019, it can be contended that “final hearing” has not taken place on or before 30th June, 2019.

Also cases where the appeals have not yet been decided and the appellant desires to make an additional submission, such permission cannot be denied in the interest of natural justice. In such situations also where additional submissions are made on or after 1st July, 2019 it can be contended that the final hearing has not taken place on or before 30th June, 2019 so as to be covered by restriction u/s. 125(1)(a).

It may also happen that the hearing (already concluded) for a case may be called for rehearing due to new bench, change in officer or any other reason. In this case it cannot be said that final hearing has taken place and hence the restriction would not apply. Paragraph no. 10(e) of Circular No. 1071/4/2019-CX.8 dt. 27.08.2019 also confirms the said view.

Whether the cases, where the appeal has been filed on or before 30th June, 2019 but not admitted, are restricted under the litigation category?

It may happen that a person might have filed an appeal on or before 30th June, 2019 but the same might not have been admitted by the said date due to reasons such as belated filing with an application to condone the delay, short payment of pre-deposit, etc. Can such declarant claim the relief discussed above u/s 124(1)(a) under litigation category ?

It may be noted that Sec. 124(1)(a) grants relief in cases where appeal is pending as on 30th June, 2019. Said provision does not expressly provide that the said appeal needs to be admitted by the said date.

Reference here may also be made to the decision of Madras High Court in the case of State of Tamil Nadu v. K. Damodarasamy Naidu & Bros (2007) 10 VST 716 (Mad). In the said case similar issue arose in the context of Settlement of Disputes Act. It was held that when the terminology employed in the section is “pending”, it is impermissible to import any additional word in the provision that in order to be eligible to make an application, the appeal must be admitted as the word “admission” has not been used. Hence it can be contended that even appeals pending admittance can claim relief u/s. 124(1)(a).

Whether the cases where the appeal has been filed on or before 30th June but defect memo has been issued are restricted under the litigation category?

Sec. 125(1)(a) does not restrict cases where appeal is pending as on 30th June, 2019 (except when heard finally). Said provision does not expressly provide that the cases where defect memo are issued on or after 1st July, 2019 are outside its ambit.

Reference here may also be made to the decision of Andhra Pradesh High Court in the case of Senate Fashions v. Deputy Commissioner (2002) 128 STC 89 (AP). In the said case an objection was raised as to the pagination of the appeal filed before the stipulated date. Benefit of the settlement scheme was sought to be denied on the ground that such appeal cannot be considered as pending. High Court allowing the petition held that even the appeals filed before the stipulated date has to be considered as pending despite the fact that certain objections might have been raised by the registry after the stipulated date in the context of such appeal.

What is the recourse available to assessee if the appeal has been heard finally on or before 30th June, 2019?

There can be situations wherein the appeals filed have been heard finally on or before 30th June, 2019 and hence gets covered by the restrictions given u/s. 125(1)(a) discussed earlier. Hence apparently such person cannot make the declaration in respect of tax dues. What is the recourse available to such person?

Let us first consider a situation wherein appeal has been heard finally but the order has not been issued till date. There is a possibility of withdrawing the said pending appeal. This is because the dues emanating out of an order pending in appeal would take the colour of “amount in arrears” if the appeal is withdrawn. In such eventuality declaration can be made under the “amount in arrears” category which we shall discuss later.

Let us also consider another scenario wherein the appeal filed has been heard finally on or before 30th June, 2019 and the order has also been passed on or after 1st July, 2019 but before the last date for making the declaration under the scheme (i.e. 31st December, 2019). Such case could be considered as “amount in arrears” and declaration under the said category can also be made. Please refer the detailed discussion on the said issue later.

Whether pending appeal can be withdrawn?

Reliance is placed on the decision of Padiyur Sarvodaya Sangh v. CCE (2008 (227) E.L.T. 441 (Tri. - Chennai) wherein the appellant sought restoration of appeal withdrawn earlier due to an erroneous consideration of a notification. Tribunal held as under with respect to its power to enable withdrawal as well as restoration of appeal:

“3. After giving careful consideration to the submissions, we are inclined to accept the proposition that, if this Tribunal has power to allow an application for withdrawal of appeal, it also has the power to allow, on sufficient grounds, an application for withdrawal of such an application. Rule 41 enables this Tribunal to pass such orders or issue such directions as may be necessary to meet the ends of justice in a given case.”

One may also refer to the decision of Gujarat High Court in the case of Gayatri Enterprise v. State of Gujarat 2017 (6) G.S.T.L. 392 (Guj.) wherein the petitioner initially withdrew the appeal pending before the Tribunal to take the benefit of amnesty scheme. Subsequently the benefit was denied on some other grounds and hence the petitioner sought restoration of the said appeal before the Tribunal. Tribunal rejected the restoration application on the ground that the appeal was withdrawn unconditionally. High Court allowed the restoration and held as under:

“The Tribunal in exercise of its discretion ought to have permitted revival of the petitioner’s Second Appeals namely Second Appeals No. 891 of 2013 and 892 of 2013, in view of the fact that the withdrawal was only prompted as it was so required. In order to get the benefit of the Scheme, the appeals had to be withdrawn. Once the benefit was such a scheme was not extended, the withdrawal was rendered of no use. Appeals therefore needed to be restored and heard on merits. In our opinion merely because the orders permitting withdrawal of appeals did not contain an observation of liberty to revive would not disentitle the petitioner of the same benefit of revival of the Appeals.”

Reference here can also be made to number of directions issued by the Board from time-to-time directing the department to withdraw the appeal either due to monetary limits or due to issue being settled (e.g., Circular No. 390/Misc./116/2017-JC). Hence it can be contended that the appeal pending before the appellate authorities can be withdrawn citing the intention to avail the benefit under the scheme.

Once such appeal is withdrawn, the restrictions contained u/s. 125(1)(a) would not apply. The tax dues emanating out of the order would then tantamount to the amount in arrears which can be declared under the scheme.

Whether a person who has filed an appeal on or after 1st July, 2019 can make a declaration under the scheme?

Restriction given u/s. 125(1)(a) of the Act only debars the persons who have filed an appeal before the appellate forum and such appeal has been heard finally on or before the 30th day of June, 2019 from making a declaration under the scheme.

Hence a person who has filed an appeal on or after 1st July, 2019 can choose to withdraw such appeal and hence file a declaration under the amount in arrears category. Also if such appeal is heard and order is pronounced before the cut-off date for the scheme, declaration can be also made as amount in arrears.

FAQ’s released by the Government on the issue at Q7 says that in cases where appeal is filed on or after 01.07.2019 shall not be eligible to file a declaration under the Scheme. However said FAQ has not considered the aspect of filing a declaration under the amount in arrears category after withdrawal/disposal of the appeal.

Whether call book cases are also covered under the scheme?

Circular No. 1071/4/2019 CX 8 clarifies that the scheme would also cover call book cases. According to the Manual of Office Procedure brought out by the Department of Administrative Reforms and Public Grievances, a call book is required to be maintained by a Department in which a case, which had reached a stage where no action could, or needed to be taken to expedite its disposal for at least 6 months (e.g., cases held up in the law courts), could be transferred with the approval of a competent authority. Cases transferred to the call book are not included in the monthly statement of pending cases. In the context of indirect tax enactments, the Call book cases are those Show Cause Notices, which cannot be adjudicated immediately due to certain specified reasons and adjudication is to be kept in abeyance by transferring such cases to call book. Circular No. 162/73/95- CX.3, dated 14-12-1995 read with Circular Nos. 992/16/2014-CX, dated 26.12.2014 and 1023/11/2016–CX dated 08.04.2016, has specified certain categories of cases which can be transferred to call book (e.g., cases wherein on identical issue the Department has filed appeal before higher appellate authority against the order passed by the lower authority, which was against the Government).

Thus matters under call book are also covered under the scheme and hence the person in question can also opt for the scheme if he finds higher risk of eventual outcome of the dispute.

What is the meaning of the term “convicted for any offence”?

Sec. 125(1)(b) of the Act debars the person from making a declaration on the matter for which such person has been convicted for any offence punishable under any provisions of the indirect tax enactment. Hence persons convicted for a certain matter cannot overthrow the said conviction by making a declaration under the scheme. It must be noted that cases where only prosecution has been launched but conviction has not happened will not be restricted under the scheme.

The word “offence” has been defined in the Dictionary of Law by L. B. Curzon as that which is equivalent to a crime i.e. an act or omission punishable under criminal law (ref. Derbyshire CC v. Derby [1896] 2 QB 57; Horsfield v. Broan [1932] 1 KB 355).

Sec. 3(38) of the General Clauses Act, 1897 defines the term “offence” to mean any act or omission made punishable by any law for the time being in force.

There is marked distinction between penalty under the law and prosecution. As held by Andhra Pradesh High Court in the case of Thakur V. Hari Prasad v. CIT (1987) 167 ITR 603, penalty proceedings are not criminal proceedings in the strict sense. In a criminal charge, unless the prosecution proves beyond a reasonable doubt the offence committed by the assessee, the delinquent is entitled to the benefit of doubt and thereby goes scot free. The standard of proof for imposition of penalty is not as rigorous as that for prosecution of an offence.

Punishment hence is accorded by the Court of Law and is independent of penalties and confiscation that can be imposed by Excise Authorities through departmental adjudication.

Sec. 9 of the Central Excise Act, 1944 contains provisions related to the offences which are punishable. Punishment is given by way of imprisonment and fine. Similarly section 89 of the Finance Act, 1994 contains provisions related to prosecution of offences under the service tax.

Thus it can be said that mere imposition of penalty on a person on a certain matter in the past would not disentitle him from making a declaration under the scheme.

Close reading of clause (b) will also show that the said restriction applies only in respect of matter for which the person has been convicted for an offence. Hence such person would be able to make a declaration in respect of matters for which he has not been convicted for any offence. As an example let us say that a person has been convicted of an offence of availing and utilising CENVAT credit without actual receipt of taxable service or excisable goods (Sec. 89(1)(b) of FA, 1994). Such person therefore cannot make a declaration with respect to said matter. However such person will be able to make a declaration with respect to other matters.

The said restriction applies across all categories of declaration. Once it is found that the person in question has been convicted for a particular matter in the past, said person cannot make a declaration under the scheme on the same matter even if such matter is pending under the litigation.

What is the meaning of the term “final hearing” in the context of show cause notice?

Sec. 125(1)(c) of the Act debars the persons who have been issued a show cause notice, under indirect tax enactment and the final hearing has taken place on or before the 30th day of June, 2019 from making a declaration under the litigation category.

Readers may refer to the question related to “final hearing” in the context of appeals for understanding the said term. In the context of show cause notice except situations wherein adjudication order has already been issued on or after 1st July, 2019 having the last hearing taken place on or before 30th June, 2019, the factum of establishing whether final hearing has taken place or not would be required.

CBEC vide Circular No. 1053/2/2017 dt. 10.03.2017 dt. 10.03.2017 has laid down at para 14.10 that the adjudicating authorities have to pass orders within a period of 30 days of conclusion of the hearing barring in exceptional circumstances to be recorded in the file. Hence a clarification is required as to whether the embargo from making the declaration u/s. 125(1)(c) shall apply to situations wherein the said period of 30 days has already passed and order has yet not been passed without recording any exceptional circumstances. The above referred circular only stipulates time limit for passing the order and does not automatically grant a rehearing. Person in such case desiring to make additional submissions or seeking an additional hearing can contend that the final hearing has not taken place.

Even if final hearing pursuant to a show cause notice has happened on or before 30th June, 2019, the dues emanating out of adjudication order passed thereafter can also be declared under the scheme under “amount in arrears” category. Please refer our discussion later on this aspect.

What is the rationale for debarring cases for an erroneous refund or refund from availing the scheme?

Sec. 125(1)(d) of the Act debars the persons, who have been issued a show cause notice for recovery of an erroneous refund or rejection of refund, from making a declaration under the scheme. Said debarment stems from the fact that the person in question has alleged to have been received an erroneous refund or have made wrong claim of refund and show cause notice is issued seeking the recovery or rejection of the same. If the relief is granted in this regard, it may happen that the persons who would have actually obtained an erroneous refund or refund not supported by law would get enriched at the expense of the Government since such person would have then been not required to pay the partial refund amount or any interest or any penalty in this regard. Moreover, granting of refund requires deeper examination of facts and documents to curb the menace of wrongful and bogus claims.

One may note that there is no debarment (on the ground of unjust enrichment) in situations under amount in arrears category wherein a person has collected the tax but has not paid the same.

What are the restrictions under the enquiry, investigation or audit category?

Sec. 125(1)(e) of the Act debars the persons, who have been subjected to an enquiry or investigation or audit but the amount of duty involved has not been quantified on or before the 30th day of June, 2019, from making a declaration under the enquiry/investigation/audit category.

Thus only the person who has been subjected to an enquiry or investigation or audit and the amount of duty involved has been quantified on or before the 30th June, 2019 would be eligible to make a declaration under the said category.

The term “enquiry or investigation” has been defined u/s. 121(m) of the Act as follows:

“(m) ‘‘enquiry or investigation’’, under any of the indirect tax enactment, shall include the following actions, namely:— (i) search of premises; (ii) issuance of summons; (iii) requiring the production of accounts, documents or other evidence; (iv) recording of statements;”

Actions such as search of premises, issuance of summons, requiring the production of accounts, documents or other evidence or recording of statements, when undertaken by the department would be considered as a factum for deciding whether the person has been subjected to an enquiry/investigation or not.

The word “audit” has been defined u/s. 121(g) of the Act as under:

“(g) “audit” means any scrutiny, verification and checks carried out under the indirect tax enactment, other than an enquiry or investigation, and will commence when a written intimation from the central excise officer regarding conducting of audit is received;”

Above definition provides that any scrutiny, verification and checks undertaken after a written intimation from the central excise officer regarding conducting of audit is received shall be considered as “audit”.

The word “quantified” has been defined u/s. 121(r) of the Act as under:

“(r) ‘‘quantified”, with its cognate expression, means a written communication of the amount of duty payable under the indirect tax enactment;”

Hence a written communication of the amount of duty payable on or before 30th June, 2019 pursuant to an enquiry/investigation/audit would be considered as “quantified” so as to enable the declaration of the same under the scheme. Also definition of the word “quantified” supra does not provide the person who is supposed to quantify the duty payable. It may hence be also noted that the said quantification need not always be from the department. Even the person in question might have intimated the duty payable on or before 30th June, 2019 and the same would also have to be considered as “quantified”.

Further circular No. 1071/4/2019-CX.8 dt. 27.08.2019 clarifies in this regard at paragraph no. 10(g) that the 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.

Whether partial dues quantified on or before 30th June in an enquiry, investigation or audit can be declared under the scheme?

It may happen that a person has been subjected to an enquiry, investigation or audit and only partial dues have been quantified on or before 30th June, 2019. Said dues could have been quantified by way of a letter written by the person in question accepting the liability. Rest of the dues pursuant to the same enquiry, investigation or audit are quantified on or after 1st July, 2019. In such situation can the person make a declaration pertaining to the partial dues quantified on or before 30th June, 2019?

It may be noted that restriction contained u/s. 125(1)(e) of the Act only provides that it shall apply when the dues have not been quantified on or before 30th June, 2019. Also the definition of “tax dues” u/s. 123(1)(c) in respect of which relief is available under the scheme provides that the same shall mean the amount of duty which has been quantified on or before 30th June, 2019. Hence it can be contended that relief under the scheme shall be available in respect of partial amount of duty which has been quantified on or before 30th June, 2019.

Whether the restriction under the enquiry, investigation or audit category should be seen qua person or qua case?

It may happen that a single legal entity would have more than one registration (e.g., two factories). Let us say both the factories have been subjected to an audit on or before 30th June, 2019 but dues have been quantified by such date only with respect to one of the factory. Dues have not been quantified with respect to the other factory.

It may also happen that the factory for which the dues have not been quantified as on 30th June, 2019 has one separate appeal pending. Can the person make a declaration with respect to such dues which are under appeal?

As noted earlier, the restriction u/s. 125 are to be seen qua the case and not qua the person. Hence the declaration can be made with respect to the dues which have been quantified on or before 30th June, 2019 for one of the factory. Also declaration can be made with respect to the dues under appeal (as that is a separate case) even though the factory has been subjected to an audit and the dues have not been quantified on or before 30th June, 2019 pursuant thereto.

Can a person make a voluntary disclosure after being subjected to any enquiry or investigation or audit?

If the dues of a person, who has been subjected to an enquiry, investigation or audit, has been quantified, on or before 30th June, 2019 such person can make a declaration under the scheme to the extent of such dues which have been quantified. The issue is whether the person who has been subjected to an enquiry, investigation or audit is eligible to make a voluntary disclosure of the dues not quantified on or before 30th June, 2019 and seek relief under the scheme?

Sec. 125(1)(f) of the Act provides that a person shall not be eligible to make a voluntary disclosure after being subjected to any enquiry or investigation or audit. Hence it appears that except the amount of duty which has been quantified on or before 30th June, 2019, the person cannot make a voluntary disclosure after being subjected to an enquiry, investigation or audit.

Also if such enquiry, investigation or audit is initiated on or after 1st July, 2019 the person will not be able to make a voluntary declaration of the dues subject to the said proceedings. It may however be noted that said restriction would only apply to the dues which pertains to such enquiry or investigation or audit. Other cases (such as appeal pending, etc.) can be declared under the scheme.

When can it be considered that a person is subjected to any enquiry or investigation or audit?

It may be noted that the debarment from voluntary disclosure u/s. 125(1)(f) of the Act applies if the person in question is subjected to any enquiry or investigation or audit. Please refer the definitions of the said terms discussed earlier in the context of declaration under the enquiry/investigation/audit category.

Definition of audit u/s. 121(g) of the Act is less complex as it categorically includes only situations wherein written intimation regarding conduct of audit has been received by the person in question.

In the case of Hotel Southson Pvt. Ltd. [2018 (18) G.S.T.L. 24 (Mad.)], it the context of VCES has held as under:

“Once it is shown that an audit has been initiated and it is pending, there is no scope for restricting the sweep of Section 106(2)(b) to an audit in relation to a particular kind of service. If at an audit, the department is able to unearth a service being rendered by the assessee, which has neither been registered nor been assessed to, it is definitely open to the department to require the assessee to pay the service tax and the penalty payable for providing such service. The rigour of such taxing statute cannot be whittled down by the appellant by seeking to invoke so called voluntary compliance that too after the fact that the service has not been registered or has not been taxed was discovered by the department.”

Thus it can be contended that the word “audit” has to be interpreted to cover all the transactions pertaining to the time period for which audit has been initiated. Once audit has been initiated and dues have not been quantified on or before 30th June, 2019 voluntary disclosure pertaining to the time period covered by the audit would not be possible.

Definition of “enquiry or investigation” u/s. 121(m) has been drafted in the context of actions taken by the department which includes search of premises, issuance of summons, requiring production of accounts, documents, other evidence or recording of statements. If any of such actions have been taken, it would mean that the person in question has been subjected to an enquiry or investigation.

Circular No. 1072/05/2019-CX dt. 25.09.2019 at paragraph no. 2(vi) clarifies that the Designated Committee may take a view on merit, taking into account the facts and circumstances, as to whether the debarment u/s. 125(1)(f) would apply or not, in cases where documents like balance sheet, profit and loss account etc. are called for by department while quoting authority of Section 14 of the Central Excise Act, 1944 etc. Circular however does not provide for any factor test to be employed by the designated committee while deciding the case.

An issue arose in the context of VCES in the case of Comm. v. Abhay Cotex Pvt. Ltd.[2019 (22) G.S.T.L. 213 (Tri. - Mumbai) as to whether a letter issued by the Range Superintendent seeking information can be construed as enquiry or investigation or not? It was held (relying on the clarification issued by CBEC) that communications, wherein department has sought information of roving nature from potential taxpayer regarding their business activities without seeking any documents from such person or calling for his presence, while quoting the authority of Section 14 of the Central Excise Act, 1944 and Section 72 of the Finance Act, 1994 and/or Rule 5A of Service Tax Rules, 1994 would not be considered as an investigation so as to debar a person from making a declaration. As the letter of the Range Superintendent was not covered under any of the given provisions (when properly construed), it was held that the benefit of VCES cannot be denied.

Also in the case of LV Construction & Company [2016 (1) TMI 825 (Tri – Mumbai)] it has been held that enquiries of roving nature, even though the communication seeking information quoted Sec. 14 of the Central Excise Act, 1944, would not considered as an enquiry debarring the benefit of VCES. Said decision has also been maintained by Bombay High Court 2017 (351) E.L.T. 94 (Bom.).

Hence an enquiry or investigation without invoking proper legal provisions or of roving nature not seeking proper documents or not calling for statement would not debar the person from making a voluntary disclosure. Also as per the latest circular referred earlier, even the cases where documents are called quoting proper provisions may not cause debarment if under the facts and circumstances the designated committee opines so.

It may also be noted that the definition of “enquiry or investigation” as given u/s. 121(m) refers to issuance of summons as one of the action to show that such enquiry or investigation has been initiated. In the context of VCES, Gujarat High Court in the case of Sweta Sales Corporation v. UOI (2015 (37) S.T.R. 167 (Guj.) held that what is material is the fact that summons initiating enquiry/investigation should have been issued and not the fact that such summons should have been served by a given date.

However Bangalore bench of Tribunal in the case of B.R. Ajit v. CCE 2016 (41) S.T.R. 628 (Tri. - Bang.) again in the context of VCES held that that mere issuance of notice invoking the proceedings (in this case show cause notice was issued) would not be enough to create the embargo. Such notices should have been served by a given date so as to come under the said embargo. Hence the words “issued to a person” was read as “served to the person”.

Thus in the context of present scheme it can be contended that the embargo prohibiting voluntary disclosure would apply only if summons initiating an enquiry/investigation should have been served to the person before the date he makes a declaration under the scheme.

Attention is drawn to the decision in the case of Pearl Buildwell Infrastructure Ltd. v. CCE 2016 (44) S.T.R. 100 (Tri. - Chan.) in the context of VCES wherein it has been held that the debarment of the scheme would not apply if the investigation conducted against the appellant by way of summons issued to the appellant has already been dropped. Hence one can contend that the restriction in making a voluntary disclosure as provided u/s. 125(1)(f)(i) supra would apply only if enquiry or investigation or audit is pending on the date of making the declaration.

Whether a person who has not paid tax declared in the return can make a voluntary disclosure?

Sec. 125(1)(f) of the Act provides that a person shall not be eligible to make a voluntary disclosure having filed a return wherein he has indicated an amount of duty as payable, but has not paid it.

Said restriction has to be read along with Sec. 124(1)(c)(iii) of the Act in the context of relief available under the scheme. This shall facilitate better understanding. Sec. 124(1)(c)(iii) of the Act grants relief in the context of the tax dues relatable to an amount in arrears as reflected in a return filed on or before 30th June, 2019. It may appear that there is a contradiction between the provisions of section 125(1)(f)(ii) and section 124(1)(c)(iii) as the former debars the persons from making a voluntary disclosure but the latter grants relief with respect to amount in arrears.

FAQ’s in this respect at Q13 has clarified that Section 125(1)(f)(ii) is an exception to voluntary disclosure category. In other words, a person having filed a return but has not deposited the duty/tax cannot make a voluntary disclosure in respect of the same since the liability already stands disclosed to the Department. On the other hand, section 124(1)(c)(iii) is a sub-set of the ‘arrears’ category, meaning thereby that in respect of such return a declaration can only be filed under the arrears category. As such, there is no contradiction between the two provisions.

Therefore the person who has return dues pending cannot make a voluntary disclosure. However the person who has filed the returns on or before 30th June, 2019 and declared the dues can seek the relief under the scheme to the extent of dues declared under the amount in arrears category. In other words, persons who have filed returns on or after 1st July, 2019 cannot make a voluntary disclosure and cannot even seek relief under amount in arrears category. Such persons thus instead of filing returns should straight away make voluntary disclosure to seek relief under the scheme.

When can discharge certificate be set aside in case of voluntary disclosure?

Sec. 129(2)(c) of the Act permits the authorities to set aside the voluntary declaration even after issuance of discharge certificate if any material particular furnished in the declaration is subsequently found to be false.

Circular No. 1071/4/2019-CX.8 dt. 27.08.2019 in this regard clarifies (at para no. 8) that as there is no way to verify the correctness of voluntary disclosure, a provision is made to reopen such declaration within one year of issue of a discharge certificate, if subsequently any material particular is found to be false.

The declaration can be set aside only if such material fact is found to be false within a period of one year of issue of the discharge certificate. Interesting point to observe here is that there is no separate mechanism prescribed in the Act to inform the declarant about such material fact being found false. The above provision however provides that the proceedings under the applicable indirect tax enactment shall be instituted after setting aside the declaration. Thus it can be contended that such proceedings must be initiated within the one year time limit. In other words show cause notice should be issued within one year. Sec. 129(2)(c) of the Act being a special provision shall override the time limits (3 years or 5 years) as provided under the indirect tax enactment (e.g., Central Excise Act, 1944 or Finance Act, 1994) pertaining to the matter and time period covered in voluntary disclosure.

It may also be noted that the above provision can be invoked only if any “material particular” in the voluntary disclosure is found “false”.

The words “material particular” or “false” has not been defined in the Act. Craig R. Ducat in his book “Constitutional Interpretation” has defined the word “material” as something important or relevant as in a material issue, material fact or material witness. Burton’s Legal Thesaurus (3rd Edition) has defined the word “material” to mean “fundamental”, “vital”, “basic”, “cardinal”, “central”, “crucial”, “decisive”, “essential”, “pivotal”, “indispensable”, “elementary” or “primary”. Said meaning has also been relied by Supreme Court in the case of Virender Nath Gautam v. Satpal Singh (2007) 3 SCC 617. Further the words “material fact” have been defined to mean a fact that is significant or essential to the issue or matter at hand (Black’s Law Dictionary as cited in Ismail Kunju v. Panmana Grama Panchayath AIR 2014 Ker 25). “Material particulars” has thus been defined to mean details in support of material facts (see Virender Nath Gautam v. Satpal Singh (supra)).

The word “false” has been defined by Black’s Law Dictionary (6th Edition) to mean that a thing is “false” when it is done or made with knowledge, actual or constructive, that it is untrue or illegal. Said meaning was relied by the Supreme Court in the case of Commissioner of Sales Tax v. Sanjiv Fabrics (2010) 9 SCC 630.

Declaration cannot be set aside on account of immaterial misstatements. Also declaration cannot be set aside on interpretation issues (such as classification, valuation, etc.) if the declarant has a bona fide view as regards the tax dues declared.

Before we end the discussion on the issue the attention of readers is also drawn to one more aspect. Sec. 129(2)(c) of the Act as discussed above does not provide for an opportunity of being heard when the voluntary declaration is set aside owing to the allegedly material fact being found false. Equity demands that an opportunity should be granted to allow the declarant to make the submissions and denying the same can be contested before the Courts.

What are the restrictions for a person who has filed an application before the Settlement Commission?

Sec. 125(1)(g) of the Act debars the persons, who have filed an application before the Settlement Commission for settlement of a case, from making a declaration under the scheme.

Sections 31, 32 & 32A to 32P of Central Excise Act, 1944 contains provisions related to the settlement commission. Said provisions have also been made applicable to service tax w.e.f. 28th May, 2012.

If a person has filed an application before the Settlement Commission for settlement of a case, such person cannot make a declaration under the scheme for the period and matter covered under the settlement application.

It would also appear that if the person has filed an application in the Settlement Commission in the past and the case has already been settled, such person will not be restricted from making an application under the scheme for any other tax dues. This is because the restriction given u/s 125(1)(g) supra specifically prohibits only those persons who have filed an application in the Settlement Commission for settlement of a case and hence the same should be pending for settlement. The logic seems to prohibit persons who have pending applications so as not to usurp the power of the settlement commission by giving the relief under the scheme.

It may also happen that the application filed before the Settlement Commission may abate due to reasons such as rejection of the application by the Commission or due to order of the Commission not being passed within the prescribed time etc. If such an event has already happened, the person in question is not debarred from making a declaration under the clause under present consideration. Said view has been confirmed by circular No. 1071/4/2019-CX.8 dt. 27.08.2019 at para no. 10(f).

What are the restrictions with respect to excisable goods given in the Fourth Schedule to the Central Excise Act, 1944?

Sec. 125(1)(h) of the Act debars the persons from making a declaration with respect to excisable goods set forth in the Fourth Schedule to the Central Excise Act, 1944.

Fourth Schedule to the Central Excise Act, 1944 covers tobacco and manufactured tobacco substitutes as well as petroleum crude, petroleum gases, petroleum oils and oils obtained from bituminous minerals. For detailed list readers may refer to the concerned schedule.

Clause (h) above restricts the persons from making a declaration with respect to the said goods. The said restrictions applies to the declarations under all the categories (viz. litigation, enquiry/investigation/audit, amount in arrears as well as voluntary disclosure). Declaration can however be made by a person dealing in such goods for other tax disputes. The classic example would be unpaid / disputed liabilities payable under reverse charge such as legal services, GTA service, security services, etc. The manufacturer / dealer in petroleum or tobacco products can go for scheme in respect of their unpaid / disputed reverse charge liabilities.

What is the meaning of the term “amount in arrears”?

The declaration under the scheme can also be made under the category of “amount in arrears”. Said term as been defined u/s. 121(c) of the Act as under:

“(c) “amount in arrears” means the amount of duty which is recoverable as arrears of duty under the indirect tax enactment, on account of—

(i) no appeal having been filed by the declarant against an order or an order in appeal before expiry of the period of time for filing appeal; or

(ii) an order in appeal relating to the declarant attaining finality; or

(iii) the declarant having filed a return under the indirect tax enactment on or before the 30th day of June, 2019, wherein he has admitted a tax liability but not paid it;”

Before understanding each of the sub-clauses in details, it is important to know that only the amount of duty which is recoverable can be considered as the amount in arrears. Therefore situations wherein only a notice for undertaking any audit, enquiry or investigation is received or only show cause notice is received would not be considered as “amount in arrears” as no amount of duty is recoverable pursuant to such actions (such dues can be declared under the litigation category or audit/enquiry/investigation category subject to restrictions discussed earlier in the book). Only the amount of duty either confirmed by way of an order-in-original, order-in-appeal or self-admitted dues will be considered as the amount in arrears.

The determination of the “amount in arrears” under sub-clause (i) & (ii) above is not with respect to any cut-off date such as 30th June, 2019. Thus even the dues arising after 30th June, 2019 would qualify as “amount in arrears”.

Now sub-clause (i) in the definition covers a situation wherein an order-in-original or an order-in-appeal has been passed determining the amount of duty which is recoverable and no appeal has been filed before the expiry of the period for filing the appeal.

Plain reading would suggest that to fall under the said sub-clause the declarant needs to show that an order-in-original or an order-in-appeal has been passed and time period for filing the appeal against such order has expired. This would mean that the person does not intend to litigate the matter further. The scheme does not stipulate the date by which the said order, an order-in-original or an order-in-appeal should have been passed/issued/received. Hence it can be contended even an order-in-original or an order-in-appeal received on or after 01st July, 2019 would get the benefit of the scheme provided the time limit for filing the appeal has expired before making a declaration under the scheme.

Sub-clause (ii) covers situation wherein an order in appeal relating to the declarant has attained finality. The term “finality” has not been defined in the Act. However when read with sub-clause (i) as discussed above, it would imply that said sub-clause (ii) covers situation wherein an order in appeal attains finality either if there is no further remedy available in law against such order or the declarant does not intend to file an appeal and hence accepts the order in appeal as final. Hence declaration can be made even in situations wherein time period for filing the appeal against an order-in-appeal has not expired on the date of filing the declaration.

Above views get support from the clarification given at para no. 2(viii) of Circular no. 1072/05/2019-CX dt. 25.09.2019.

Sub-clause (iii) covers situation wherein the declarant having filed a return under the indirect tax enactment on or before the 30th day of June, 2019, wherein he has admitted a tax liability but has not paid the same. Thus the amount of duty admitted in the said returns filed on or before 30th June, 2019 would be considered as amount in arrears.

Whether a declaration can be made for demand raised through order-in-original where time period for filing the appeal against such order has not expired?

Definition of “amount in arrears” under sub-clause (i) of Sec. 121(c) of the Act includes the amount of duty recoverable on account of no appeal being filed against an order or order in appeal before the expiry of time period for filing the such appeal. Also the said definition under sub-clause (ii) includes the amount of duty recoverable on account of order-in-appeal attaining finality. As contended before, in the case of order-in-appeal it can be argued that even if the time period for filing the appeal against the order-in-appeal has not expired on the date of filing a declaration, a declaration under the scheme of such amount of duty would imply that the said order-in-appeal has attained finality and hence will be considered as “amount in arrears”. However for the order-in-original only sub-clause (i) is applicable and not sub-clause (ii). Said sub-clause only considers the amount of duty recoverable as amount in arrears if the time period for filing the appeal has expired. Hence we have two situations:

If an order-in-original has been served on 01.08.2019, the time period for filing the appeal would expire after three months (i.e., 30.10.2019) and hence a declaration under the scheme can be made after the said date as amount in arrears.

If an order-in-original is however served on 01.11.2019, the time period for filing the appeal would expire only after the closure of the scheme (last date to make application under the scheme is 31.12.2019). Hence strictly the said amount of duty emanating out of the order-in-original may not be considered as “amount in arrears”.

The term “waiver” has been defined to mean an intentional relinquishment of a known right by an express or implied conduct (see Motilal Padampat Sugar Mills Co. Ltd. v. State of UP (1979) 118 ITR 326 (SC)).

In the case of Gangadhar v. Election Tribunal, Vindhya Pradesh, AIR 1954 VP 44 it has been held as under:

“Waiver is abandonment of a right and is either express or implied from conduct. A person who is entitled to the benefit of a statutory provision may waive it and allow the transaction to proceed as though the provision did not exist.”

Hence it can be contended that the statutory right of an appeal can be waived by the conduct of the person in question. A declaration under the scheme of the dues emanating out of order-in-original, wherein the time period to file an appeal against the said order would not have expired, would imply that the declarant in question has waived his right to file an appeal. Hence said dues become recoverable and has to be regarded as “amount in arrears”.

Above view gets support from the clarification given at para no. 2(viii) of Circular no. 1072/05/2019-CX dt. 25.09.2019. The circular clarifies that if person expressly waives his right to file an appeal by binding declaration, he will be eligible for relief under the “amount in arrears” category of the scheme.

Whether amount in arrears is to be seen as on 30th June, 2019?

The definition of amount in arrears (other than return dues) does not provide for the date by which the said amounts would stand recoverable. Plain reading suggests that even the dues confirmed on or after 1st July, 2019 can be considered as amount in arrears provided no appeal is filed against such order or is withdrawn (if filed) or such order has attained finality.

Whether cases where tax has been collected but not paid can also seek relief as amount in arrears?

The definition of “amount in arrears” u/s. 121(c) of the Act includes the amount of duty which is recoverable on account of declarant having filed a return on or before 30th June, 2019 wherein he has admitted the tax but has not paid it. Hence if a person in question has collected the tax and declared the same in the return filed on or before 30th June, 2019, even such person can seek relief under the scheme.

Therefore it would mean that even though the person has collected let us say Rs. 100 as amount of duty from a customer and declared the same in the return filed as payable, such person now needs to pay only 40% (if the tax dues are Rs. 50 lakhs or less) or 60% (if tax dues are more than Rs. 50 lakhs) of the said amount and keep the balance with him though collected as tax from the customer.

It appears that the principle of unjust enrichment has been given a go-by under the scheme.

Whether declaration is required for seeking relief of “amount in arrears”?

As discussed earlier, the relief with respect to amount in arrears can be sought by any person as none of the restrictions covered u/s. 125(1) of the Act are applicable.

The amount in arrears also relates to cases wherein the dues have already been admitted by the declarant (return dues). Hence in such scenario, whether the declarant is required to declare anything per se?

As part of the procedure [see Rule 6(2)], even the amount in arrears needs to be declared under the scheme by way of filing an application to seek the relief.

Whether the declaration can be filed for a selected matter out of multiple matters in the same case?

It may happen that a single case may contain many matters (issues) emanating therefrom. Hence can a declarant file the declaration matter wise? In other words can a declarant make a declaration concerning only some matters in a case (where he sees higher probability of losing) and not all?

Sec. 125(2) of the Act only provides that a declaration shall be made electronically in the manner prescribed. Hence the said provision does not specifically prohibit case-wise or even matter-wise declaration.

However when the provisions of the scheme are seen in its entirety a picture would emerge leading to conclusion that the declaration under the scheme has to be made case-wise and not matter-wise. This is because the restrictions contained u/s. 125(1) are to be read case wise. The definition of “tax dues” u/s. 123 of the Act also implies case wise determination. Even the relief granted u/s. 124 is aligned with the said tax dues declared. Hence in the scheme of things, the declaration has to be made case wise. Rule 3(2) also provides that separate declaration shall be filed for each case.

Paragraph 10(h) of Circular No. 1071/4/2019-CX.8 dt. 27.08.2019 and also Q.4 of FAQs released by CBIC clarifies in this regard that a declarant cannot opt to avail benefit of scheme in respect of selected matters. In other words, the declarant has to file a declaration for all the matters concerning duty liability covered under the show cause notice.

Hence the declaration cannot be made for selected matter out of multiple matters in same case.

What are the tax dues which can be declared under the scheme?

The words “tax dues” has been defined u/s. 123 of the Act. Following table summarizes the meaning of the said term in various scenarios:

The term “amount of duty” has been defined u/s. 121(d) of the Act to mean the amount of central excise duty, the service tax and the cess payable under the indirect tax enactment.

It shall not include any interest, late fees or penalties. This is because full relief is granted from interest, late fees or penalties under the scheme as discussed later.

What are the illustrations provided in the scheme with respect to tax dues?

Illustration 1 as provided under clause (a) of Sec. 123 reads as under:

Illustration 1: The show cause notice to a declarant was for an amount of duty of Rs.1000 and an amount of penalty of Rs.100. The order was for an amount of duty of Rs.1000 and amount of penalty of Rs.100. The declarant files an appeal against this order. The amount of duty which is being disputed is Rs.1000 and hence the tax dues are Rs.1000.

In the above example the declarant has filed first appeal against the order. In such case the “tax dues” which can be declared under the scheme would be Rs. 1000 since the same has been disputed in the appeal.

Illustration 2 as provided under clause (a) reads as under:

Illustration 2: The show cause notice to a declarant was for an amount of duty of Rs.1000 and an amount of penalty of Rs.100. The order was for an amount of duty of Rs.900 and penalty of Rs.90. The declarant files an appeal against this order. The amount of duty which is being disputed is Rs.900 and hence tax dues are Rs.900.

In the above example the fact is that the show cause notice was issued for the amount of duty of Rs. 1000, whereas upon adjudication the order was issued demanding duty of Rs. 900. Further the declarant has also filed the first appeal against the said order disputing the entire duty of Rs. 900. In such situation, the tax dues which can be declared under the scheme shall be Rs. 900 (the amount of duty which is being disputed in the said appeal).

At this juncture we must also consider a scenario wherein the order for the amount of duty is Rs. 900 whereas the declarant has filed an appeal only disputing the amount of duty of Rs. 500. In other words the declarant has admitted the liability of Rs. 400. In such situation the tax dues which can be declared under the pending appeal category shall be Rs. 500 as only that amount of duty has been disputed in the appeal and not Rs. 900.

Above illustrations pertains to situations wherein first appeal has been filed by the declarant disputing the amount of duty and the same is pending as on 30th June, 2019 (excluding cases where the appeals have been finally heard).

Let us now consider an illustration wherein an appeal is pending beyond the stage of first appeal. What shall be the tax dues in this situation ?

Illustration 4 given under the clause (a) in this regard reads as under:

Illustration 4: The show cause notice to a declarant was for an amount of duty of Rs.1000. The order was for an amount of duty of Rs.1000. The declarant files an appeal against this order of determination. The first appellate authority reduced the amount of duty to Rs.900. The declarant files a second appeal. The amount of duty which is being disputed is Rs.900 and hence tax dues are Rs.900;

In the above example, as against the amount of duty payable of Rs. 1000 as per the order, the declarant filed the first appeal and got the relief in the duty amount of Rs. 100. Appellate authority confirmed duty payable of Rs. 900. Declarant further filed a second appeal disputing the said duty demanded of Rs. 900. Said appeal is now pending as on 30th June, 2019. In such case the tax dues which can be declared shall be Rs. 900 being the amount of duty in dispute.

Above illustration can also be extended further to let us say that in the second appeal, the declarant further obtained the relief of Rs. 500. Declarant hence filed an appeal before the High Court disputing the balance duty demanded of Rs. 400. Said appeal is pending before the High Court as on 30th June, 2019. In such situation the tax dues which can be declared shall be Rs. 400 being the amount of duty in dispute.

Same logic will also be extended to appeals pending before the Supreme Court as on 30th June, 2019.

Sub-clause (ii) of clause (a) covers cases wherein one appeal by the declarant and the other by the department (departmental appeal) are pending before the appellate forum as on 30th June, 2019.

Illustration 3 as provided under the said clause (a) in this context reads as under:

Illustration 3: The show cause notice to a declarant was for an amount of duty of Rs.1000 and an amount of penalty of Rs.100. The order was for an amount of duty of Rs.900 and penalty of Rs 90. The declarant files an appeal against this order of determination. The departmental appeal is for an amount of duty of Rs.100 and penalty of Rs.10. The amount of duty which is being disputed is Rs.900 plus Rs.100 i.e. Rs.1000 and hence tax dues are Rs.1000.

In such scenario the amount of duty in dispute shall be Rs. 1000 which needs to be declared if the declarant wants to avail the benefit of the scheme.

Above illustration can also be extended by assuming that the first appellate authority reduced the demand to Rs. 500. Declarant filed the second appeal and disputed the said demand of duty of Rs. 500 before the second appellate authority. On the other hand department also filed an appeal disputing the relief of Rs 400 granted by the first appellate authority. Both these appeals are pending as on 30th June, 2019. In such situation the total amount of duty under dispute which needs to be declared under the scheme shall be Rs. 900.

It may also be noted the above clause (ii) seeking to consider the disputed dues of the declarant as well as the department would apply only if both the appeals (of the declarant as well as the department) are pending as on 30th June, 2019. Hence if the department has filed the appeal on or after 1st July, 2019 said clause would not apply.

What shall be the tax dues where the show cause notice is issued to more than one person making them jointly and severally liable?

The proviso to Sec. 123(b) provides that if the show cause notice has been issued to the declarant as well as other persons making them jointly and severally liable for an amount, the tax dues which can be declared has to be the amount indicated in the said notice as jointly and severally payable.

In other words let us assume that a single show cause notice has been issued to a declarant (XYZ Ltd.) as well as its sister concern (ABC Ltd.) making them jointly and severally liable for an amount owing to the collusion, then the entire amount of duty made jointly and severally payable has to be declared under the scheme.

It will be interesting to see whether system permits online filing of joint declaration by more than one declarant.

The above discussion however would not cover cases where independent show cause notices are issued to different persons seeking the duty in the individual capacity. In such case the tax dues needs to be declared under the scheme independently.

What is the relief available under the scheme?

The relief/immunity available under the scheme is as under (please refer Sec. 124 & 129):

A. Where tax dues are Rs. 50 lakhs or less

B. Where tax dues are more than Rs. 50 lakhs

C. Irrespective of tax dues

What are the illustrative cases with respect to the relief?

Circular No. 1071/4/2019-CX.8 dt. 27.08.2019 illustrates the relief under the scheme as under:

1. If the amount of duty (including CENVAT credit) being litigated is Rs.50 lakhs, then the taxpayer only needs to pay only Rs.15 lakhs to settle his case.
2. If the amount of duty (including CENVAT credit) being litigated is Rs. 1 crore, then the taxpayer only needs to pay only Rs. 50 lakhs to settle his case.
3. If the amount of duty being litigated is ‘nil’, either because the show cause notice was only for penalty or because the duty was deposited at any subsequent stage, and only penalty is being contested, then the taxpayer does not need to deposit anything to settle his case. However, the taxpayer would have to make a declaration under this Scheme.
4. If the duty (including CENVAT credit) involved during investigation or audit is Rs. 50 lakhs, then the taxpayer only needs to pay Rs.15 lakhs to settle his case.
5. If the amount in arrears is Rs.50 lakhs, then the taxpayer only needs to pay only Rs. 20 lakhs to settle his case.
6. If the taxpayer makes a voluntary disclosure of Rs. 1 crore, then he will need to pay Rs. 1 crore to settle his case.

How to compute amount in arrears for calculating the relief and the amount payable under the scheme?

Definition of amount in arrears u/s. 121(c) of the Act means the amount of duty which is “recoverable” as arrears of duty under three situations. First two situations deal with cases where either no appeal has been filed against an order or order-in-appeal or where order-in-appeal has attained finality. In such cases it might have happened that the declarant would have paid some amounts earlier either as a deposit/predeposit or voluntarily in anticipation of some liability.

Circular No. 1072/05/2019-CX dt. 25.09.2019 at paragraph no. 2(iv) clarifies that in such cases amount in arrears would be the net amount after deducting the amount that assessee has already paid whether the same has been appropriated in the order or paid voluntarily subsequent to passing of the order. Thus relief available under Section 124(1)(c) will be applied to the net outstanding amount so arrived at. Circular provides following illustration:

1. Taxpayer has outstanding arrears of confirmed duty demand of Rs. 1 crore and he has already paid Rs. 60 lakhs. So, the amount of tax dues is Rs. 40 lakhs. After applying applicable relief @ 60%, the amount payable under the Scheme is Rs 16 lakhs.
2. Taxpayer has outstanding arrears of confirmed duty demand of Rs. 1 crore apart from Rs. 20 lakh penalty and interest as applicable. He has already paid Rs. 1 cr towards duty. So, the amount of tax dues is zero, and the amount payable under the Scheme is zero.

It may be noted that the payments made as deposits by the person retains the character of deposit only (does not become the property of the Government) unless the same is appropriated, recovered or debited by the authority/tax payer.

Division bench of Bombay High Court in the case of Suvidhe Ltd. v. UOI (1996 (82) ELT 177) (Bom HC) has held that the pre-deposit is not payment of duty. It is merely a payment for availing the right of appeal. Similarly Gujarat High Court in the case of Padmanabh Silk Mills v. UOI (2006 (193) ELT 536) (Guj HC DB) has held that pre-deposit is not duty.

Sec. 11 of the Central Excise Act, 1944 dealing with the recovery of the dues provides that the officer can deduct the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his hands or under his disposal or control if the amount payable is not so recovered, he may prepare a certificate specifying the amount due and send it to the Collector who shall proceed to recover from the said person the amount specified as if it were an arrear of land revenue. Hence adjustment of the deposit amount against the amount payable is part of the recovery proceedings to “recover” the dues.

Reliance is also placed on the decision of Mumbai Tribunal in the case of Bajaj Auto Ltd. v. Commissioner 2003 (158) E.L.T. 217 (Tri. - Mumbai) wherein it has been held, relying on Sec. 11, that deposit can be adjusted against the dues as part of recovery proceedings.

With the above background the definition of “amount in arrears” means the amount of duty which is recoverable. In other words it is the amount for which proceedings u/s 11 supra can be initiated and then the deposit can be adjusted. Deposit thus cannot be deducted to determine the amount recoverable. It is an accepted position that circulars contrary to law do not bind the taxpayer (please see detailed discussion of the binding nature of circular in the context of power to issue such circular later in the book). Hence the circular determining the amount in arrears as net amount appears to run contrary to the legal provisions.

Circular also provides that in respect of declarations made under other categories (e.g., litigation & enquiry/investigation/audit) the relief will be applied to the outstanding amount and, only thereafter the pre-deposits/deposits shall be adjusted to determine the amount payable. This is the correct legal position based on Sec. 11 supra and hence the same needs to be also taken for the determination of the amount in arrears.

The last situation under the amount of arrears are the tax dues admitted in the returns filed on or before 30th June, 2019 but not paid. Hence the amount shown as payable in such return (after adjustment of CENVAT credit) would be considered as amount in arrears. Readers may also refer to question regarding adjustment of the payments made on or after 5th July, 2019 (date of announcement of the scheme) later in the book.

Whether the limit of INR 50 lakhs for calculating tax relief should be seen case wise or person wise?

It may happen that the person intending to make a declaration under the scheme might have many pending cases. The scheme provides for making the declaration case-wise (see detailed question on procedural aspects later). Also the quantum of tax relief granted under various situations is based on the fact as to whether tax dues exceed INR 50 lakhs or not. Thus an issue may arise as to whether the said limit needs to be seen in aggregate for all the cases declared under the scheme by a single declarant. In other words if a person has three appeals pending, the tax dues individually do not exceed INR 50 lakhs but in aggregate does exceed INR 50 lakhs, how much tax relief would be available ? Whether relief shall be 70% (as each appeal is considered as a separate case) or 50% (aggregate) ?

Combined reading of Sec. 123 pertaining to tax dues as well as Sec. 124 pertaining to relief would entail that the tax dues, in respect of which relief is granted, shall be the total amount of duty which is disputed in the “said appeal” pending on 30th June, 2019 which has arisen out of “an order”. Also the declaration under the scheme has to be filed case-wise.

Thus it can be contended that the limit of INR 50 lakhs has to be seen for every tax dues separately for determining the tax relief which can be availed under the scheme. Hence in given example as each pending appeal is below INR 50 lakhs, tax relief of 70% of tax dues under each appeal would be available.

Whether the relief in respect of late fees/penalty is only limited to cases related to show cause notice?

Sec. 124(1)(b) of the Act grants relief of the entire amount of late fee or penalty in cases where the tax dues are relatable to a show cause notice for late fee or penalty only, and the amount of duty in the said notice has been paid or is nil. Hence a question may arise as to whether a person who has filed an appeal after the issuance of order imposing such late fees/penalty can make a declaration under the scheme and avail the relief in terms of late fees/penalty?

Circular No. 1071/4/2019-CX.8 dt. 27.08.2019 clarifies in this regard at paragraph no. 10(d) that the provisions apply to any show cause notice for penalty/late fee, irrespective of the fact that it is under adjudication or appeal.

Whether relief under the scheme for penalty can be availed by co-noticee?

Main noticee (e.g. company / firm) might have received a show cause notice seeking to demand tax, interest as well as penalties. Co-noticees (e.g. directors / partners) would have also received a show cause notice seeking demand of only penalties as the tax demand would be recovered only from the main noticee. In such situation, can the co-noticee avail the benefit u/s 124(1)(b) of the Act on the ground that the tax payable by him is “nil” and hence relief in terms of late fees/penalties be granted? Is it compulsory for the main noticee to settle first the tax dues under the scheme and only thereafter co-noticee can avail the benefit under the scheme?

Plain reading of Sec. 124(1)(b) of the Act would suggest that the relief available under the scheme to a co-noticee is not contingent on the settlement of the tax dues by the main noticee. This is because main noticee as well as co-noticee are separate legal persons and hence have to independently seek benefit under the scheme.

However paragraph no. 10(i) of circular No. 1071/4/2019-CX.8 dt. 27.08.2019 clarifies as under in this regard:

“(i) Section 124(1)(b) provides that where the tax dues are relatable to a show cause notice for late fee or penalty only, and the amount of duty in the said notice has been paid or is ‘nil’ then, the entire amount of late fee or penalty will be waived. This section, inter alia, covers cases of penal action against co-noticees. In case of a show cause notice demanding duty/tax from main taxpayer and proposing penal action against co-noticees, it is clarified that the co-noticees can’t avail the benefits of the scheme till such time the duty demand is not settled. Once, the main-noticee discharges the duty demand, the co-noticees can apply under this Scheme. This will also cover cases where the main noticee has settled the matter before the Settlement Commission and paid the dues and in which co-noticees were not a party to the proceedings before the Settlement Commission.”

Above clarification thus provides that the co-noticees can’t avail the benefits of the scheme till such time the duty demand is not settled by the main noticee. It is further clarified that the same position shall also apply in cases where the main noticee has settled the matter before the Settlement Commission and paid the dues and in which co-noticees were not a party to the proceedings before the Settlement Commission.

One may contend that it is a settled legal position that circular is not binding on judiciary or tax payer especially when such circular is not in consonance with law.

Readers may refer the discussion in the context of Sec. 133 of the Act with respect to the limitations on the powers of the Board to issue non-beneficial circulars contrary to the provisions of the Act.

Whether relief under the scheme is available where demand is only of interest?

Circular No. 1072/05/2019-CX dt. 25.09.2019 clarifies at paragraph no. 2(v) that cases where the taxpayer has already deposited the duty but not interest and show cause notice is issued appropriating the duty deposited and demanding the applicable interest, would also be covered under the scheme. Relief in terms of interest would be available. However in no case will the refund of the duty paid will be granted.

Whether relief shall also be available for late fees?

This is an interesting issue as Sec. 124(1)(b) of the Act grants relief from late fees or penalty only in cases where the tax dues are relatable to a show cause notice for late fee or penalty only, and the amount of duty in the said notice has been paid or is nil.

Hence what about cases which are under appeal or relates to the amount in arrears wherein late fees for delayed or non-filing of the return has also been imposed in addition to demand/admittance of tax?

Such cases would be covered under either Sec. 124(1)(a) or Sec. 124(1)(c) of the Act as far as tax relief is concerned. Therein relief only in terms of partial tax dues has been granted. Further Sec. 129(1)(a) provides that no further duty, interest or penalty shall be payable for such declared tax dues. Hence Sec. 129(1)(a) does not expressly provide for relief in terms of late fees in such cases. However, going by the intent of the scheme along with the fact that Sec. 129(1)(c) of the Act prohibits reopening of any proceedings (including proceedings of recovery of late fees) in respect of the matter and the time period declared, it can be contended that late fees would also not be payable by the declarant.

Whether prosecution already launched would also be withdrawn under the scheme?

Sec. 129(1)(b) of the Act provides that the declarant shall not be liable to be prosecuted under the indirect tax enactment with respect to the matter and time period covered in the declaration. Supreme Court in the context of Article 142 of the Constitution of India held that the expression “matter” would cover every kind of proceeding pending in Court including civil or criminal (Monica Kumar v. State of U.P. (2008) 8 SCC 781). Prosecution proceedings pending in the Court would also abate. Circular No. 1072/05/2019-CX dt. 25.09.2019 at paragraph no. 2(ii) clarifies that if prosecution has already been launched, the procedure as laid down in Circular No. 1009/16/2015-CX dated 23-10-2015 should be followed for withdrawal of prosecution after issuance of discharge certificate.

Whether scheme provides immunity from confiscation and redemption fine?

Concept of redemption fine has to be understood first. Redemption fine is basically an option given by the adjudicating authority to the assesse to pay the fine in lieu of confiscation of goods. Provisions permitting release of confiscated goods upon the payment of the redemption fine were originally contained in the Customs Act, 1962 by way of Sec. 125. Same were then applied even to confiscation done under the Central Excise Act, 1944 by way of notification no. 68/63 dated 04.05.1963.

Supreme Court in the case of Collector of Customs v. Elephanta Oil and Industries Ltd. 2003 (152) E.L.T. 257 (S.C.) held that levy of redemption fine is in addition to penalty imposable under other provisions of the Act. Departmental instruction issued on 03.06.2013 in the context of determining the threshold for departmental appeal also took the view that redemption fine is on goods whereas penalty is in persona and hence the redemption fine cannot be equated with penalty. However it was also stated in the said instruction that since the redemption fine also arises out of violations of statutory provisions, same must be clubbed with the penalty amount to determine the threshold for departmental appeal.

As redemption fine does not strictly partake the character of penalty, the immunity granted u/s. 129 does not seem to expressly include the same. However, relying on above referred departmental instruction, one may contend that there is no difference between fine and penalty. Reference here may also be made to the decision of Calcutta High Court in the case of Angus Jute Works of the Angus Co. Ltd. v. Joint Commissioner (2012) 53 VST 106 (Cal) wherein it was held that once settlement certificate is issued, no proceedings imposing penalty on the basis of the findings of the assessment order (having settled) can be initiated. A view can be canvassed that once the discharge certificate is issued all the proceedings connected with the case abates which would also result into release of goods confiscated without seeking the payment of redemption fine.

Whether the relief extends only to the matter and time period pertaining to the declaration?

The relief/immunity granted u/s. 129(1)(a) of the Act with respect to any further duty, interest or penalty is only restricted to the matter and the time period for which the declaration has been made. Now the term “matter” has not been defined in the Act.

In the case of Workmen v. Firestone Tyre & Rubber Co. of India Pvt. Ltd. AIR 1973 SC 1227 the word “matter” as appearing in the proviso to Sec. 11A of the Industrial Disputes Act, 1947 came up for interpretation. Said proviso in a nutshell provided that the Labour Court, Tribunal or National Tribunal, as the case may be shall rely only on the materials on record and shall not take any fresh evidence in relation to the matter. In this context the Supreme Court held that the word “matter” refers to the order of discharge or dismissal that is being considered by the Tribunal.

Further Supreme Court in the context of Arbitration and Conciliation Act held that the word “matter” would mean the subject matter of suit subject to arbitration (Sukanya Holdings (P.) Ltd. v. Jayesh H. Pandya 2003 CLC 585 (SC)).

Relying on the above cases, one can contend that the word “matter” as appearing u/s. 129(1)(a) of the Act would grant relief from any further duty, interest or penalty only with respect to the matter for which the declaration has been filed. Further such relief would also be limited to the time period with respect to the matter for which declaration has been filed.

Hence the relief granted on issuance of discharge certificate would not extend to the same matter for a different time period not covered in the declaration or for a different matter for the time period covered by the declaration.

Therefore if declaration is filed in respect of a pending appeal disputing a levy of duty on certain services, the relief would be limited only to the duty leviable on the said services for the given time period for which the declaration has been filed. It would not extend to levy on any other service not covered by the declaration or for the same service but a different time period.

Declarant could be prosecuted for the matter or the time period (related to the declared matter but for different time) other than the one covered by the declaration.

Further 129(1)(c) of the Act stipulates that no matter and time period covered by such declaration shall be reopened in any other proceeding under the indirect tax enactment. This provision is interesting as it provides that not only the matter but even the time period covered by the declaration shall not be reopened. Can it thus be said that once a matter has been declared the dues pertaining to the said matter (for a different time period) cannot be reopened? Can it thus also be said that once dues are declared pertaining to a particular time period, any other dues related to the same time period also cannot be reopened? It may be noted that the said issue would mainly arise in cases of voluntary disclosure. This is because in case of dues emanating out of a SCN or order relief will be limited to the said matter and the time period only.

Although clause (c) provides that the matter as well as the time period cannot be reopened the word “and” appears between the words “matter” and “time period” and not the word “or”. Hence it can be contended that only the matter concerning the given time period for which declaration has been made cannot be reopened. Said view is also supported by Sec. 129(2)(b) of the Act. Department can hence issue a show cause notice for the same matter for a subsequent time period or for a different matter for the same time period.

Whether the tax reliefs granted under the scheme are discriminatory?

A thought may visit the mind of the readers pertaining to the quantum of tax relief granted under the scheme not being uniform under various situations. Let us first understand the said point clearly.

Tax dues relating to the show cause notice as well as tax dues relating to matters under appeal (final hearing for both having not taken place on or before 30th June, 2019) as well as tax dues linked to enquiry, investigation or audit (being quantified on or before 30th June, 2019) are all treated at par in terms of relief (i.e., 70%/50%).

On the other hand tax dues on account of amount in arrears are granted relatively lower relief (60%/40%). Also cases of voluntary declaration are not granted any tax relief.

Thus it would seem that the tax relief granted in the situations which are not certain (appeal stage/adjudication stage/enquiry, investigation, audit stage) is higher than the relief granted in situations which are certain (amount in arrears). Further no tax relief is granted for voluntary declaration as the liability was never disclosed till date. Hence it would appear that the distinction sought under the scheme is rational.

However, a deeper study would show some irrationality. Let us say that the person is filing a declaration pertaining to the appeal which has been heard finally as on 30th June, 2019. Said person is clearly in the first category as the tax dues in this case are also uncertain. A factum of final hearing being taken place on or before 30th June, 2019 does not change the uncertainty. Now such person can file the declaration only as amount in arrears on the basis of appeal order issued before making the declaration or either withdrawing the appeal if the appeal order has not been issued till date. Hence such person would get lower relief even though the said case also has equal extent of uncertainty as cases where final hearing have not taken place.

It would be matter of debate whether the embargo linking the relief with the factum of final hearing can be challenged under Article 14 of the Constitution of India as being arbitrary, irrational and not based on intelligible differentia.

Can the declaration be rejected?

Sec. 126(1) of the Act contains provisions related to the verification of the declaration by the designated committee. Sec. 127 provides for the issuance of a statement by the designated committee indicating the amount payable by declarant. Said provisions however do not provide for rejection or setting aside of any declaration filed by the declarant (except Sec. 129(1)(c) as discussed earlier in the case of voluntary disclosure). It would thus appear that if the designated committee finds that the declaration is not maintainable considering the restrictions contained u/s. 125, then probably they would not issue the statement of amount payable.

Circular No. 1072/05/2019-CX dt. 25.09.2019 clarifies at para no. 2(i) that if an ineligible person has filed the declaration such declarations would be treated as void and will not merit consideration under the Scheme. Such persons may be informed of their ineligibility through a letter.

Also only if the amount payable as estimated by the designated committee is found to exceed the amount declared, the designated committee shall grant an opportunity of being heard before finally determining the amount payable.

What is the recourse available to the declarant if the declaration is not accepted as it is by the designated committee?

It is possible that the designated committee may not accept the declaration filed by the declarant by either not issuing the statement of amount payable or issuing the same of higher amount than the amount declared. What is the recourse available to the declarant in such situation?

Before discussing the recourse available, it is important to understand the role of the designated committee while verifying the declarations made under the scheme. In the context of VCES, Bombay High Court in the case of Pace Setter Business Solutions Pvt. Ltd. v. UOI 2017 (52) S.T.R. 11 (Bom.) held as under:

“The authorities need not be so anxious to protect the Government revenue and reject the applications, as are made in the present case by closing the files instantaneously. They have to apply their mind. They must consider the application in accordance with the paragraphs of the scheme. They must pass an order in accordance therewith. In the circumstances, finding that the conclusions reached are unsustainable in law, we quash and set aside the impugned order. We direct that the application shall be considered in accordance with law, as expeditiously as possible. While considering the application, the authorities shall not be influenced by the earlier conclusions. By keeping open all the contentions of the parties for being raised during the course of consideration of the application, we allow the writ petition. No order as to costs.”

Therefore the designated committee must verify the declarations carefully in accordance with the provisions of the scheme. Any action taken without the proper application of mind can be challenged.

None of the provisions in the Act provides for the mechanism permitting filing of appeal before any appellate authority. Can it thus be said that the declarant has no recourse but to accept the statement of amount payable as issued or not issued by the designated committee?

In the context of VCES, it has been held that since VCES is part and parcel of Finance Act, 1994 appeal provisions contained in the said Act would be available to the taxpayer and the order for rejection of declaration can thus be appealed (see Barnala Builders & Property Consultants 2014 (35) STR 65 (P & H); Narasimha Mills Pvt. Ltd. 2015 (39) STR 795 (Mad.); Monitor Services 2014 (36) STR 1230 (Ker)).

It may be noted that the provisions of the present scheme are contained in the Finance Act (No. 2), 2019 and not under the Central Excise Act, 1994 or Finance Act, 1994. The said statement of amount payable has not been issued under the Central Excise Act, 1994 or Finance Act, 1994 but under Finance Act (No. 2), 2019. Hence it would not be possible to contend, as was possible in the context of VCES, that the statement of amount payable issued u/s. 127 of the Act is an order appealable under the Central Excise Act, 1994 or Finance Act, 1994.

Therefore the only recourse available to the declarant shall be to invoke Article 32 or Article 226 of the Constitution of India to seek directions, orders or writs from the Supreme Court or the High Court respectively to get the justice.

Reference here can be made to the decision of Kerala High Court in the case of Monitor Services v. Asst. Comm. 2014 (36) S.T.R. 1230 (Ker.) wherein the Court held that if mechanism to file an appeal were not there in the context of VCES, the petitioner can seek the remedy by invoking writ jurisdiction against an arbitrary and illegal order.

Whether the declaration under the scheme would tantamount to admission of the tax position involved?

It may happen that in order to put an end to litigation, the declarant may make a declaration under the scheme on a certain legal issue. If a declaration is made, will it imply that the declarant has accepted the position of the department? If the answer to this is yes, it would affect the tax position taken by the declarant for the cases (in respect of which declaration is not made given the involvement of material amount) as well as GST legislation (as many provisions in the GST laws are similar to the erstwhile indirect tax enactments).

Sec. 129(2)(a) of the Act provides that no person being a party in appeal, application, revision or reference shall contend that the central excise officer has accepted the decision on the disputed issue by issuing the discharge certificate under this scheme. Hence for other cases the department cannot contend that the issuance of discharge certificate shall tantamount to acceptance of a tax position by the taxpayer. Also the taxpayer cannot contend that the department has accepted the tax position by issuing a discharge certificate.

Said aspect has also been clarified by Circular No. 1071/4/2019-CX.8 dt. 27.08.2019 at para no. 10(a) to the effect that a declaration under the Scheme will not be a basis for assuming that the declarant has admitted the position, and no fresh show cause notice will be issued merely on that basis.

What will be the effect of the declaration on the other tax laws?

The scheme grants relief, benefits and immunities under the indirect tax enactments. Also the scheme does not contain the confidentiality clause which can prevent the sharing of information with other departments. Hence the declarant must assess the consequences of the declaration (especially voluntary disclosure) under other laws (e.g., VAT or Income Tax or Benami Property Law) so as to be determine any further costs/payments.

What is the procedure prescribed under the scheme?

Section 126 to 128 of the Act provides detailed procedure for the scheme.

Where the amount estimated by the designated committee is equal to the amount declared by the declarant, the procedure shall be as under:

Where the amount estimated by the designated committee is higher than the amount declared by the declarant, the procedure shall be as under:

What are the forms under the scheme?

How to file the declaration under the scheme?

Sec. 125(2) of the Act provides that the declaration shall be made in such electronic form as may be prescribed. Rule 3(1) provides that the declaration has to be made online at https://cbic-gst.gov.in in Form SVLDRS-1.

Further as per Rule 4, an auto acknowledgement bearing a unique reference number shall be generated by the system on receipt of declaration.

Whether declaration has to be filed case-wise?

Rule 3(2) provides that a separate declaration shall be filed for each case. Further the word “case” has been defined to mean a show cause notice or one or more appeal arising out of such notice which is pending as on the 30th day of June, 2019. Thus separate declaration has to be filed for every show cause notice (if tax dues pertaining thereto are being declared) as well as for every appeal (if each emanates out of independent show cause notices if tax dues pertaining thereto are being declared). However if one or more appeals have arisen out of a single notice (declarant as well as departmental appeal pending on 30.06.2019), total tax dues have to be considered in a single declaration. The meaning of “case” also means an amount in arrears. Meaning of “case” also includes the amount quantified on or before the 30th day of June, 2019 pursuant to an enquiry or investigation or audit. Therefore separate declaration needs to be filed for declaring the amount quantified pursuant to a particular investigation, enquiry or audit. Separate declaration also needs to be filed for voluntary disclosure.

Whether each return can be considered as a separate case if declaration is made for amount in arrears?

Consider a scenario wherein the declarant has filed three service tax returns on or before 30th June, 2019 admitting the liability but has not paid the same. Now the declarant desires to opt for the scheme. In such scenario is the declarant required to file three separate declarations?

Explanation of the word “case” given under Rule 3(2) means an amount in arrears. Now the definition of “amount in arrears” u/s. 121(c) of the Act in the context of return dues provides that the same shall be the amount of duty which is recoverable on account of “a” return filed wherein he has admitted “a” liability but has not paid the same. Hence the amount of arrears are to be computed individually for each return. Circular No. 1072/05/2019-CX dt. 25.09.2019 at paragraph no. 2(iii) clarifies that if the amount in arrears pertains to a return, a separate declaration will need to be filed for each such return.

What are the contents to be filled in Form SVLDRS-1?

As discussed earlier, the declaration has to be made in Form SVLDRS-1 online. Also separate declaration needs to be made for every case. With the said knowledge, we shall now discuss the Form SVLDRS-1. Online process of filing will be discussed later.

Form SVLDRS-1 comprises of three parts as under (it would be helpful if the reader refers to the form while reading this part for better understanding):

Part A – It contains the basic information of the declarant such as whether the declarant has Central Excise or Service Tax Registration No. or not; Name of the Declarant; Address of the declarant; Pin Code; Mobile Number; E-mail; PAN as well as the Commissionerate.

Part B – Discussion serial number wise is as under:

1. Sr. No. 1 to 7 of the said Part B also contains details of the declarant including the Central Excise or Service Tax Registration No. if the declarant was registered.
2. Sr. No. 8 contains certain questions pertaining to the restrictions contained u/s. 125(1) of the Act. We have already discussed the said restrictions at length earlier and hence the readers may refer the same while answering the questions given in the said Sr. No. 8.
3. Sr. No. 9 contains the details about the category of application. As noted earlier separate declaration has to be filed for every case. Hence for a given case the declarant has to first decide the category under which it would fall and furnish the details in this regard. As an example if the declaration is with respect to pending appeal, details of the said appeal including the OIO No. and date needs to be furnished. The purpose for said details would be not only to entail verification by the designated committee but also aid in withdrawal of the appeal.
4. Sr. No. 10 deals with the question as to whether the declarant agrees with the amount of tax dues less tax relief as computed by the system. Sr. No. 11 provides space for stating the reasons for the disagreement. Accordingly Sr. No. 12 provides space for stating the amount of tax dues less tax relief as per the calculation of the declarant. It is presumed that the designated committee will consider the deviation and appropriately issue the statement of amount payable based on the provisions of the Act.

Part C – It contains verification clause to the effect that the declarant has read and understood the provisions related to the scheme and agrees to abide by it. It also seeks verification to the effect that the information given in the declaration is correct and complete and the amount of tax dues and other particulars shown therein are truly stated. It ends with the clause stating that the declaration shall pay the amount as may be determined by the Designated Authority under the Scheme.

Whether revised declaration can be filed?

A need for revision may arise on account of incorrect amounts being stated in the declaration or even in respect of the incorrect category under which it has been filed (e.g., arrears of tax instead of pending appeal). There could also be many other reasons for incorrect filing of the declaration. It may be noted that none of the provisions of the Act permit revision of the declaration.

If the statement of amount payable is issued correctly, the need for revision may not arise. If the same is not issued correctly, recourse can be sought u/s. 128 seeking rectification of statement of amount payable. In all other cases only option available would be to file another declaration online with a formal request (to be submitted manually) for ignoring the earlier declaration. Said course of action is not expressly prohibited under the Act.

How will the declaration be verified?

Sec. 126(1) of the Act provides that the correctness of the declaration made shall be verified by the designated committee in the manner prescribed. Rule 6(1) hence provides that the declaration shall be verified by the designated committee based on the particulars furnished by the declarant as well as the records available with the Department.

Above referred provision also provides that the verification of a voluntary disclosure shall not be made as it would not be possible for the designated committee to carry out the same based on declaration. Said provision needs to be understood in light of Sec. 129(2)(c) of the Act dealing with setting aside the declaration under voluntary disclosure category in certain circumstances. Readers may refer the discussion on the said issue in this book.

What shall be the composition of the designated committee?

Sec. 126(2) of the Act provides that the composition and functioning of the designated committee shall be such as may be prescribed.

Rule 5 provides that the designated committee shall comprise of two members. Designated committee verifying the tax dues declared exceeding INR 50 lakhs shall comprise of Principal Commissioner or Commissioner and Additional Commissioner or Joint Commissioner. In respect of declared tax dues of INR 50 lakhs or less, the designated committee shall comprise of Additional Commissioner or Joint Commissioner and the Deputy Commissioner or Assistant Commissioner. Further there shall be only one such designated committee in a given Commissionerate of Central Excise and Service Tax.

A separate designated committee shall also be constituted comprising of Principal Additional Director General (Adjudication) or Additional Director General (Adjudication) (DGGI) and Additional Director or Joint Director (DGGI).

Paragraph No. 10(k) of Circular No. 1071/4/2019-CX.8 dt. 27.08.2019 clarifies in this regard that in respect of matters under investigation by DGGI, there may be cases where the duty quantified relates to more than one Commissionerate. In such cases, the Designated Committee of the Commissionerate involving the maximum amount of duty will decide the case. Further, in other cases of DGGI wherein the show cause notice that has been issued covers more than one Commissionerate, a common adjudicator will be appointed under intimation to the Chief Commissioner concerned and DG Systems so the Designated Committee of that Commissionerate can finalize this matter.

What is the meaning of the term “amount payable”?

The word “amount payable” has been defined u/s. 121(e) of the Act to mean the final amount payable by the declarant as determined by the designated committee and as indicated in the statement issued by it, in order to be eligible for the benefits under this Scheme and shall be calculated as the amount of tax dues less the tax relief. Readers may also refer the question on the aspect of adjustment of deposit / pre-deposit in this regard as the same would also be deducted to arrive at the amount payable.

The term “amount payable” can briefly be explained as under:

When will the designated committee issue the statement of amount payable?

Once a declaration has been filed u/s. 125(2) of the Act, the same shall be verified u/s. 126(1) of the Act by the designated committee (except voluntary disclosures).

If the amount payable estimated by designated committee equals the amount declared by the declarant, a statement indicating the amount payable shall be issued in electronic form in Form SVLDRS-3 within a period of 60 days from the date of receipt of the declaration.

The proviso to Rule 6(2) provides that no statement shall be issued in case where the amount payable as determined by the designated committee is nil and no appeal is pending pertaining to the case declared in the High Court or the Supreme Court.

The amount payable can be nil in following situations:

1. Relief is sought in terms of late fee or penalty u/s. 124(1)(b) (tax dues relatable to show cause notice (matter may be under adjudication or appeal) for late fee or penalty where amount of duty is either nil or stands paid).
2. After deducting the amount paid as pre-deposit at any appellate stage or as deposit during enquiry, investigation or audit, the amount payable is nil. It may be noted that
   Sr. No. 9 of Form SVLDRS-1 provides for mentioning the said pre-deposit / deposit amount and thereafter the amount payable is calculated.

Even though the amount payable in a given case is “nil” due to aforesaid reasons, the statement would still be issued if the appeal in the given case is pending in a High Court or the Supreme Court. This is because Sec. 127(7) of the Act seeks production of proof of withdrawal of a writ petition or appeal or reference filed before any High Court or the Supreme Court against any order in respect of which the tax dues are declared. Hence even if the amount payable is nil, the statement would be issued to ensure compliance with the said provision.

Thus in cases where the amount payable is nil and no appeal is pending pertaining to the case declared in the High Court or the Supreme Court, statement of amount payable would not be issued and therefore directly the procedure for issuing discharge certificate would set in.

What are the contents of Form SVLDRS-3?

Statement of amount payable will be issued by the designated committee in Form SVLDRS-3.

Said form contains the declaration number (given by the system on filing the declaration) as well as SVLDRS-3 number. The statement of amount payable in form SVLDRS-3 would also have a unique number for reference during issuance of discharge certificate.

Form provides for the table stating the category, description of goods/services involved with respect to tax dues declared, matter involved, time period, amount of tax dues, tax relief granted, pre-deposit / deposit amount paid earlier and finally the amount payable.

Said form also contains notes as under:

Note on payment: The form provides a note to the effect that the Declarant is hereby directed to make payment of the amount payable within thirty days from the date of this Statement. This is in line with Sec. 128 which provides for payment within 30 days. We shall discuss this aspect in detail later.

Note on withdrawing writ petition/appeal reference: Said note provides that the Declarant has to withdraw the writ petition/appeal/reference before ............ (mention the name of the High Court) High Court or the Supreme Court against any order in respect of the tax dues and furnish the proof of such withdrawal in accordance with the provisions contained in sub-section (7) of section 127 of the Act.

Said form also provides challan link facility as well as document upload facility for proof of withdrawal of case to be acted upon by the declarant post the issuance of the statement of amount payable.

When will the appeal/reference/writ said to have been withdrawn?

Sec. 127(6) of the Act provides that in cases where the declarant has filed an appeal or reference or a reply to the show cause notice against any order or notice giving rise to the tax dues declared under the scheme, it shall be deemed that such appeal, reference or reply have been withdrawn. Thus discharge certificate shall be issued on furnishing the proof of payment only. However such deeming withdrawal would not apply to appeal/reference/writ pending before the High Court/Supreme Court. In such case, the declarant would be required to withdraw the same with the leave of the Court and will have to furnish the proof of such withdrawal along with the proof of payment to obtain the discharge certificate.

An issue may arise pertaining to the departmental appeal/reference with respect to the tax dues declared. Circular No. 1072/05/2019-CX dt. 25.09.2019 at paragraph no. 2(ii) clarifies that deemed withdrawal will also be applicable for departmental appeals pending before the appellate forum other than High Court/Supreme Court. Where a departmental appeal, reference or writ petition is pending before the Supreme Court or High Court, the department will file an application for withdrawal of such appeal, reference or writ petition after issuance of the discharge certificate.

How to deduct the pre-deposit / deposit to derive the amount payable?

Readers would be aware that there was a mechanism for payment of the deposit (at the discretion of the appellate authorities) or mandatory pre-deposit under the indirect tax enactments as part of the appellate process to obtain the stay from the recovery of dues while admitting the appeal. Said deposit or pre-deposit was refundable on favourable disposal of the appeal in question.

Deposits were also made during any enquiry, investigation or audit either at the behest of the department or at the discretion of the tax payer.

Sec. 124(2) provides that the relief to be calculated shall be subject to the condition that the amount paid as deposit or pre-deposit shall be deducted when issuing the statement indicating the amount payable by the declarant. In other words, only the net amount shall be payable. This can be understood by way of following example.

Let us say the tax dues in question are INR 100 and the pre-deposit made is INR 10. Assuming that the tax payer declaring the said dues is eligible to make a declaration, the relief to be calculated and the amount payable shall be as under:

Relief to be given (assuming that relief entitled is 70%): INR 70 (70% of tax dues INR 100)

Amount payable: INR 20 (INR 100 – INR 70 (relief)) – INR 10 (pre-deposit))

Hence the statement of amount payable shall be for INR 20 after adjusting the pre-deposit.

Readers may also refer to the question discussed earlier in the book in the context of adjustment of deposit/pre-deposit for determining the relief as well as the amount payable under the amount in arrears category.

Can a declarant get refund in case where pre-deposit / deposits exceeds the amount payable under the scheme?

The proviso to the said Sec. 124(2) provides that if the amount of deposit or pre-deposit exceeds the amount payable, declarant shall not be granted refund of the excess amount paid.

Further reference is invited to Sec. 130(2) of the Act which also provides that in case any pre- deposit / other deposit already paid exceeds the amount payable as indicated in the statement of the designated committee, the difference shall not be refunded.

Thus in given example if the pre-deposit already paid was INR 40, no amount shall stand payable and excess amount paid (INR 10) shall not be refunded.

It may be noted that the deposit/pre-deposit is merely a payment to avail the right of appeal and does not partake the character of duty unless the same is appropriated against the dues. Hence a view can be taken that the excess deposit/pre-deposit not appropriated against the amount payable under the scheme should be returned to the taxpayer. Hence an application can be made after the issuance of discharge certificate for the return of the excess deposit and not for refund of any duty.

Whether the amount paid on or after 5th July 2019 (not strictly as deposit / pre-deposit) can be deducted while arriving at the amount payable?

Sec. 124(2) of the Act provides that any amount paid as pre-deposit at any appellate stage or as a deposit during enquiry, investigation or audit shall be deducted to arrive at the amount payable. Issue may thus arise in a situation wherein after the announcement of the said scheme (5th July), a person might have paid the amount of tax before making the declaration under the scheme. In such scenario can the person, seeking the deduction of the said amount while making the declaration, contend that the amount payable is nil? It may be noted that Sec. 124(2) as well as the design of the form only enables deduction of the amount paid earlier as deposit/ pre-deposit.

Similar issue also arose before Gujarat High Court in the case of Sadguru Construction Co. v. UOI 2014 (36) S.T.R. 3 (Guj.) in the context of VCES. In the said case certain amounts were paid after the introduction of the Finance Bill proposing the scheme under duress and were never offered as tax by the petitioner. Department denied the deduction of the said amounts on the ground that payment was done before the enactment of the VCES. Court held as under:

“17. In the present case, admittedly the disputed amount of taxes were deposited by the petitioners with the department after 1-3-2013. However, the same having been deposited before 10-5-2013 that is the date on which the scheme was framed, the department contends that such amount cannot form part of the declaration under the Scheme. In our opinion, the contention ignores the statutory provisions contained in the Scheme of 2013. As we have noticed, the declaration can be made in terms of Section 106 of tax dues. The term “tax dues” is defined in Section 105(1)(e). If we accept the stand of the department that any tax which is deposited before 10-5-2013 cannot form part of a declaration, the same would substantially mutilate the definition of term “tax dues” contained in Section 105(1)(e). If the intention of the Legislature was to exclude any tax deposited before the framing of the scheme, the same could have been provided in plain language …….

19. There is one more reason why the said clarification would not cover the case of the petitioners. The query was concerning a person who has made payment of his tax dues before the Scheme was framed. In the present case, the amount of Rs. 35.51 lakhs deposited after 1-3-2013 at the relevant time was never offered as a tax by the petitioners. The same was only deposited under duress.”

Hence it was held that even the amounts paid between 1-3-2013 (date of Finance Bill proposing VCES) and 10-5-2013 (date of actual implementation of VCES) has to be considered under the scheme.

Based thereon it can be contended that even the amount paid in the anticipation of the enactment of the scheme, after its announcement by way of a proposal in Finance Bill, for seeking the benefit under the scheme has to be considered as a deposit only as the said amount is never declared as payment of tax by the person in question. Hence view may be taken that amount paid on or after 5th July, 2019 (date of Finance Bill (No. 2), 2019 proposing the present scheme) should be deducted while deriving the amount payable u/s. 124(2) of the Act.

Whether relief can be claimed under the scheme pertaining to the dues already paid on or before 5th July, 2019 and matters closed?

Based on above discussion, it would also emerge that amount paid before 5th July, 2019, not in the nature of deposit / pre-deposit, would not be covered under the scheme. Consequently even the tax dues (already admitted) relating thereto would not get any benefit under the scheme because these are not the tax dues which are recoverable by the Government on account its payment being already made (see the definition of amount in arrears u/s. 121(c)) and the matters being closed.

Reliance can be placed on the decision of Karnataka High Court in the case of Shashi Distilleries v. State of Karnataka (2007) 10 VST 264 (Kar) wherein it was held that as the petitioner had paid taxes and interest before the date of the Budget speech, he cannot be considered as defaulter and hence cannot avail the benefit of Kara Samadhama Scheme. It was also held that such discrimination not granting benefit is not discriminatory between the defaulters inter se or non-defaulters inter se. Therefore even in the present scheme no relief shall be granted if entire dues stands paid and matters are closed before the announcement of the scheme.

Can the pre-deposit / deposit paid through CENVAT Credit be deducted for determining the amount payable?

A situation may arise wherein the declarant might have paid the pre-deposit or deposit by way of debiting the available CENVAT credit. Whether such pre-deposit or deposit can be deducted while calculating the amount payable?

Sec. 124(2) of the Act provides that amount paid as pre-deposit / deposit at any stage of appellate process or during enquiry, investigation or audit shall be deducted while issuing the statement of amount payable. Thus said provision provides for the deduction of the amount paid as pre-deposit / deposit irrespective of the manner in which the said amount would have been paid.

Hence it can be contended that pre-deposit / deposit paid through CENVAT Credit shall also be deducted while issuing the statement of amount payable.

Reference is also made to paragraph 10(c) of circular No. 1071/4/2019-CX.8 dt. 27.08.2019 wherein the above expressed view has also been confirmed.

Can the amount paid under the wrong head (e.g., interest and penalty as against tax) be deducted?

It may happen that a person (ignorant of the scheme) might have paid the part of the tax dues along with interest and penalty. Subsequently on becoming aware of the scheme, such person makes a declaration of the tax dues to claim relief accorded by the scheme and also seeks adjustment of the amount paid earlier under the head of “interest” or “penalty” from the amount payable under the scheme by considering the same as deposit. Can the designated committee restrict such adjustment on the ground that Sec. 124(2) of the Act only permits adjustment of the pre-deposit / deposit of tax?

Similar issue arose before Gujarat High Court in the case of Ask Me Enterprise v. UOI 2015 (40) S.T.R. 1041 (Guj.) in the context of VCES. The Court held as under:

“18. In the present case, it was after the introduction of the scheme, that the petitioner in ignorance of the scheme paid the amount payable towards service tax, penalty and interest in relation to four revenue paras. At that point of time, the respondent authorities did not draw the attention of the petitioner to the fact that it could avail of the benefit of the scheme. However, well within the time limit prescribed under the Scheme, the petitioner in due compliance with the provisions of the Section 107 of the Act, submitted a declaration under sub-section (1) thereof and paid more than fifty per cent of the tax dues before 31st December, 2013 as required under sub-section (3) thereof and in order to comply with the provisions of sub-section (4), viz. payment of the remaining amount, requested for adjustment of an amount of
Rs. 6,36,103/- paid under the wrong accounting code of interest and penalty to the correct code of Service Tax, which request was duly acceded to by the respondent authorities and such correction was made before 30th May, 2014. Under the circumstances, when the entire amount as contemplated under the scheme stood paid before the due date and the petitioner satisfied all other requirements under the scheme, the respondents are not justified in denying the benefit of the scheme to the petitioner only on the ground that the amount of Rs. 6,36,103/- had initially been paid towards the interest and penalty. The impugned communication/order which seeks to deny the benefit of the scheme to the petitioner under such hyper-technical plea, therefore, cannot be sustained.”

Thus it can be contended that even the adjustment of the amount paid as interest or penalty due to ignorance of the scheme should be granted while computing the amount payable.

What happens if amount payable as estimated by the designated committee exceeds the amount declared?

If the amount estimated by the designated committee exceeds the declared amount, Sec. 127(2) of the Act provides that the designed committee shall issue an estimate of the higher amount found payable. Further Sec. 127(3) provides that an opportunity of hearing should be granted to the declarant to defend his declaration. Rule 6(3) provides that the statement of the amount payable, which has been estimated on the higher side by the designated committee should be communicated within 30 days from the date of receipt of declaration in Form SVLDRS-2 along with a notice of opportunity for personal hearing.

Perusal of said Form SVLDRS-2 would reveal that it contains a similar table as that discussed in form SVLDRS-3 however with a notice calling for hearing to show cause as to why the higher amount payable as estimated by the designated committee should not be accepted.

Subsequent to the issue of Form SVLDRS-2, the designated committee shall give an opportunity of being heard to the declarant, if he so desires. Declarant can seek only one adjournment when the hearing is called. Adjournment shall be granted electronically in Form SVLDRS-2B. Once the said opportunity is exhausted, the statement of the amount payable shall be issued as per Sec. 127(4) considering submissions, if any, made by the declarant. Rule 6(4) & (5) provides that the submissions or waiving personal hearing or seeking an adjournment against the notice issued in Form SVLDRS-2 needs to be made electronically in Form SVLDRS-2A. Said form provides for making submission, uploading any documents as well as waiving personal hearing or seeking of an adjournment.

After considering the submissions made, if any, designated committee shall issue the statement of amount payable in Form SVLDRS-3. Same is provided under Rule 6(2) as discussed earlier. Also if the declarant does not appear for personal hearing after the adjournment, the designated committee shall decide the matter based on available records.

It may also be noted that the outer time limit of issuing the statement of amount payable shall remain to be 60 days from the date of receipt of the declaration even in such situations where the estimated amount payable is higher.

Can one rectify any errors in the statement of the amount payable?

Sec. 128 of the Act provides that the modification of the statement (although referred as an “order” in said section) of the amount payable shall be permitted only within 30 days of its issuance only to correct an arithmetical error or clerical error which is apparent on the face of record . The words “arithmetical error or clerical error” has not been defined in the Act. We shall hence resort to their meaning by referring to other sources.

The words “arithmetical mistake” has been defined as a mistake of calculation (see Master Construction Co. P Ltd. v. State of Orissa AIR 1966 SC 1047). Similarly “clerical error” has been defined as a mistake in writing or typing occasioned by an accidental slip or omission (see Sooraj AIR 1981 SC 736).

Thus it can be said that the words “arithmetical error or clerical error” would mean only those errors which do not require any further discovery of any facts, arguments or disputations. An omission to properly consider the legal provisions of the scheme by the designated authority cannot be considered as an “arithmetical error or clerical error” (see S. Barrow v. State of UP AIR 1958 All 154).

The rectification of the statement of amount payable once issued can be done only in the limited situations of any “arithmetical error or clerical error” in the said statement. Further such rectification of error can be carried out on it being point out by the declarant or even suo motu by the designated committee.

In absence of any prescribed form to communicate such error by the declarant, it is suggested that the same should be communicated by way of a letter citing the reference to the statement of the amount payable as issued by the designated committee.

Rule 6(6) in this regard provides that a revised statement of amount payable in Form SVLDRS-3 would be issued by the designated committee for such corrections.

What is the time limit for paying the amount payable under the scheme?

Sec. 127(5) of the Act read with Rule 7 provides that the amount payable as per the statement needs to be paid electronically through internet banking within a period of 30 days from the date of issue of statement of amount payable in Form SVLDRS-3.

The statement of amount payable in Form SVLDRS-3 would be issued electronically and hence the time limit of 30 days would start from the date of its issuance.

Also in cases where the statement of amount payable in Form SVLDRS-3 is modified due to arithmetical or clerical errors, clarity is required as to whether the period of 30 days would start from the date of original Form SVLDRS-3 or modified Form SVLDRS-3. This is more so because the time limit to modify Form SVLDRS-3 is also 30 days from its issuance. Hence if the modification is done on the last day, there would not be time left for making the payment. Therefore reasonable interpretation would be to consider the 30 days’ time limit for making the payment from the date of modification of Form SVLDRS-3 for the differential dues.

Whether it is sufficient if the amount payable is debited in the bank account of the declarant within 30 days even if the credit to the Government account happens post the period of 30 days?

Sec. 127(5) of the Act as well as Rule 7 only provides for making the payment within 30 days and not the credit thereof to the Government within the said period. Hence a view can be taken that it would be sufficient compliance if the amount stands debited in the bank account of the declarant.

One may also rely on the decision of Delhi High Court in the case of Disha Securities and Manpower Pvt. Ltd. 2016 (43) S.T.R. 82 (Del.) wherein the date of presentation of cheque to the bank was considered as the date of payment even though the realization of the same happened after the due date for making the payment under VCES.

However under the present scheme as only payment through internet banking is allowed such issue may not arise.

Can the amount determined as payable be paid from CENVAT Credit or Input tax credit?

Sec. 127(5) of the Act only permits payment through internet banking. Further Sec. 130(1)(a) of the Act provides that the payment cannot be made through the input tax credit account under the previous regime or under any other Act (purportedly covering GST laws). Hence it can be concluded that even the balance available in GST electronic credit ledger (CGST or IGST) or CENVAT credit cannot be used for making payment under the scheme.

Can amount payable under the scheme be paid in instalments or be delayed?

There is no provision in the scheme to enable the payment in instalments. At the best, filing of the declaration may be delayed (but within the purview of limit of 31.12.2019) to make the necessary arrangement of the funds.

Reference here is also invited to the decision of Jharkhand High Court in the case of Manpreet Engineering & Const. Co [2016 (44) S.T.R. 384 (Jhar.) in the context of VCES. In the said case, the declarant failed to pay the entire first instalment of 50% within the stipulated time limit. Subsequently the short paid amount was duly paid with interest. It was thus contended that the benefit under the VCES should not be denied. The Court held as under (only relevant portion):

“The scheme is nothing but a policy decision of Union of India and this court will be extremely slow and careful in making further liberal interpretation of the VCES, 2013, because this court is not sitting in appeal against the said scheme nor this court can replace an existing scheme with a better one. The clauses of VCES, 2013 cannot be changed by this court. If Section 107(3) directs the declarant to make the payment of at least 50% of the service tax so declared under sub-section (1) of Section 107, to be paid on or before December, 2013, court cannot give further instalment in the first instalment to the effect that part of the payment can be made on or before 31st December, 2013 and the remaining amount can be paid later on. This is not permissible while exercising powers under Article 226 of the Constitution of India.

In a taxing statute interpretation ought to be made strictly. Court can neither replace all these clauses of VCES, 2013 nor can further instalments be given by the court in exercise of powers under Article 226 of the Constitution of the India. The so called theory argued by the counsel for the petitioner, viz. ‘substantial compliance’ has no place in a taxing statute, otherwise every declarant or assessee will partly comply with a scheme or provision of the taxing statute and will say that there is substantial compliance, which will lead to nothing but chaos and court cannot be a party to this.

Likewise, ‘No prejudice’ theory in the payment of taxes cannot be advanced by the erring assessee or erring declarant. There is no question of any prejudice caused to the Union of India and once the clauses of the VCES, 2013 is violated, the declarant is not entitled to get benefit of the said scheme.

As submitted by the counsel for the petitioner, some errors might have been committed by the department in case of one or two declarant, but no benefit of those errors can be extended to the present petitioner because there is no equality in illegality committed by this respondent.”

Thus the Court held that the provisions of the scheme ought to be interpreted strictly and the substantial compliance theory would have no applicability. Further Courts cannot grant any instalments for payment of the dues under VCES which are not granted by the Act. Said ruling has also been maintained by Supreme Court (2017 (47) S.T.R. J160 (S.C.). Reference can also be made to the decision of Kerala High Court in the case of Kasmisons Builders Pvt. Ltd. v. Assistant Commissioner (2016 (43) S.T.R. 348 (Ker.) as well as Gujarat High Court in the case of Ramilaben Patel v. UOI 2014 (35) S.T.R. 695 (Guj.) wherein also the rejection of declaration on account of delayed payment (whether bona fide or not) was confirmed.

On the contrary Allahabad Tribunal in the case of Promind Solutions P. Ltd. v. CCE (2016 (43) S.T.R. 257 (Tri. - All.) held that the declaration cannot be rejected on mere failure to pay a small amount (Rs. 1349 in this case) within the stipulated time more so when the said amount was paid voluntarily with interest before the issuance of any notice by the department. Further Calcutta High Court in the case of Navodaya Consultants Ltd. v. Asst. Comm. 2016 (41) S.T.R. 607 (Cal.) directed the Secretary, Department of Revenue, Ministry of Finance to consider the unique situation, wherein the application under VCES was rejected merely on failure to pay a very small amount of Rs 439 within the due date, and pass appropriate order with cogent reasons.

Be as it may, based on rulings of superior courts, it can be contended that the payment by way of instalments cannot be sought under the present scheme. Also the benefit of the scheme may be denied if the payment is delayed irrespective of the reasons.

What if the amount is not paid within 30 days?

There is no provision in the scheme which permits making any application for seeking extension of time. Hence if the amount is not paid within 30 days, the declaration shall become void and necessary actions under the law shall be undertaken by the department. Courts in the past have also viewed such condition very strictly and have not been inclined to grant additional time (ref. detailed discussion on whether instalment can be granted under the scheme).

Paragraph 10(j) of circular No. 1071/4/2019-CX.8 dt. 27.08.2019 clarifies that if the declarant does not pay the amount within the stipulated time, due to any reason, the declaration will be treated as lapsed. In cases where voluntary declarations have been filed, the department may initiate proceedings for recovery of tax as per statutory provisions.

Also the appeals pending before the appellant forum which have been withdrawn would require restoration. In absence of any provision in the Act enabling automatic restoration, a separate application may have to be made before the appellant forum (High Court and Supreme Court) seeking the restoration of the appeal.

How will the discharge certificate be issued?

To obtain the discharge certificate as a conclusive proof of the declaration made and the reliefs granted, Sec. 127(6) & (7) provides for things required to be done apart from making the payment within the stipulated period of 30 days.

Sec. 127(6) deals with a situation where declaration is with respect to an appeal or a reference or a reply against a show cause notice, before the appellate forum other than Supreme Court or the High Court. Hence a positive act of withdrawal of the reply, appeal or reference is not warranted.

However Sec. 127(7) provides that in cases where the declaration pertains to a writ petition or appeal or a reference before any High Court or the Supreme Court, the declarant shall file an application before such High Court or the Supreme Court for withdrawing such writ petition, appeal or reference and after withdrawal of such writ petition, appeal or reference with the leave of the Court, he shall furnish proof of such withdrawal with the leave of the Court to the designated committee along with the proof of payment.

Rule in the said context provides that the proof of withdrawal of appeal or writ petition or reference before a High Court or the Supreme Court, as the case may be, under sub-section (7) of section 127 shall be furnished electronically by the declarant.

Is there any time limit for furnishing the proof of payment / withdrawal of writ / appeal / reference for obtaining discharge certificate?

Sec. 127(5) of the Act only provides for making the payment within 30 days from the date of issuance of the statement of the amount payable. No provisions in the Act provides for any time limits for furnishing the proof of such payment along with the withdrawal of writ/appeal/reference for obtaining discharge certificate. Hence it must be submitted within reasonable time. This is more so because withdrawal of writ/appeal/reference with the leave of the Court may not be obtained in the short span of time. However discharge certificate will be issued only after furnishing of the said proof.

When will the discharge certificate be issued?

Sec. 127(8) of the Act provides that the designated committee shall issue a discharge certificate within 30 days from the payment and the production of the proof thereof along with the proof of withdrawal of appeal, wherever applicable (applies only if writ petition, appeal or reference is pending before High Court/Supreme Court and tax dues this regard are declared).

Rule 9 in this regard provides that the discharge certificate shall be issued in Form SVLDRS-4 within thirty days of the payment and submission of the proof of withdrawal of appeal, whichever is later. Hence if proof of withdrawal of appeal is submitted after making the payment, discharge certificate shall be issued within 30 days of the submission of such proof.

Proviso to Rule 9 further provides that where the statement of amount payable is not issued (as the amount payable is nil), discharge certificate shall be issued within 30 days of filing the declaration.

What are the contents of the discharge certificate?

As stated in Rule 9, discharge certificate shall be issued in Form SVLDRS-4. Said form shall be issued electronically. Perusal of the said form would reveal that it contains the reference of the declaration number (submitted in Form SVLDRS-1) with respect to which the discharge certificate is being issued. It also contains the all the details related to the category, description of goods/services, matter involved, time period, tax dues, tax relief, pre-deposit or deposit paid earlier as well as the amount payable. Said details would be similar to the one stated in Form SVLDRS-3 (statement of amount payable), wherever issued or Form SVLDRS – 1 (if statement of amount payable is not issued due to nil tax dues and withdrawal of appeal is not required).

It also then provides for the deemed withdrawal of appeal (pending before Commissioner (Appeal) or the CESTAT) or statement of fact as to the furnishing of the proof by the declarant of the withdrawal of writ petition/appeal/reference pending before High Court/Supreme Court; if the declaration is filed for aforementioned cases.

Said form then provides for the immunity granted u/s. 129(1) of the Act with a declaration that sections 129 and 131 of the Act (dealing with certain restrictions under the scheme after issuance of discharge certificate – discussed separately in this book) shall apply with respect to the given discharge certificate.

How shall the filing of various forms pertaining to the scheme happen online?

We have already discussed the contents of various forms under the scheme at appropriate places. For online filing process, readers are suggested to refer to the PPT hosted at http://www.cbic.gov.in/htdocs-servicetax/Legacy-Dispute.

What shall be the consequences on issuance of discharge certificate?

Sec. 129(1) of the Act provides for the consequences on issuance of discharge certificate. Issuance of discharge certificate would mean that the declarant is not liable to pay any further duty, interest, or penalty with respect to the matter and time period covered in the declaration. Further such declarant shall also not be liable to be prosecuted under the indirect tax enactment with respect to the matter and time period covered in the declaration. Also the matter and the time period covered by such declaration shall not be reopened in any other proceeding under the indirect tax enactment.

Thus immunity from further duty, interest, penalty or prosecution as well as non-reopening pertaining to the matter and the time period declared shall be granted.

It may be noted that the reference u/s 129(1) of the Act to the fact that the discharge certificate is issued u/s 126 is erroneous. This error has crept in because as per the provisions of the Finance Bill (No. 2), 2019 clause 126 initially contained the provisions related to discharge certificate (which now appear as Sec. 127 in the Act).

Can the amount paid under the scheme be availed as input tax credit?

Sec. 130(1)(c) of the Act provides that any amount paid under the scheme shall not be taken as input tax credit or entitle any person to take input tax credit as a recipient of the excisable goods or taxable services, with respect to the matter and time period covered in the declaration.

Consider a situation wherein the declarant has issued invoices levying service tax but did not pay the same. Said amount was declared in the returns filed on or before 30th June, 2019 as payable. Now said tax dues are declared under the scheme and hence relief in terms of partial tax dues along with any interest has been claimed. Now the issue to consider is whether the recipient who would have availed CENVAT credit of such service tax charged on the invoice is required to reverse the same or pay the same on account of the above referred provisions.

The above referred provisions only restricts input tax credit to the recipient of the amount paid under the scheme. The recipient in our example has availed CENVAT credit reflected on the invoices issued to him and not of the amounts paid under the scheme. Hence it can be contended that the recipient in our example would not get covered by the referred provisions and will thus not be required to reverse or pay any CENVAT credit claimed earlier. Said restriction seems to have been drafted in the context of voluntary disclosure so as to restrict the availment of credit by any person of such tax dues declared.

Can refund be sought of any amount paid under the scheme?

Sec. 130(1)(b) of the Act provides that the refund of any amount paid under the scheme shall not be permitted. Please also refer to our earlier discussion regarding the refund of the amount of any excess deposit/pre-deposit paid earlier.

What are the powers granted to the Government to make the Rules?

Sec. 132(1) of the Act grants power to the Government to make rules for the purpose of carrying out the provisions of the scheme.

High Court of Hyderabad (as in existence at relevant time) held in the case of Bagga B. Murhar Rao (AIR 1956 Hyd 35) that where rules are to be framed for “carrying out the purpose of the act”, such rules cannot travel beyond the four corners of the Act itself.

Thus the general rule making power granted by Sec. 132(1) of the Act has to be exercised within the four corners of the Act.

Sec. 132(2) of the Act further provides that rules can be formulated for the specific matters listed therein. This power in addition to the general power granted by Sec. 132(1) as discussed above.

It is in exercise of the said provisions that Notification No. 05/2019 Central Excise-NT dt. 21.08.2019 has been issued prescribing the Sabka Vishwas (Legacy Dispute Resolution) Scheme Rules, 2019.

What are the powers granted to the Board to issue orders, instructions etc.?

Sec. 133(1) of the Act grants power to the Board to issue orders, instructions and directions to the authorities, as it may deem fit, for the proper administration of the scheme.

The Supreme Court in the case of Keshavji Ravji & Co. v. CIT (1990) 183 ITR 1 has held as under with respect to the scope and ambit of a provision of the Act granting the power to issue Circular/Orders/Instructions:

“This contention and the proposition on which it rests, namely, that all circulars issued by the Board have a binding legal quality incurs, quite obviously, the criticism of being too broadly stated. The Board cannot pre-empt a judicial interpretation of the scope and ambit of a provision of the ‘Act’ by issuing circulars on the subject. This is too obvious a proposition to require any argument for it. A circular cannot even impose on the tax-payer a burden higher than what the Act itself on a true interpretation envisages. The task of interpretation of the laws is the exclusive domain of the courts. However, this is what Shri Ramachandran really has in mind - circulars beneficial to the assessees and which tone down the rigour of the law issued in exercise of the statutory power under section 119 of the Act or under corresponding provisions of the predecessor Act are binding on the authorities in the administration of the Act. The Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the benefits of such circulars to the assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. There is, however, support of certain judicial observations for the view that such circulars constitute external aids to construction.”

Supreme Court relied on their earlier judgment in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC) wherein it has been held that the beneficial circulars are in the nature of concessions. Therefore it can be contended that the power to issue circular/order/instructions cannot pre-empt a judicial interpretation. However the circulars beneficial to assesses and which tone down the rigour of the law shall be binding on the authorities including the Courts (as they can constitute it as an external aid to construction).

Also Constitution Bench of the Supreme Court in the case of CCE v. Ratan Melting & Wire Industries (2008) 231 ELT 22 held as under with respect to the binding nature of circulars/clarifications issued by the Board:

“Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.”

From the aforesaid discussions one can contend that Sec. 133 of the Act permits the Board to issue circulars/orders/instructions for the administration of the scheme. Moreover such circulars/orders/instructions shall bind the authorities and not the declarant. However if such circulars/orders/instructions are beneficial to the declarant and remove a rigour in the provisions of the Act, same shall be considered as an external aid in the interpretation of the provisions by the Courts.

What are the powers granted by the Act to remove difficulties?

Sec. 134 of the Act grants power to the Government to issue order to remove the difficulty arising to give effect to the provisions of the scheme provided that same is not inconsistent with the provisions as contained in the Act.

The term “difficulty” has been defined to mean something which is hard to overcome (see Oxford Dictionary). Hence Sec. 134 permits the Government to issue orders extending the end date for the scheme, etc.

What are the protections available to the officers?

Sec. 135 of the Act grants protection to the officers for the actions taken by them in pursuant to the scheme if such actions were undertaken in good faith and there is no evidence of misconduct.