Facts of the Case

The petitioner, IBM India Private Limited, approached the Karnataka High Court challenging an email/communication dated 11 March 2020 issued by Respondent No. 4, whereby its declaration under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDR Scheme) was rejected.

A show cause notice dated 27 March 2019 had earlier been issued by the respondents to the petitioner. Subsequently, the SVLDR Scheme came into force with effect from 1 August 2019.

The petitioner submitted a declaration in Form SVLDRS-1 on 19 December 2019. The said declaration was rejected on 26 December 2019 on the ground that the figures had not been correctly mentioned. Thereafter, the petitioner filed a fresh declaration in Form SVLDRS-1 on 26 December 2019.

Subsequently, Respondent Nos. 4 and 5 issued Form SVLDRS-2 dated 10 February 2020, informing the petitioner that since the show cause notice involved a demand of interest only, the petitioner was allegedly not eligible under the SVLDR Scheme in light of Section 123(b) of the Finance Act, 2019.

On 13 February 2020, the petitioner submitted a detailed response along with relevant documents, circulars and notifications, asserting its entitlement to the benefit of the Scheme. The petitioner also reiterated its submissions during the personal hearing before Respondent Nos. 4 and 5.

Despite these submissions, Respondent No. 4 issued the impugned communication dated 11 March 2020, rejecting the petitioner’s application. Aggrieved by the rejection, the petitioner filed the writ petition under Article 226 of the Constitution of India.

Issues Involved

The principal issues before the High Court were:

  1. Whether the petitioner’s declaration under the SVLDR Scheme could be rejected merely because the underlying show cause notice involved a demand of interest only, with reference to Section 123(b) of the Finance Act, 2019.
  2. Whether the impugned communication dated 11 March 2020 was legally sustainable when it did not deal with the petitioner’s detailed submissions, relevant statutory provisions, circulars, notifications and judicial precedents.
  3. Whether a non-speaking, cryptic, laconic and unreasoned order, passed without due application of mind, violated the principles of natural justice.
  4. Whether the matter required fresh reconsideration by the competent authorities in light of the applicable SVLDR provisions, relevant circulars and judgments relied upon by the petitioner.

Petitioner’s Arguments

The petitioner contended that it was entitled to the benefit of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, notwithstanding that the underlying proceedings involved a demand of interest.

It was argued that after the first declaration was rejected due to incorrect figures, a fresh declaration in Form SVLDRS-1 dated 26 December 2019 had been duly filed.

The petitioner submitted that it had furnished a detailed response dated 13 February 2020, together with relevant supporting documents, circulars and notifications, specifically explaining why the benefit of the Scheme was available.

The petitioner further relied upon the relevant departmental circulars dated 29 October 2019 and 6 October 2022, as well as several judgments of the Supreme Court and High Courts.

In particular, reliance was placed upon the Madhya Pradesh High Court judgment in Sigma Construction Company vs Union of India & Others, W.P. No. 16411/2021, decided on 5 August 2022, to contend that the benefit of the SVLDR Scheme could be available to an assessee even in cases where interest had been demanded by the Revenue.

Accordingly, the petitioner argued that the rejection communication deserved to be quashed.

Respondents’ Arguments

The respondents opposed the writ petition and submitted that there was no merit in the petition.

Their stand was that the petition was liable to be dismissed. The eligibility objection communicated to the petitioner was based on the position that, since the show cause notice involved a demand of interest only, the petitioner was not eligible under the SVLDR Scheme in light of Section 123(b) of the Finance Act, 2019.

Court’s Findings

The Karnataka High Court examined the impugned order/communication dated 11 March 2020 and found that it was:

  • Non-speaking
  • Cryptic
  • Laconic
  • Unreasoned
  • Passed without application of mind

The Court specifically observed that the authority had failed to consider:

  • the petitioner’s detailed submissions;
  • the relevant provisions of the SVLDR Scheme;
  • the circulars relied upon by the petitioner; and
  • the judicial judgments cited in support of the petitioner’s claim.

The High Court therefore held that the impugned order/communication was violative of the principles of natural justice.

The Court concluded that the rejection could not be sustained and that the matter deserved to be remitted to the concerned respondents for fresh reconsideration in accordance with law.

Court Order / Final Decision

The High Court passed the following operative directions:

  1. The writ petition was allowed.
  2. The impugned order/communication dated 11 March 2020, issued by Respondent No. 4, was quashed.
  3. The matter was remitted back to the concerned respondents for fresh reconsideration of the petitioner’s claim.
  4. The respondents were directed to reconsider the matter bearing in mind:
    • the observations made by the High Court;
    • the material available on record;
    • the Circular dated 29 October 2019;
    • the Circular dated 6 October 2022; and
    • the judgments relied upon by the petitioner.
  5. Such reconsideration was directed to be undertaken in accordance with law and as expeditiously as possible.

Important Clarification

The judgment should not be read as a final declaration by the High Court that every interest-only demand automatically qualifies for relief under the SVLDR Scheme.

The decisive finding in this case was that the petitioner’s claim had been rejected through a non-speaking, cryptic, laconic and unreasoned communication, without proper consideration of its detailed submissions, the relevant provisions of the Scheme, departmental circulars and judicial precedents.

Therefore, the High Court quashed the rejection and remanded the matter for fresh consideration. The Court did not itself finally quantify or grant the substantive SVLDR relief claimed by the petitioner.

This distinction is important because the operative relief was reconsideration afresh in accordance with law, rather than an unconditional judicial grant of Scheme benefits.

Sections / Legal Provisions Involved

Section 123(b) of the Finance Act, 2019 — Central provision involved in the dispute concerning the interpretation of “tax dues” and the petitioner’s eligibility under the SVLDR Scheme where the show cause notice involved a demand of interest.

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 — The statutory dispute-resolution scheme under which the petitioner filed its declaration and claimed waiver-related benefits.

Form SVLDRS-1 — Declaration filed by the petitioner seeking benefit under the Scheme.

Form SVLDRS-2 — Form issued by the designated authorities communicating the eligibility-related objection concerning the interest-only demand.

Article 226 of the Constitution of India — Constitutional jurisdiction invoked before the Karnataka High Court for quashing the impugned communication and seeking consequential directions.

 Link to download the order-https://mytaxexpert.co.in/uploads/1783331239_1329compressed.pdf

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