Facts of the Case

The dispute concerned the petitioner’s eligibility for relief under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 in relation to service tax liability.

On 01.10.2018, the respondents issued a notice/letter intimating the petitioner that an amount of Rs.1,81,99,659/- was due towards service tax.

The petitioner submitted a reply/response dated 06.06.2019, in which it admitted and quantified the amount payable in terms of certain audit observations while disagreeing with and denying other audit observations.

According to the petitioner, its contentions, objections and quantification were accepted by the respondent through communication dated 05.07.2019, resulting in a reduced demand of Rs.1,37,05,125/-.

Thereafter, the respondents issued a show-cause notice dated 13.11.2019, calling upon the petitioner to pay Rs.1,37,05,125/- towards shortfall in service tax.

The petitioner subsequently filed a declaration on 20.12.2019 seeking the benefit of the SVLDR Scheme in relation to the aforesaid amount.

The petitioner’s central case was that the service tax liability of Rs.1,37,05,125/- had already been admitted and quantified in writing through its reply dated 06.06.2019, which was prior to the statutory cut-off date of 30.06.2019.

However, the Designated Committee rejected the petitioner’s SVLDRS application. The respondents also proceeded to pass the impugned adjudication order confirming the demand of duty along with interest and penalty, on the basis that the petitioner was not entitled to the benefit of the Scheme.

Aggrieved by the rejection of the SVLDRS claim and the subsequent adjudication order dated 26.04.2021, the petitioner approached the Karnataka High Court under Article 226 of the Constitution of India.

Issues Involved

The principal issues before the High Court were:

  1. Whether service tax liability admitted, accepted and quantified by the assessee in writing before 30.06.2019 constituted valid “quantification” for the purpose of eligibility under the SVLDR Scheme.
  2. Whether the petitioner could be denied the benefit of SVLDRS despite having admitted and quantified service tax liability of Rs.1,37,05,125/- through its written reply dated 06.06.2019.
  3. Whether pendency or continuation of enquiry, investigation or audit could defeat SVLDRS eligibility where the tax liability had already been admitted and quantified before the cut-off date.
  4. Whether the Designated Committee was justified in rejecting the petitioner’s SVLDRS application dated 20.12.2019.
  5. Whether the subsequent order dated 26.04.2021 confirming the demand could survive when the rejection of the petitioner’s claim under the SVLDR Scheme was legally unsustainable.

Petitioner’s Arguments

The petitioner contended that the respondents had initially communicated a service tax liability of Rs.1,81,99,659/- on 01.10.2018.

In response, the petitioner submitted a detailed reply dated 06.06.2019, admitting and quantifying liability in respect of certain audit observations while disputing other observations.

The petitioner argued that the respondents subsequently accepted its contentions, objections and quantification through communication dated 05.07.2019, thereby reducing the demand to Rs.1,37,05,125/-.

It was specifically submitted that the petitioner’s written admission and quantification dated 06.06.2019 occurred before the crucial cut-off date of 30.06.2019.

Therefore, according to the petitioner, the statutory condition relating to quantification before the cut-off date stood satisfied and the petitioner was entitled to the benefit of the SVLDR Scheme.

The petitioner further relied upon the CBIC Circulars dated 27.08.2019 and 12.12.2019.

In support of its case, the petitioner also relied upon the following Karnataka High Court judgments:

  • M/s. Bioneeds (P) Limited vs The Commissioner of Central Tax and Others, W.P. No. 15497/2021, decided on 26.08.2022.
  • M/s. Nikitha Build Tech (P) Limited vs Union of India and Others, W.P. No. 21844/2021, decided on 20.10.2022.

The petitioner’s case was that these decisions established that where the assessee had admitted and quantified the tax payable before 30.06.2019, the benefit of SVLDRS could not be denied merely because enquiry, investigation or audit remained pending.

Respondents’ Arguments

The respondents opposed the writ petition and contended that there was no merit in the petitioner’s case.

The Revenue maintained that the petitioner was not entitled to the benefit claimed under the SVLDR Scheme and defended the impugned rejection as well as the subsequent adjudication order.

The respondents accordingly sought dismissal of the writ petition.

Court’s Findings

The Karnataka High Court examined the material on record and relied significantly upon its earlier decisions in M/s. Bioneeds (P) Limited and M/s. Nikitha Build Tech (P) Limited.

The Court reiterated the legal position that:

So long as the petitioner-assessee had admitted and quantified the tax payable prior to 30.06.2019, the assessee would be entitled to the benefit of the SVLDR Scheme notwithstanding the pendency of an enquiry, investigation or audit on or before 30.06.2019.

The Court noted that in the present case:

  • On 01.10.2018, the respondent had quantified the amount payable by the petitioner at Rs.1,81,99,659/-.
  • The petitioner submitted a reply on 06.06.2019.
  • In that reply, the petitioner admitted, accepted, agreed to and quantified the service tax payable at Rs.1,37,05,125/-.
  • This written admission and quantification occurred well before the statutory cut-off date of 30.06.2019.

The Court further considered the clarification contained in the CBIC Circular dated 27.08.2019, under which cases involving enquiry, investigation or audit were eligible under the Scheme where the duty demand had been quantified on or before 30.06.2019.

The Court observed that written communication for the purpose of quantification could include:

  • a letter intimating duty demand;
  • duty liability admitted by the person during enquiry, investigation or audit; or
  • an audit report.

Applying the principles laid down in the earlier judgments, the Court concluded that the respondents had committed an error in rejecting the petitioner’s claim for benefit under the SVLDR Scheme.

The Court also held that the respondents had erred in passing the subsequent impugned order dated 26.04.2021.

Court Order

The Karnataka High Court allowed the writ petition and passed the following directions:

  1. The writ petition was allowed.
  2. The impugned order at Annexure-A passed by Respondent No.1 was set aside.
  3. The impugned order at Annexure-H dated 26.04.2021 passed by Respondent No.4 was also set aside.
  4. The matter was remitted back to the concerned respondents for fresh reconsideration of the petitioner’s SVLDRS application dated 20.12.2019.
  5. The reconsideration was directed to be undertaken in accordance with law, keeping in mind:
    • the judgments referred to by the High Court;
    • the CBIC Circular dated 27.08.2019;
    • the CBIC Circular dated 12.12.2019; and
    • the observations made in the present order.
  6. The respondents were directed to provide a sufficient and reasonable opportunity to the petitioner.

Important Clarification

The judgment provides an important clarification on the meaning and practical application of “quantification” before 30.06.2019 under the SVLDR Scheme.

The decisive factor is whether the duty or tax liability had been reduced to a written and identifiable amount on or before the cut-off date. A written admission by the assessee during enquiry, investigation or audit can constitute valid quantification for the purpose of the Scheme.

Therefore, the mere fact that an enquiry, investigation or audit remained pending as on 30.06.2019 does not, by itself, render an assessee ineligible where the liability had already been admitted and quantified before that date.

In the present case, the petitioner’s written reply dated 06.06.2019, admitting and quantifying service tax liability at Rs.1,37,05,125/-, was central to the Court’s conclusion.

The High Court did not itself finally grant or compute the Scheme benefit. Instead, it set aside the adverse orders and remitted the SVLDRS application for fresh reconsideration in accordance with law. This distinction is important while applying the judgment to other cases.

Sections / Legal Provisions Involved

  • Section 123(c) of the Finance (No. 2) Act, 2019 — “Tax Dues” under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 in cases involving enquiry, investigation or audit where the amount of duty payable had been quantified on or before 30.06.2019.
  • Section 2(r) of the relevant SVLDRS framework referred to in the CBIC clarification — Meaning of “quantified” as written communication of the amount of duty payable under the indirect tax enactment.
  • Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS).
  • Article 226 of the Constitution of India — Writ jurisdiction of the High Court.
  • CBIC Circular dated 27.08.2019, particularly the clarification concerning enquiry, investigation or audit cases where duty demand had been quantified on or before 30.06.2019.
  • CBIC Circular dated 12.12.2019.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783488999_1378compressed.pdf

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