Facts of the Case

M/s. Nikitha Buildtech (P) Ltd. filed a writ petition under Articles 226 and 227 of the Constitution of India challenging the rejection of its claim for relief under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (“SVLDRS” or “the Scheme”).

The petitioner sought, inter alia:

  1. Quashing of the impugned order dated 06.05.2020 passed by the concerned respondent rejecting the petitioner’s eligibility under the SVLDRS;
  2. Quashing of Order-in-Original No. 30/2020-Adj. dated 05.03.2021; and
  3. A direction to the Department to drop the Show Cause Notice dated 07.01.2020.

Pursuant to introduction of the SVLDRS, the petitioner submitted a declaration dated 28.12.2019 seeking benefit of waiver in respect of a sum of Rs. 53,88,248/- under the Scheme.

The petitioner’s case was that, on 21.06.2019 itself, it had admitted and quantified service tax payable at Rs. 50,50,277/-. This admission and quantification had therefore occurred before the statutory cut-off date of 30.06.2019.

Despite submission of Form SVLDRS-1 on 28.12.2019, the respondents issued a Show Cause Notice dated 07.01.2020, followed by a notice in Form SVLDRS-2 dated 23.01.2020. The petitioner submitted its reply in Form SVLDRS-2A on 04.02.2020 and also addressed a letter dated 05.02.2020 to the respondents.

Thereafter, a further Show Cause Notice dated 28.02.2020 was issued, to which the petitioner replied on 20.03.2020.

The petitioner’s claim under the Scheme was ultimately rejected by communication/order dated 06.05.2020 on the ground that the amount payable had allegedly not been quantified as on 30.06.2019. Following such rejection, the Department proceeded to pass the Order-in-Original dated 05.03.2021, which was also challenged before the High Court.

The undisputed material before the Court showed that the petitioner had admitted and quantified its service tax liability at Rs. 50,50,277/- on 21.06.2019, i.e., before the cut-off date of 30.06.2019.

The Court further noted that the petitioner had paid the entire amount of Rs. 50,50,277/- in three instalments on 27.06.2019, 22.07.2019 and 29.07.2019.

Issues Involved

The principal legal issues before the Karnataka High Court were:

  1. Whether admission and quantification of service tax liability before 30.06.2019 entitled the petitioner to benefit under the SVLDRS even though an enquiry, investigation or audit remained pending as on the cut-off date.
  2. Whether the petitioner’s admitted and quantified service tax liability of Rs. 50,50,277/- constituted valid “quantification” for the purpose of the Scheme and Section 123(c).
  3. Whether the discrepancy between the amount admitted/quantified by the petitioner and the amount reflected in Form SVLDRS-1 disentitled the petitioner from claiming relief under the Scheme.
  4. Whether rejection of the SVLDRS declaration was sustainable when the petitioner had already admitted, quantified and paid an amount exceeding the relief amount otherwise payable under the Scheme.
  5. Whether the subsequent Order-in-Original dated 05.03.2021 prevented the High Court from exercising writ jurisdiction under Article 226 of the Constitution of India.
  6. Whether the present writ petition was barred by the principle of res judicata because of the earlier proceedings in W.P. No. 8051/2021.

Petitioner’s Arguments

The petitioner contended that its service tax liability had already been admitted and quantified at Rs. 50,50,277/- on 21.06.2019, which was prior to the statutory cut-off date of 30.06.2019.

Accordingly, the petitioner argued that the essential requirement of quantification before the cut-off date stood satisfied and that rejection of the declaration under the SVLDRS was contrary to the Scheme.

The petitioner relied upon the Karnataka High Court’s decision in M/s. Bioneeds India (P) Ltd. vs Commissioner of Central Tax & Others, W.P. No. 15497/2021, decided on 26.08.2022.

It was argued that the said decision categorically recognised that benefit under the SVLDRS could not be denied merely because an enquiry, investigation or audit was pending, provided that the amount payable had been admitted and quantified before 30.06.2019.

The petitioner therefore contended that:

  • its liability had been admitted and quantified before the cut-off date;
  • pending investigation did not destroy eligibility under the Scheme;
  • the rejection order dated 06.05.2020 was illegal and arbitrary;
  • the subsequent Order-in-Original dated 05.03.2021 was also liable to be quashed; and
  • the matter deserved reconsideration in accordance with the Scheme and applicable circulars.

Respondents’ Arguments

The respondents defended the impugned orders and contended that no interference under writ jurisdiction was warranted.

The Revenue argued that although the petitioner had admitted and quantified service tax liability of Rs. 50,50,277/-, the amount mentioned in Form SVLDRS-1 was different. According to the respondents, this variance or discrepancy between the admitted/quantified liability and the amount reflected in the declaration disentitled the petitioner from the benefit of the Scheme.

The respondents further contended that:

  • the Order-in-Original had already been passed;
  • there was no interim order staying the departmental proceedings;
  • in the absence of any stay by a competent forum, the High Court should not exercise jurisdiction under Article 226 of the Constitution of India; and
  • the writ petition was also allegedly barred by res judicata in view of disposal of the earlier W.P. No. 8051/2021.

Court Order / Findings

The Karnataka High Court allowed the writ petition and recorded significant findings concerning eligibility under the SVLDRS.

1. Quantification Before 30.06.2019 Was Established

The Court found that the undisputed material on record demonstrated that on 21.06.2019, prior to the cut-off date of 30.06.2019, the petitioner had admitted and quantified service tax payable at Rs. 50,50,277/-.

This factual finding was central to the petitioner’s eligibility under the Scheme.

2. Pending Enquiry, Investigation or Audit Does Not Automatically Bar SVLDRS Benefit

The Court relied upon its earlier decision in M/s. Bioneeds India (P) Ltd. vs Commissioner of Central Tax & Others.

The Court reiterated that notwithstanding pendency of an enquiry, investigation or audit on or before and as on 30.06.2019, an assessee could be entitled to the benefit of the SVLDRS so long as the service tax liability had been admitted and quantified prior to 30.06.2019.

Accordingly, mere pendency or non-completion of investigation before the cut-off date could not, by itself, justify denial of the Scheme’s benefit where valid quantification had already occurred.

3. Admission of Liability Can Constitute “Quantification”

The Court referred to the legal position recognised in the Bioneeds India decision, including Clause 10(g) of the CBIC Circular dated 27.08.2019.

The relevant clarification recognised that cases under enquiry, investigation or audit, where duty demand had been quantified on or before 30.06.2019, were eligible under the Scheme.

The concept of written communication for quantification was understood to include, among other things:

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

Thus, an admitted liability in the course of enquiry or investigation could satisfy the requirement of quantification for purposes of the Scheme.

4. Rejection of SVLDRS Benefit Was Arbitrary, Illegal and Contrary to Law

The Court held that the petitioner had admitted and quantified its liability prior to the cut-off date and was therefore entitled to the benefit of the SVLDRS.

The Court further noted that the petitioner had paid the entire sum of Rs. 50,50,277/- in three instalments on:

  • 27.06.2019;
  • 22.07.2019; and
  • 29.07.2019.

Since the petitioner had already made payment of the amount in respect of which benefit was claimed much prior to submission of Form SVLDRS-1, the Court held that rejection of the benefit by the respondents was clearly arbitrary, illegal, contrary to law and contrary to the provisions of the Scheme.

5. Discrepancy in Amount Did Not Defeat Eligibility

The respondents argued that the admitted and quantified liability was Rs. 50,50,277/-, whereas the amount involved under the SVLDRS declaration was Rs. 53,88,248/-.

The Court rejected this contention.

The Court examined the position that the petitioner would be entitled to waiver of 50% of Rs. 53,88,248/-, amounting to Rs. 26,94,124/-.

Since the admitted, quantified and paid amount of Rs. 50,50,277/- was far in excess of Rs. 26,94,124/-, the Court held that the discrepancy between the admitted/quantified amount and the amount shown in Form SVLDRS-1 could not be accepted as a ground to deny the petitioner the benefit of the Scheme.

6. Subsequent Order-in-Original Did Not Defeat Writ Jurisdiction

The respondents contended that the Order-in-Original dated 05.03.2021 had already been passed and that there was no stay by any forum or authority.

The High Court rejected this objection.

The Court observed that the Order-in-Original dated 05.03.2021 had been passed only after issuance of the impugned rejection order/letter dated 06.05.2020 holding the petitioner ineligible under the SVLDRS.

The Court further noted that the Order-in-Original had been passed during the pendency of W.P. No. 8051/2021.

Accordingly, mere absence of a stay could not constitute a valid basis to hold that the present writ petition was not maintainable under Article 226 of the Constitution of India.

7. Res Judicata Objection Rejected

The respondents also argued that the present petition was barred by res judicata because W.P. No. 8051/2021 had earlier been disposed of by final order dated 25.08.2021.

The High Court rejected this contention as misconceived and untenable.

The Court explained that:

  • the earlier writ petition had challenged the order dated 06.05.2020;
  • during pendency of that petition, the Department passed the Order-in-Original dated 05.03.2021;
  • the earlier petition was disposed of as having become infructuous while reserving liberty in favour of the petitioner; and
  • there had been no final determination of the relevant issues or questions between the parties in the earlier proceedings.

The Court clarified that for the bar of res judicata to apply, there must be a final determination of the issues by the Court, Tribunal or competent authority.

Since no such determination had occurred in W.P. No. 8051/2021, the present petition was not barred by res judicata.

Final Order

The Karnataka High Court passed the following operative directions:

  1. The writ petition was allowed.
  2. The impugned order bearing C.No. IV/16/833/2019 Adjn BNW dated 06.05.2020 was quashed.
  3. Order-in-Original No. 30/2020-Adj. dated 05.03.2021 was also quashed.
  4. The matter was remitted back to the respondents for reconsideration of the petitioner’s claim.
  5. The respondents were directed to reconsider the claim bearing in mind:
    • Circular dated 27.08.2019;
    • Circular dated 12.12.2019; and
    • the observations made by the High Court in the judgment.
  6. Reconsideration was directed to be undertaken in accordance with law.

Important Clarification

The judgment provides important clarification on the interpretation and application of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019:

First, completion of enquiry, investigation or audit before 30.06.2019 is not necessarily required where the duty or service tax liability had already been admitted and quantified before the cut-off date.

Second, an assessee’s admission of duty liability during enquiry, investigation or audit may amount to valid “quantification” where it satisfies the requirements of the Scheme and applicable departmental clarification.

Third, a discrepancy between the amount admitted/quantified and the amount reflected in Form SVLDRS-1 does not automatically disentitle an assessee from relief, particularly where the amount already admitted, quantified and paid is substantially higher than the amount required to be paid after statutory relief.

Fourth, subsequent adjudication by way of an Order-in-Original does not necessarily cure or validate an earlier illegal rejection of an SVLDRS declaration.

Fifth, absence of an interim stay does not by itself bar exercise of writ jurisdiction under Article 226 where the impugned action is otherwise arbitrary, illegal or contrary to the statutory Scheme.

Sixth, res judicata requires final determination of an issue. Mere disposal of an earlier writ petition as infructuous, with liberty reserved, does not create a bar of res judicata where the substantive issues were not finally adjudicated.

Sections / Legal Provisions Involved

Finance (No. 2) Act, 2019 — Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019

Section 123(c)
Relevant to determination of “tax dues” in cases involving enquiry, investigation or audit where the amount of duty payable had been quantified on or before 30.06.2019.

Section 121(r) — Definition of “Quantified”
Relevant to the meaning of “quantified” as a written communication of the amount of duty payable under the indirect tax enactment.

CBIC Circular dated 27.08.2019

Clause 10(g)
Clarifies that cases under enquiry, investigation or audit where the duty demand had been quantified on or before 30.06.2019 were eligible under the Scheme. The clarification recognises written communications including a letter intimating duty demand, duty liability admitted by a person during enquiry, investigation or audit, or an audit report.

CBIC Circular dated 12.12.2019

The High Court specifically directed reconsideration of the petitioner’s claim bearing in mind the Circulars dated 27.08.2019 and 12.12.2019, together with the observations made in the judgment.

Constitution of India

Article 226
Power of the High Courts to issue writs, directions and orders.

Article 227
Power of superintendence of the High Courts over courts and tribunals within their territorial jurisdiction.

Principle of Res Judicata

The Court clarified that the bar of res judicata requires final determination of issues between the parties. Where an earlier proceeding was disposed of without final adjudication of the substantive issues, the bar would not apply.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783491204_1386compressed.pdf

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