Facts of the Case

M/s Reliable Homes, a partnership firm engaged in the business of construction, building and development of residential complexes, was registered with the Service Tax Department under the category of “Construction of Residential Complexes Services.”

In June 2017, an enquiry was initiated against the petitioner under VISIT MODE on the basis of intelligence gathered by officers of the Directorate General of GST Intelligence, formerly known as the Directorate General of Central Excise Intelligence.

During the visit, the statement of a partner of the petitioner was recorded. In response to a specific query, the partner stated that service tax liability of Rs. 29,64,507 remained unpaid due to the financial crisis faced by the petitioner and assured that the amount would be paid at the earliest.

Thereafter, the GST Commissionerate conducted further investigation and informed the petitioner that its total service tax liability was Rs. 60,04,710. The petitioner stated that it had already paid Rs. 2,18,717, resulting in an outstanding service tax liability of Rs. 57,85,993.

During the investigation, the petitioner further paid Rs. 25,77,768 through various GAR-7 challans, which were verified by the GST Commissionerate through ACES.

Following detailed investigation, a Show Cause Notice dated 18 October 2019 was issued proposing demand or recovery of service tax aggregating to Rs. 57,85,993, comprising Rs. 56,21,539 plus Rs. 1,64,454, under Section 73(1) read with Sections 66B and 68 of the Finance Act, 1994 and Section 174 of the CGST Act, 2017. The notice also raised the question of penalty under Section 76 read with Section 68 of the Finance Act, 1994, Rule 6 of the Service Tax Rules, 1994 and Section 174 of the CGST Act, 2017.

The petitioner thereafter sought relief under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS). After the Scheme came into force on 1 September 2019, the petitioner filed an online declaration in Form SVLDRS-1 on 25 December 2019.

Respondent No. 2 issued Form SVLDRS-2 dated 24 January 2020, showing the amount payable under the Scheme as NIL, while granting an opportunity of personal hearing if desired.

In response, through Form SVLDRS-2A dated 5 February 2020, the petitioner informed Respondent No. 2 that it had filed a fresh Form SVLDRS-1 and requested consideration of the same. According to the petitioner, the fresh declaration became necessary because certain mistakes had occurred in selecting the appropriate category and sub-category while filling the form.

The subsequently filed Form SVLDRS-1 was rejected on the ground that the duty demanded, as mentioned in the Show Cause Notice dated 18 October 2019, had been incorrectly stated in the form. The petitioner challenged the rejection before the Bombay High Court.

Issues Involved

The principal issues arising before the Court were:

  1. Whether the petitioner’s SVLDRS declaration could be rejected because of incorrect entries made while filing Form SVLDRS-1.
  2. Whether the petitioner could claim eligibility under SVLDRS on the basis that its tax liability had been admitted during the enquiry conducted before 30 June 2019.
  3. Whether such admitted liability could fall within the meaning of “quantified” under Section 2(r) of SVLDRS.
  4. Whether, after expiry of the Scheme period, the Court could effectively extend the benefit or time under SVLDRS.
  5. Whether the petitioner’s willingness to pay the entire outstanding amount of Rs. 32,08,225 could be considered while deciding the question of penalty.
  6. Whether the broader object of SVLDRS—liquidation of legacy disputes relating to Central Excise and Service Tax and enabling businesses to move forward under GST—could be kept in view while considering the petitioner’s representation.

Petitioner’s Arguments

The petitioner relied upon the Bombay High Court’s order dated 11 July 2022 in B Chopda Construction Pvt. Ltd. vs Union of India & Ors., Writ Petition No. 809 of 2022.

It was argued that the petitioner was eligible to make a declaration and seek relief under SVLDRS because it had admitted its tax liability during the enquiry, particularly during the enquiry conducted on 29 June 2017. Therefore, according to the petitioner, the duty amount stood quantified on or before 30 June 2019 and fell within the definition of “quantified” under Section 2(r) of SVLDRS.

The petitioner further stated its readiness and willingness to pay the entire outstanding amount of Rs. 32,08,225, calculated as:

Rs. 57,85,993 minus Rs. 25,77,768 = Rs. 32,08,225

The petitioner offered to make such payment within four weeks and requested that penalty should not be imposed, asserting that it was not seeking relief through reduced or relieved payment under SVLDRS.

Reliance was also placed on Thought Blurb vs Union of India, AIR Online 2020 Bom 2695, to contend that the object of SVLDRS was to unload the baggage of legacy Central Excise and Service Tax disputes subsumed under GST and enable businesses to make a fresh beginning and focus on GST.

The petitioner additionally explained that its main partner, Ali Asgar Abid Bhanpurawala, who looked after the firm’s financial activities, had died on 4 March 2017, and that his death was stated to be the cause of delay in payment of tax and related compliance.

Respondents’ Arguments

The respondents argued that there was no prayer in the writ petition seeking waiver of penalty, and therefore the petitioner could not ask the Court to direct the authorities not to levy penalty.

It was further submitted that once the period of the Scheme had expired, the Court should not extend the time available under SVLDRS.

However, the respondents stated that if the petitioner intended to pay the entire amount mentioned in the Show Cause Notice to bring the dispute to an end, it could submit an appropriate representation before Respondent No. 3, who could be directed to consider and dispose of the same in accordance with law.

Court Order / Findings

The Bombay High Court referred to its decision in Thought Blurb vs Union of India and reiterated that SVLDRS had twin objectives:

  • liquidation of past disputes relating to Central Excise and Service Tax; and
  • disclosure of unpaid taxes.

The Court observed that the primary focus of the Scheme was to unload the baggage of pending litigation relating to Service Tax and Central Excise from the pre-GST regime so that businesses could move forward.

The Court held that this broad picture and legislative objective should be kept in mind while considering applications under SVLDRS seeking amnesty and, in the factual circumstances of the present case, while dealing with the petitioner’s situation.

Significantly, the Court observed that the petitioner’s SVLDRS application had been rejected not because the petitioner was ineligible, but because certain incorrect entries had been made.

On the petitioner’s request for a direction against imposition of penalty, the Court did not itself grant an absolute waiver of penalty. It held that the question was one which Respondent No. 3 would have to consider on the facts and circumstances of the case.

The Court requested Respondent No. 3 to keep in mind that:

  • the petitioner had filed an application under SVLDRS;
  • the application was not rejected on the ground of ineligibility;
  • the rejection occurred due to certain incorrect entries; and
  • therefore, the objective of the Scheme may be extended to the case at hand while considering the petitioner’s representation.

The writ petition was accordingly disposed of with no order as to costs.

Important Clarification

This judgment should not be interpreted as holding that every rejected SVLDRS declaration must automatically be accepted after expiry of the Scheme, or that every taxpayer is automatically entitled to waiver of penalty.

The crucial factual distinction recorded by the Court was that the petitioner’s SVLDRS application had been rejected not because of substantive ineligibility, but because of incorrect entries made in the application.

Further, the Court did not directly order that no penalty could be imposed. Instead, it left the matter for consideration by Respondent No. 3 on the facts and circumstances of the case and requested the authority to bear in mind the petitioner’s earlier SVLDRS application and the broader objective of the Scheme.

Therefore, the decision is particularly relevant where:

  • a taxpayer had attempted to avail SVLDRS;
  • rejection was attributable to incorrect entries rather than established ineligibility;
  • the taxpayer demonstrates willingness to discharge the outstanding liability; and
  • the authority is called upon to consider a representation concerning penalty in light of the Scheme’s broader remedial objective.

Sections / Statutory Provisions Involved

Section 73(1) of the Finance Act, 1994 — Recovery of Service Tax not levied, not paid, short-levied, short-paid or erroneously refunded, as applicable to the proceedings.

Section 66B of the Finance Act, 1994 — Charging provision relating to Service Tax.

Section 68 of the Finance Act, 1994 — Payment of Service Tax.

Section 76 of the Finance Act, 1994 — Penalty concerning failure to pay Service Tax, as invoked in the Show Cause Notice.

Rule 6 of the Service Tax Rules, 1994 — Provision concerning payment of Service Tax.

Section 174 of the CGST Act, 2017 — Repeal and saving provision preserving specified proceedings and liabilities of the pre-GST regime.

Section 2(r) of SVLDRS — Definition of “quantified”, relied upon by the petitioner in support of its contention that tax liability had been admitted and quantified before the relevant cut-off date

 Link to download the order - https://mytaxexpert.co.in/uploads/1783495463_1444compressed.pdf

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