Facts of the Case

  • Pre-Deposit Under Protest: On or about January 18, 2014, the respondent-assessee, Patanjali Ayurveda Ltd., deposited an amount of ₹12,99,42,605/- toward Central Excise Duty and an amount of ₹3,19,69,680/- toward interest under protest.
  • Issuance of Show Cause Notice (SCN): Subsequently, on March 28, 2014, the appellant department issued a Show Cause Notice to the respondent-assessee raising a tax demand of Central Excise Duty amounting to ₹56,00,00,135/- for clearances made during October 2009 to September 04, 2013, along with interest and penalty liabilities.
  • Application Under SVLDRS Scheme, 2019: While the adjudication of the Show Cause Notice was pending, the Parliament introduced the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 via Chapter-V of the Finance Act, 2019. The respondent applied under the scheme to settle its pending dispute.
  • Dispute over Form SVLDRS-3: The appellant department issued Form SVLDRS-3 (dated March 05, 2020), estimating the basic tax liability payable at ₹11,02,49,115/-. In doing so, the department adjusted only the amount deposited under the head of Central Excise Duty and refused to adjust/credit the deposit of ₹3,19,69,680/- made under the head of interest.
  • Writ Petition: Aggrieved by the non-adjustment of the interest portion deposited under protest, Patanjali Ayurveda Ltd. filed Writ Petition (M/S) No. 964 of 2020 seeking quashing of Form SVLDRS-3, a fresh adjustment of ₹3,19,69,680/-, or a refund with 18% interest per annum. The Single Judge allowed the writ petition on September 09, 2022, prompting the department to file this Special Appeal.

Issues Involved

  1. Whether, under Section 124(2) of the Finance Act, 2019, any pre-deposit or deposit made during an enquiry, investigation, or audit under protest—including amounts earmarked under the head of 'interest' or 'penalty' prior to adjudication—is liable to be deducted/adjusted while computing the final tax liability under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019.
  2. Whether the Revenue department can take contradictory stands in different jurisdictions by accepting a High Court decision in one case and challenging the same principle in another.

Petitioner’s (Appellants - Revenue Department) Arguments

  • Restricted Adjustment Scope: Learned Counsel Mr. Shobhit Saharia submitted that the provisions of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, strictly allow adjustment of only those pre-deposits that are made directly against Central Excise Duty/tax liability.
  • Non-Adjustability of Interest Deposits: The department argued that amounts paid specifically under the heads of interest or penalty cannot be offset against the basic Central Excise dues calculated under Section 124(1) of the Finance Act, 2019.
  • Persuasive Value of Precedents: It was contended that the judgment of the Punjab & Haryana High Court relied upon by the Single Judge had only persuasive value and was not binding on the Uttarakhand High Court.

Respondent’s (Assessee - Patanjali Ayurveda Ltd.) Arguments

  • Interpretation of "Any Amount Paid": Counsel Mr. Priyadarshi Manish argued that Section 124(2) of the Finance Act, 2019 uses the phrasing "any amount paid as predeposit... or as deposit during enquiry, investigation or audit" without making any distinction between deposits made under the heads of tax, interest, or penalty.
  • Uncrystallised Nature of Pre-deposit Under Protest: The amounts were deposited prior to the issuance of the Show Cause Notice and prior to any formal adjudication; therefore, the money deposited under protest held no specific "colour" or rigid head classification.
  • Reliance on Binding Precedents & CBIC Circular: Heavy reliance was placed on the Division Bench judgment of the Punjab and Haryana High Court in Schlumberger Solutions Pvt. Ltd. v. Commissioner Central GST and Others, which was accepted by the Revenue department. Furthermore, attention was drawn to the CBIC Circular dated December 12, 2019, which explicitly clarifies that all deposits made during enquiry/investigation/audit (including under protest) must be adjusted/deducted.

Court Order & Findings

  • Dismissal of Appeal: The Division Bench of Chief Justice Vipin Sanghi and Justice Ramesh Chandra Khulbe dismissed the Revenue's Special Appeal, affirming the judgment of the Single Judge.
  • Literal Interpretation of Section 124(2): The High Court held that Section 124(2) mandates the deduction of "any amount paid" during investigation, enquiry, or audit. The statute does not segregate or distinguish amounts based on whether they were deposited under tax, interest, or penalty heads.
  • No Specific "Colour" for Deposits Under Protest: The Bench observed that deposits made under protest prior to adjudication or prior to the issuance of a Show Cause Notice have no specific "colour" as tax or interest because liabilities have not yet been crystallised. Therefore, the entire deposit must be credited against dues under the Scheme.
  • Consistency in Revenue Stand: The Court noted that the Revenue department had accepted the Division Bench judgment of the Punjab and Haryana High Court in Schlumberger Solutions Pvt. Ltd. without filing a Special Leave Petition (SLP) before the Supreme Court. The Revenue cannot be allowed to adopt different yardsticks in different jurisdictions for identical questions of law.

Important Clarification

  • CBIC Circular Dated 12.12.2019: The Court highlighted paragraph (ii) & (iii) of the Central Board of Indirect Taxes and Customs (CBIC) circular dated 12.12.2019. The circular establishes that deposits made during investigation/enquiry/audit (including those under protest or prior to adjudication) must be adjusted by the Designated Committee while issuing Form SVLDRS-3.
  • No Refund Entitlement (Section 130(2)): While the declarant gets the full benefit of adjustment for pre-deposits under protest, Section 130(2) dictates that if the total pre-deposit or deposit exceeds the amount computed as payable under the scheme, no refund of the excess differential amount shall be granted.

Sections Involved

  • Section 120 of the Finance Act, 2019: Short title and commencement of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019.
  • Section 124(1) of the Finance Act, 2019: Relief percentages available to a declarant under the scheme depending on the tax dues category.
  • Section 124(2) of the Finance Act, 2019: Provision requiring deduction/adjustment of pre-deposits or deposits made during enquiry, investigation, or audit from the relief calculated.
  • Section 130(2) of the Finance Act, 2019: Bar on refund of any excess pre-deposit or deposit exceeding the amount calculated under the scheme.

Link to download the order - https://mytaxexpert.co.in/uploads/1784611043_1461compressed.pdf

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