Retrospective settlement protection under the Kar Vivad Samadhan Scheme extended to pending co-noticee penalty proceedings.

A remedial fiscal order under the Kar Vivad Samadhan Scheme was deemed to operate from 1 September 1998 and extended settlement benefits to pending co-noticee penalty proceedings arising from the same matter. Where the principal declarant had settled the tax arrears, the order stated that civil proceedings for fine or penalty against other persons covered by a pending show-cause notice on that matter would not continue. The retrospective commencement date was treated as decisive, so later penalty orders could not defeat the statutory benefit created by the deeming provision. The co-noticees were therefore treated as entitled to the Scheme's protection, and the penalty proceedings were terminated.

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Issues: Whether the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998, having been given effect from 1 September 1998, protected co-noticees/directors from penalty proceedings where the company had already settled the tax arrears under the Scheme.

Analysis: The Order was issued under section 97(1) of the Finance (No. 2) Act, 1998 and expressly deemed to have come into force on 1 September 1998. Its terms provided that where a declaration relating to the same matter had been made and the dispute was settled in favour of the declarant, no civil proceeding for fine or penalty would continue against other persons against whom a show-cause notice on the same matter was pending. The retrospective effective date showed a clear legislative intent to bring pending co-noticee proceedings within the benefit of the settlement once the company had discharged the dues. Orders passed against the petitioners after the Scheme had already come into force could not defeat the statutory benefit conferred by the deemed commencement date.

Conclusion: The petitioners were entitled to the benefit of the Scheme, and the penalty orders against them could not be acted upon.

Final Conclusion: The penalty proceedings against the co-noticees were treated as terminated and the challenge succeeded.

Ratio Decidendi: Where a remedial fiscal order is expressly given retrospective effect and declares that settlement of the principal declarant's tax arrears extends to pending co-noticee proceedings on the same matter, subsequent penalty orders cannot override the statutory deeming provision.

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