2021 (6) TMI 632 - HC - Service Tax

Court upholds rectification orders under Sabka Vishwas Scheme, emphasizing strict interpretation in tax matters

The court upheld rectification orders passed by the Department under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, changing the ... Sabka Vishwas (Legacy Dispute Resolution) Scheme - voluntary disclosure - treatment of false declaration as never made - waiver of penalty, interest and late fees - rectification beyond prescribed time - violation of natural justice - jurisdictional error - finalisation of proceedings under the Scheme - credit of payments and discharge certificateSabka Vishwas (Legacy Dispute Resolution) Scheme - voluntary disclosure - treatment of false declaration as never made - waiver of penalty, interest and late fees - Legal consequence of factually incorrect particulars in declarations filed under the Scheme and the departmental options available thereupon. - HELD THAT: - The Court proceeded on the accepted factual premise that the petitioner did not successfully file electronic returns during the relevant periods and that the statements to the contrary in the declarations were factually incorrect. Under Section 129(2)(c) of the Finance Act, 2019 the Department had power to treat such a declaration as never made and institute recovery proceedings under the relevant indirect tax legislation. The Department, however, did not choose that course; instead it reclassified the declarations as 'voluntary disclosures' which results in the petitioner being entitled only to waiver of interest, penalty and late fees while remaining liable to pay the full tax declared. That category change was held to be permissible and, in the circumstances of the case, beneficial to the petitioner because it preserved some relief under the Scheme rather than denying all benefits and initiating full recovery with penalty and interest. [Paras 5, 6, 8]Declarations found factually incorrect; Department could have treated them as never made but opted to treat them as voluntary disclosures, thereby allowing only waiver of penalty, interest and late fees while retaining tax liability.Rectification beyond prescribed time - violation of natural justice - jurisdictional error - Whether procedural infirmities in the rectification orders (time-bar and lack of hearing) warranted interference with the orders. - HELD THAT: - The petitioner argued that the rectification orders were passed beyond the time prescribed by the Scheme and without affording opportunity of hearing, constituting violation of principles of natural justice and a jurisdictional error. The Court observed that even if the rectification orders were vitiated on such grounds, interference was not required where it would not change the justice of the result. Given that the Department's reclassification operated to the petitioner's advantage relative to the alternative of treating declarations as never made, the Court declined to set aside the impugned orders on the basis of procedural infirmity. [Paras 4, 7, 8]Despite alleged procedural defects in the rectification orders, the Court refused to interfere because the departmental action resulted in relief to the petitioner and did not produce an unjust outcome.Finalisation of proceedings under the Scheme - credit of payments and discharge certificate - Directions for quantification, credit of earlier payments and finalisation of proceedings under the Scheme for the specific periods. - HELD THAT: - The Court examined particulars for the period 2016-17 (April-September) and found that the petitioner had in fact paid an amount in excess of the outstanding tax declared for that period; the Court declared that the petitioner be treated as having discharged the tax liability for that period and limited relief to waiver of interest, penalty and late fees as per the Scheme. For the period 2017-18 (April-June) the Court directed that the Department give credit for the payment made on 18.3.2020 pursuant to initial acceptance of the declaration. The petitioner was directed to make the payments required under the Scheme within 30 days of receipt of the judgment, upon which the Department shall finalise proceedings and issue the discharge certificate; the Scheme is treated as in force for this limited finalisation purpose. [Paras 9, 10]Appellant to make required payments within 30 days; Department to give specified credits, finalise proceedings and issue discharge certificate; Scheme treated as in force for this limited finalisation.Final Conclusion: Writ appeal dismissed; declarations found factually incorrect but departmental reclassification to voluntary disclosures preserved limited Scheme benefits; payment and credit directions issued and proceedings to be finalised with issuance of discharge certificate upon compliance within 30 days. Issues:1. Rectification orders passed under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019.2. Time limit for passing rectification orders under the Scheme.3. Compliance with procedural formalities for passing rectification orders.4. Opportunity of hearing prior to passing rectification orders.5. Factual correctness of declarations filed by the appellant.6. Interpretation of provisions under Section 129 of the Finance Act, 2019.7. Benefit of the Scheme granted to the appellant by the Department.8. Comparison with a judgment of the Madras High Court.9. Tax liability and payments made by the appellant during specific periods.10. Payment requirements and finalization of proceedings under the Scheme.1. Rectification Orders under the Scheme:The case involved the appellant challenging rectification orders passed by the Department under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The Department rectified earlier orders accepting the appellant's declarations, stating that the appellant had not filed returns in the electronic format during the relevant period, leading to a change in the categorization of the declarations as 'voluntary disclosures.'2. Time Limit for Passing Rectification Orders:The appellant contended that the rectification orders were passed beyond the time prescribed under the Scheme. However, the Department's decision to extend the benefit of the Scheme to the appellant on different terms was considered beneficial to the appellant, as the Department could have denied the benefits and initiated recovery proceedings.3. Compliance with Procedural Formalities:The appellant argued that the procedural formalities required for passing rectification orders were not adhered to by the Department. The court noted that even if there were errors in the orders, interference might not be necessary if justice was served.4. Opportunity of Hearing:The appellant raised concerns about not being heard before the rectification orders were passed. However, the court did not find it necessary to interfere if justice was done in the case.5. Factual Correctness of Declarations:It was established that the appellant's declarations were factually incorrect regarding the filing of returns during the relevant period. The inability to upload returns was attributed to the appellant, and manual filing was deemed unacceptable under the Statute.6. Interpretation of Provisions under Section 129:Section 129(2)(c) of the Finance Act, 2019 empowered the Department to treat the declarations as never made due to factual inaccuracies. The Department chose to change the category of declarations, granting the appellant benefits under the Scheme with modifications.7. Benefit of the Scheme Granted:The Department's decision to extend the benefits of the Scheme to the appellant, albeit with altered terms, was viewed as favorable to the appellant. The court found the Department's approach beneficial, considering the options available to deny the benefits and initiate recovery proceedings.8. Comparison with a Judgment of the Madras High Court:A judgment of the Madras High Court was referenced, but the court disagreed with the interpretation, emphasizing strict interpretation in favor of the Department in matters of taxation and the benefits granted under the Scheme.9. Tax Liability and Payments Made:Specific details regarding tax liability and payments made by the appellant during certain periods were analyzed, clarifying the tax liability discharged by the appellant and adjustments to be made in the payments required under the Scheme.10. Payment Requirements and Finalization of Proceedings:The appellant was directed to make payments within a specified period, after which the Department would finalize the proceedings and issue a discharge certificate, with the Scheme remaining in force for the purpose of concluding the proceedings.This detailed analysis of the judgment addresses the issues raised in the case comprehensively, outlining the legal interpretations, procedural aspects, and the final directives provided by the court.