Arrears classification under Sabka Vishwas: a finalised tax demand and one show cause notice must be treated as a single case.

Finality of the tax demand determines whether a matter falls within the arrears category under the Sabka Vishwas Legacy Dispute Resolution Scheme, 2019: where a show cause notice was adjudicated during the Scheme period and no appeal was filed, the matter had to be treated as arrears, not litigation. A single show cause notice covering service tax dues and disallowed Cenvat credit could not be fragmented into separate demands for Scheme purposes; the declaration had to be processed as one case. The impugned split treatment was therefore set aside and the matter directed to be reconsidered under the Scheme.

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Issues: (i) Whether the declarant's case fell under the arrears category under the Sabka Vishwas Legacy Dispute Resolution Scheme, 2019, rather than the litigation category; (ii) Whether the show cause notice containing service tax dues and disallowed Cenvat credit demand had to be treated as one case for the purpose of the Scheme.

Issue (i): Whether the declarant's case fell under the arrears category under the Sabka Vishwas Legacy Dispute Resolution Scheme, 2019, rather than the litigation category.

Analysis: The Scheme distinguishes between disputes still pending and amounts that have attained finality. "Amount in arrears" covers duty recoverable as arrears because no appeal was filed within limitation, the appellate order attained finality, or the liability was admitted but unpaid. A case in litigation is one where duty has not yet attained finality. Since the show cause notice was adjudicated during the currency of the Scheme and the declarant did not file an appeal, the declaration was required to be considered as one relating to arrears. The departmental circulars were treated as consistent with this construction.

Conclusion: The declarant's case was wrongly placed in the litigation category and ought to have been treated as an arrears case.

Issue (ii): Whether the show cause notice containing service tax dues and disallowed Cenvat credit demand had to be treated as one case for the purpose of the Scheme.

Analysis: Rule 3(2) of the Scheme requires a separate declaration for each case, and a "case" is defined by the category under the Scheme, not by splitting multiple demands within one show cause notice. The Board's clarification also states that where one notice covers multiple matters concerning duty liability, the declarant cannot choose only selected matters. Accordingly, once the declaration was filed for an amount in arrears, the demands in the notice could not be broken up and processed separately.

Conclusion: The respondent acted illegally in splitting the declaration into separate demands and in not treating it as one case.

Final Conclusion: The writ petition succeeded, and the impugned treatment of the declaration was set aside with a direction to reconsider the matter in accordance with the Scheme.

Ratio Decidendi: Under the Scheme, finality of the tax demand determines whether a matter falls in arrears, and a single show cause notice must be treated as one case rather than being fragmented into separate demands for scheme purposes.

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