Sabka Vishwas Scheme coverage extended to service tax interest disputes, and prior tax payment did not bar arrears relief.

A legacy service tax dispute arising from proceedings under the Finance Act, 1994 was held capable of consideration under the Sabka Vishwas Scheme, because the underlying liability, notice and interest demand all stemmed from that enactment and the scheme was to be construed liberally to close legacy disputes. The rejection based on the supposed exclusion of VCES-related matters was found erroneous. The Court also held that an arrears declaration could not be refused merely because the principal tax had already been paid where the surviving demand was for interest on that same service tax liability. The rejection was quashed and the matter remitted for fresh consideration.

---

---

Issues: (i) Whether a dispute arising out of proceedings under the VCES, which operated in relation to liability under the Finance Act, 1994, could be treated as falling within the enactments covered by the Sabka Vishwas Scheme; (ii) Whether a declaration under the arrears category could be rejected merely because the principal tax had been paid, when the show cause notice and demand related to interest on the underlying service tax dues.

Issue (i): Whether a dispute arising out of proceedings under the VCES, which operated in relation to liability under the Finance Act, 1994, could be treated as falling within the enactments covered by the Sabka Vishwas Scheme.

Analysis: The Scheme applied to Chapter V of the Finance Act, 1994. The liability in question, the show cause notice, and the interest demand all stemmed from service tax proceedings under that enactment. The VCES was held to be part of the statutory framework operating on the Finance Act, 1994 for service tax matters, and the exclusionary reasoning adopted by the Designated Committee was found to be erroneous. A beneficial settlement scheme was required to be construed liberally to advance closure of legacy disputes.

Conclusion: The objection that the matter was outside Section 122 was rejected and the issue was answered in favour of the petitioner.

Issue (ii): Whether a declaration under the arrears category could be rejected merely because the principal tax had been paid, when the show cause notice and demand related to interest on the underlying service tax dues.

Analysis: The demand under challenge was for interest on delayed payment of service tax. The scheme covered not only tax dues but also connected interest and penalty liability, and the discharge mechanism under the Scheme was meant to conclude the entire matter for the covered period. The fact that the principal amount had already been paid did not, by itself, exclude a declaration where the dispute still survived in relation to interest arising from the same tax liability.

Conclusion: The rejection on the ground that no duty was pending was unsustainable and the issue was decided in favour of the petitioner.

Final Conclusion: The rejection under the Sabka Vishwas Scheme was quashed, and the matter was remitted for fresh consideration in accordance with the Court's findings.

Ratio Decidendi: A legacy dispute under the service tax regime may be brought within the Sabka Vishwas Scheme where the underlying liability arises under the Finance Act, 1994, and an interest-only demand connected with that liability cannot be excluded merely because the principal tax has already been paid.

---