Broad interpretation of show cause notice brought differential excise duty within KVSS and required processing of the declaration.

A prior departmental letter directing clearance of samples on a higher assessable value was treated as a show cause notice, so the refusal to entertain the KVSS declaration was unjustified. The differential excise duty was held to be "tax arrears" under Section 87(m) because it remained unpaid and arose from proceedings covered by a notice issued before 31 March 1998. The court also construed "show cause notice" broadly for KVSS purposes and directed the designated authority to process the declaration, quashing the impugned letter and demand cum show cause notice.

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Issues: Whether the differential duty arising from finalisation of provisional assessments for the period 1 September 1995 to 31 January 1998 constituted "tax arrears" under the Kar Vivad Samadhan Scheme, and whether the declaration could be rejected on the ground that no separate show cause notice had been issued for that amount on or before 31 March 1998.

Analysis: The Scheme was intended to provide settlement of outstanding indirect tax disputes and had to be applied purposively. For indirect tax matters, "tax arrears" included amounts determined as due and payable on or before 31 March 1998 but remaining unpaid, as well as amounts forming the subject-matter of a demand notice or show cause notice issued on or before that date. The Court found that the dispute over valuation had been alive from the departmental direction dated 26 July 1995, that the subsequent clearances were assessed provisionally because of the pending dispute, and that the final differential duty for the later period was determined only on 17 September 1998 by reference to the earlier adjudication. In substance, the departmental communication and the continuing provisional assessments kept the demand alive, and the absence of a fresh show cause notice did not take the matter outside the Scheme.

Conclusion: The differential duty of Rs. 19,29,642/- was tax arrears within the meaning of the Scheme, and the declaration was wrongly returned; the impugned return of declaration and the consequential demand-cum-show cause notice were liable to be quashed in favour of the assessee.

Final Conclusion: The writ petition succeeded, the designated authority was required to process the declaration afresh in accordance with law, and the consequential recovery notice could not stand.

Ratio Decidendi: Where duty on provisional assessments is finally determined as payable in respect of a dispute that was already brought to the assessee's notice before 31 March 1998 and remained unpaid, the amount may constitute "tax arrears" for settlement under the Scheme even if no fresh show cause notice for the quantified amount was separately issued before that date.

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