2024 (10) TMI 1729 - HC - Service Tax

Voluntary payments during ongoing inquiry not deductible under Section 124(2) SVLDRS 2019; Section 124(1)(e) relief denied and Section 125(e) inapplicable

HC held that amounts voluntarily remitted during an ongoing inquiry are not deductible under Section 124(2) of SVLDRS 2019 because that provision permits ... Interpretation of statute - Section 124(2) of the SVLDRS 2019 - Amounts voluntarily remitted by a declarant during an ongoing inquiry/investigation - deductible under Section 124(2) of the SVLDRS 2019 or not - eligibility to make declaration - HELD THAT:- Section 124 explains the deductions that could be made while calculating relief available under the SVLDRS 2019. Section 124(2) which deals with the deduction, only envisages the deduction of amounts that have been paid as ‘pre-deposit’ or as ‘deposit’ ‘during an inquiry/ investigation’. It follows that amounts that had been paid other than by way of any of ‘pre-deposit’ or as ‘deposit’ ‘during an inquiry/ investigation’ will not be counted towards deduction. It is also relevant to note that Section 124(1)(e) stipulates that the reliefs mentioned in Section 124(1)(a) to (d) shall not be available where the tax dues are payable on account of a voluntary disclosure by the declarant. Admittedly an investigation had commenced pursuant to a search in 2015. The same was underway with respect to the service tax due from the appellant. The appellant had in the course of the said investigation voluntarily and without any demand or compulsion from the Department, remitted the tax which he was due and liable to pay. According to the Department, even while doing so, he had suppressed/ concealed certain taxes that were due from him. The appellant had later filed statements admitting the tax dues and mentioning the amounts that he had paid and not paid. It was thereafter that he chose to avail of the SVLDRS 2019. Appellant does not have a case that the amounts paid by him during the course of the investigation were ‘pre-deposits’ or ‘deposits’. The 1st respondent was correct in contending that the appellant had voluntarily filed returns and had paid a total amount of Rs.2,20,72,047/- as the tax covered by 7 voluntary half-yearly returns pertaining to the period 2014-15 up to 2017-18. The said amount had been voluntarily paid by him and hence under Section 124(1)(e), the same being tax dues payable and paid on account of voluntary disclosure by the appellant, he is not entitled to any relief under the SVLDRS 2019. The contention put forth by the 1st respondent that the amounts sought to be deducted cannot be termed as ‘disputed amounts subject to any legal proceedings’ they being only voluntary payments is hence valid and maintainable. Sub-section (e) of Section 125 thus mandates that a person, who has been subjected to an enquiry or investigation or audit, and the amount of duty involved in the said enquiry or investigation or audit, has not been quantified on or before the 30th day of June, 2019, is disentitled from making a declaration under SVLDRS 2019. Admittedly in the case of the appellant, the quantification had been completed only when Annexure B show cause notice dated 29.06.2020 had been issued after the completion of the investigation that followed the raid. Hence the eligibility of the appellant to make a declaration under the SVLDRS 2019 is itself precariously perched. Thus, Section 124(2) which deals with the deduction, only envisages the deduction of amounts that have been paid as ‘pre-deposit’ or as ‘deposit’ ‘during an inquiry/ investigation’. The contention put forth by the appellant that he had made deposits during the pendency of the investigation and he was entitled to the deduction of a like amount while arriving at the total tax payable in terms of Section 124(2) of the Act is unsustainable. The amounts remitted by him do not fall within the four corners of Section 124(2). Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts voluntarily remitted by a declarant during an ongoing inquiry/investigation, but not made as a statutory pre-deposit or deposit under protest or in appellate proceedings, are deductible under Section 124(2) of the SVLDRS 2019 when calculating relief payable under the Scheme. 2. Whether a person whose tax liability is subject to an inquiry/investigation but whose liability was not quantified on or before 30.06.2019 is eligible to make a declaration under SVLDRS 2019 (Section 125(1)(e)), and the effect of such eligibility on grant of relief under Section 124. ISSUE-WISE DETAILED ANALYSIS Issue 1: Deductibility under Section 124(2) of voluntarily remitted amounts during inquiry/investigation Legal framework: Section 124(1) of the Scheme prescribes the relief percentages applicable to various categories of tax dues; Section 124(2) conditions such relief by requiring deduction of 'any amount paid as pre-deposit at any stage of appellate proceedings under the indirect tax enactment or as deposit during enquiry, investigation or audit' when issuing the statement indicating amount payable. The proviso disallows refunds where such pre-deposit/deposit exceeds the payable amount. Precedent Treatment: No prior judicial authorities were invoked in the judgment to alter or qualify the statutory text; the Court relied on the plain language of the Scheme. Interpretation and reasoning: The Court construed Section 124(2) narrowly and textually. The phrase 'paid as pre-deposit at any stage of appellate proceedings' and 'as deposit during enquiry, investigation or audit' was read to denote payments made in the nature of pre-deposits required for pursuing appellate remedies or deposits made specifically in the course of inquiry/investigation as deposits in respect of disputed tax liabilities (for instance, deposits under protest or mandated provisional payments). Amounts voluntarily paid by the declarant in the ordinary course as tax dues, without qualification as pre-deposit or deposit during inquiry, were held to fall outside the statutory categories eligible for deduction. The Court additionally pointed to Section 124(1)(e) which excludes relief 'where the tax dues are payable on account of a voluntary disclosure by the declarant,' reinforcing that voluntary payments are not to attract Scheme relief. Ratio vs. Obiter: Ratio - The statutory expression in Section 124(2) permits deduction only of sums that are demonstrably 'pre-deposits' for appellate proceedings or 'deposits' made during inquiry/investigation in the character contemplated by the provision; voluntary payments of tax liabilities made during an investigation do not qualify for such deduction and cannot be set off against the statement amount under the Scheme. Obiter - The Court noted contextual indicia in the Scheme (e.g., emphasis on disputed dues) to support the textual construction; such contextual observations explain reasoning but the operative holding is the textual construction. Conclusions: Amounts voluntarily remitted by the declarant during the investigation, not characterized as pre-deposits or deposits as contemplated by Section 124(2), are not deductible in computing the relief under SVLDRS 2019. Consequently, a declarant who has paid tax voluntarily during investigation is not entitled to have those payments set off to reduce the Scheme payable amount under Section 124(2). Issue 2: Eligibility under Section 125(1)(e) where amount in enquiry/investigation was not quantified by 30.06.2019 Legal framework: Section 125(1) of the Scheme defines eligibility by excluding certain persons, including those 'who have been subjected to an enquiry or investigation or audit and the amount of duty involved in the said enquiry or investigation or audit has not been quantified on or before the 30th day of June, 2019' (sub-section (e)). Precedent Treatment: The Court did not rely on external precedent to reinterpret eligibility; it applied the statutory exclusion as drafted. Interpretation and reasoning: The Court treated Section 125(1)(e) as a clear disqualification: where the amount involved in an ongoing inquiry/investigation had not been quantified by the cut-off date, the person is ineligible to make a declaration. The factual finding was that quantification in the relevant investigation for the declarant was completed only later (show-cause dated 29.06.2020). Therefore, at the statutory cut-off (30.06.2019), the inquiry's quantification was not completed and the declarant's eligibility under the Scheme was 'precariously perched' - i.e., lacking the required entitlement under the exclusion's terms. Ratio vs. Obiter: Ratio - Section 125(1)(e) excludes persons whose enquiry/investigation amounts were not quantified by 30.06.2019 from making declarations; where quantification occurred after that date, the statutory exclusion operates to preclude eligibility. Obiter - The Court's characterization of the declarant's eligibility as 'precariously perched' serves as an explanatory, non-normative remark dependent on the factual matrix. Conclusions: The declarant whose enquiry/investigation amount was not quantified by 30.06.2019 falls within the statutory exclusion in Section 125(1)(e) and is not squarely entitled to make a declaration under SVLDRS 2019; even setting aside eligibility, the statutory text of Section 124(2) would not permit deduction of voluntary payments that are not pre-deposits or deposits during inquiry as contemplated by the Scheme. Ancillary observations relevant to both issues 1. The Scheme's objective and scope: The Court recognized the Scheme's focus on disputed dues - taxes that are evaded/escaped/short-paid or subject to dispute - and treated that legislative purpose as reinforcing the textual construction excluding voluntary payments and untreated inquiries from relief. 2. Burden of characterization: A declarant seeking deduction under Section 124(2) must demonstrate that payments were made in the character of pre-deposits or deposits during inquiry/investigation as contemplated by the provision; mere voluntary remittances of tax during an investigation, and admissions in voluntary statements, do not convert such payments into qualifying pre-deposits or deposits. 3. Effect of excess deposits: The Scheme's proviso (Section 124(2) proviso) disallows refunds where pre-deposit/deposit exceeds the amount indicated payable; this emphasizes that permitted deductions are confined to the statutory categories and do not create a right to refund for voluntary payments beyond the Scheme's mechanism. Final Conclusion The Court affirmed that (a) Section 124(2) permits deduction only of amounts paid as pre-deposits in appellate proceedings or as deposits during enquiry/investigation in the statutory sense, and not of voluntary tax remittances made during investigation; and (b) Section 125(1)(e) excludes persons whose enquiry/investigation amounts were not quantified by 30.06.2019 from making declarations under the Scheme. On these bases, the relief claimed by the declarant by way of deduction of voluntarily paid sums and resultant nil payment under the Scheme was rejected. The Court dismissed the challenge to the statement of amount payable issued under the Scheme.