Kar Vivad Samadhan Scheme relief turns on notice-based arrears; pre-notice payments do not disqualify the declarant.

Amounts paid before issuance of a demand notice or show cause notice were not treated as unpaid duty for disqualifying a declarant from Kar Vivad Samadhan Scheme relief under the Finance Act, 1998. The scheme applied only to duties, cesses, interest, fine or penalty forming the subject matter of a notice-based demand that remained unpaid on the declaration date. Payments made before notice were outside that disqualification, because they were not made pursuant to the notice-based arrear. The rejection of the declarations was therefore unsustainable, and the case was also noted as not falling within the section 95 exclusions.

---

---

Issues: Whether amounts paid by the declarant before issuance of the demand notices or show cause notices could be treated as unpaid duty so as to disqualify the declarant from the benefit of the Kar Vivad Samadhan Scheme under Section 87(m)(ii)(b) of the Finance Act, 1998.

Analysis: The scheme treated as tax arrear, in relation to indirect tax enactments, only those duties, cesses, interest, fine or penalty which constituted the subject matter of a demand notice or show cause notice issued on or before 31 March 1998 and which remained unpaid on the date of declaration. The Explanation excluded from the category of unpaid amount only payments already made voluntarily or under protest in respect of the very amounts covered by the notice-based demand. The payments here were made before the notices were issued, and therefore were not payments made pursuant to the demand notices or show cause notices. The Court also noted that the revenue had itself extended the scheme benefit in respect of other transactions and that the case did not fall within the exclusions in Section 95 of the Finance Act, 1998.

Conclusion: The pre-notice payments did not disentitle the declarant from the scheme, and the rejection of the declarations was unsustainable.

Ratio Decidendi: Under Section 87(m)(ii)(b) of the Finance Act, 1998, only payments made in relation to duties or liabilities forming the subject matter of a demand notice or show cause notice, and remaining unpaid on the declaration date, are relevant for disqualification; amounts paid before such notice cannot be treated as payments covering that tax arrear.

---