Cigarette manufacturer's SVLDR applications cannot be rejected wholesale without hearing despite tobacco exclusions under Section 125(1)(h)

The HC quashed orders wholesale rejecting a cigarette manufacturer's applications under the SVLDR Scheme without hearing. While tobacco products are statutorily excluded from scheme benefits under Section 125(1)(h) of Finance (No. 2) Act, 2019 and Fourth Schedule of Central Excise Tariff Act, 1985, the petitioner's claims for input service credits and other non-tobacco goods required examination on merits. The court held that wholesale rejection without opportunity of hearing violated natural justice principles. The matter was remanded to authorities for fresh consideration with proper hearing, while reserving all contentions on merits and limitation for first instance decision.

---

---

1. ISSUES PRESENTED and CONSIDERED

(i) Whether the Petitioner, being a manufacturer of cigarettes, is eligible to avail benefits under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDR Scheme), particularly in light of Section 125(1)(h) of the Finance (No. 2) Act, 2019 and the Fourth Schedule to the Central Excise Tariff Act, 1985, which exclude tobacco products from the Scheme's benefits.

(ii) Whether the wholesale rejection of the Petitioner's applications for benefits under the Scheme, without providing an opportunity of hearing, is legally sustainable.

(iii) Whether the Petitioner's applications relating to goods and input credits other than those falling under the Fourth Schedule can be summarily rejected without examination on merits.

(iv) The procedural propriety and legality of the impugned orders rejecting the Petitioner's applications.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Eligibility of the Petitioner under the SVLDR Scheme in respect of tobacco products

The legal framework governing this issue is Section 125(1)(h) of the Finance (No. 2) Act, 2019, which excludes manufacturers of tobacco products and goods listed in the Fourth Schedule of the Central Excise Tariff Act, 1985 from availing benefits under the SVLDR Scheme. The Fourth Schedule specifically enumerates tobacco and related products, thereby explicitly barring such manufacturers from the Scheme's relief.

The Court acknowledged the Respondents' contention that the Petitioner's involvement in cigarette manufacturing rendered it ineligible for benefits under the Scheme in respect of such products. This interpretation aligns with the statutory language, which is clear and unambiguous in excluding tobacco products from the Scheme.

However, the Petitioner's counsel clarified that the claim for benefits was not in relation to tobacco products or goods falling under the Fourth Schedule but pertained to other lines of business and input service credits. This distinction was crucial in the Court's analysis.

Issue (ii): Legality of wholesale rejection without hearing

The Petitioner challenged the impugned orders on the ground that the applications were rejected wholesale without affording any opportunity for hearing, thereby violating principles of natural justice. The Petitioner contended that such rejection deprived it of the opportunity to avail benefits under a statutory scheme, which warranted at least a hearing before adverse orders were passed.

The Respondents countered that the statutory provisions were clear and categorical, negating the necessity for a hearing before rejection.

The Court found merit in the Petitioner's argument, emphasizing that even if certain claims relating to tobacco products were barred, wholesale rejection of all applications without examining the merits or providing a hearing was impermissible. The Court underscored that no material was placed on record to justify summary rejection of claims concerning goods or credits other than those falling under the Fourth Schedule.

Thus, the Court held that the principle of audi alteram partem (right to be heard) must be observed before rejecting applications under the Scheme.

Issue (iii): Examination on merits of applications relating to goods other than those in the Fourth Schedule

The Court noted the Petitioner's categorical statement that no benefits were claimed in respect of tobacco products. The Petitioner sought benefits for input service credits and other goods not covered by the Fourth Schedule.

The Court held that such claims could not be summarily rejected without examination on merits. It directed the concerned authorities to consider these applications afresh, thereby ensuring that the Petitioner's rights under the Scheme were protected to the extent permissible by law.

The Court explicitly reserved all contentions regarding merits and limitation issues for decision by the relevant authorities in the first instance, thereby maintaining procedural propriety and adherence to statutory mandates.

Issue (iv): Procedural propriety of the impugned orders

The impugned orders dated 31 December 2019 and 16 March 2020 were challenged for being wholesale rejections without due process.

The Court found that such orders were vulnerable to interference as they failed to differentiate between claims barred under the Fourth Schedule and those permissible under the Scheme. The absence of any hearing or opportunity to explain the claims was a significant procedural lapse.

The Court set aside the impugned orders and directed the authorities to reconsider the applications in accordance with law and after affording an opportunity of hearing to the Petitioner.

3. SIGNIFICANT HOLDINGS

"We are satisfied that the impugned orders, to the extent they reject wholesale the Petitioner's applications under the Scheme, warrant interference."

"Nothing was shown to us based on which it could be said that the Petitioner's applications under the Scheme in respect of goods or credit other than those falling under the Fourth Schedule could have been straightaway rejected without examination on merits."

"Before such wholesale rejection, the Petitioners should at least have been given an opportunity to be heard and explain their position."

"We see no good reason why the Petitioner's applications under the Scheme, which concern goods or input credits for goods and services other than those falling under the Fourth Schedule, should not be considered on their merits and in accordance with law."

"All contentions of the parties regarding the merits of the matter or any limitation issue can be kept open for decision by the relevant authorities in the first instance."

Core principles established include:

• The exclusion of tobacco products and goods listed in the Fourth Schedule from the SVLDR Scheme benefits is clear and unambiguous.
• Wholesale rejection of applications without hearing violates principles of natural justice and is liable to be set aside.
• Claims relating to goods and input credits other than those excluded by statute must be examined on merits.
• Procedural fairness requires that affected parties be given an opportunity to be heard before adverse decisions are taken under statutory schemes.

Final determinations:

• The Petitioner is not entitled to benefits under the Scheme in respect of tobacco products and goods falling under the Fourth Schedule.
• The impugned orders rejecting the Petitioner's applications in toto are quashed to the extent they pertain to goods and input credits other than those excluded.
• The authorities are directed to reconsider the Petitioner's applications afresh, after providing an opportunity of hearing and in accordance with law.
• All substantive and procedural issues, including limitation, are reserved for decision by the competent authorities.

---