2025 (8) TMI 1210 - HC - Service Tax

SVLDRS 2019 declaration set aside for material misrepresentation and suppression; SVLDRS application treated as not filed

The Designated Committee (under SabkaViswas (Legacy Disputes Resolution) Scheme, 2019), The Commissioner of Central Excise Versus M/s. Heaven Engineering, Represented by its Prop: S. Sathish Kumar

HC held the Declaration under the SVLDRS, 2019 was procured by material misrepresentation and suppression of an ongoing investigation, as the respondent ... Eligibility of persons to make a Declaration under Sabka Viswas Legacy Disputes Resolution Scheme, 2019 - Designated Committee had issued a Discharge Certificate in Form SVLDRS – 4 under the Scheme - mis-representation and fraud committed by the respondent in the Declaration form - Section 125 of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - HELD THAT:- The selection of category as ‘voluntary disclosure’ is, undoubtedly, incorrect. The factum of investigation in 2014 and 2019 is admitted, as statements have also been recorded from the respondent in the course thereof. Hence it stands to reason that the respondent ought to have selected the category ‘Investigation, Enquiry or Audit’ and the selection by him of another category which is incorrect amounts to a material falsehood, to the knowledge of the Respondent. The Circulars, particularly Circular dated 25.09.2019 reiterates the requirement that the disclosure of information is true, and there can be no compromise in that regard. The relevant provision makes it clear that suppression of a material fact would efface the very Declaration and this is what has been emphasised in the Circulars - Investigation was re-commenced on 06.12.2019 by the same agency and statements were recorded by the Investigating Officer on 09.12.2019 and 04.02.2020. The position that investigation was on-going is thus established and there can be no two opinions in this regard. The total lack of coordination between the officers in the Department is apparent, especially between the authority who issued the show cause notice and the officers in the Designated Committee, who proceeded to issue Form SVLDRS -3 and discharge certificate without reference to the show cause notice. The application filed in this case is vitiated by non-disclosure of material particulars, being the field relating to ‘category’. As a result, the SVLDRS application is presumed not to have been filed at all. The order of the Writ Court is reversed and this Writ Appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a declarant who was under ongoing investigation/enquiry/audit as on 30.06.2019, and/or who made a voluntary disclosure after being subjected to such investigation, was eligible to make a Declaration under Section 125 of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. 2. Whether an incorrect selection of category in the electronic Declaration (selecting 'Voluntary Disclosure' instead of 'Investigation, Enquiry or Audit') constitutes a false or suppressed 'material particular' sufficient to trigger Section 129(2)(c) and render the Declaration a nullity. 3. Whether the issuance of SVLDRS-3, receipt of payment and issuance of SVLDRS-4 (Discharge Certificate) can be rescinded/obliterated where the Declaration is later found to contain a material falsehood within the scheme-prescribed period. 4. Effect of administrative circulars and Board guidance on acceptance/verification of voluntary-disclosure Declarations and the department's obligation or discretion to invoke Section 129(2)(c) on detection of false particulars. 5. Legal significance of discrepancy between the name of the applicant and the registered taxpayer (proprietor name vs. proprietorship firm) in the Declaration. 6. Whether departmental inaction or earlier verification/representations (clean chit letters) affect the Department's right to proceed under the Scheme once a material mis-declaration is discovered. 7. Remedies and consequential relief: whether payment made under the Scheme is forfeited and whether adjudication on an earlier show-cause notice may proceed following obliteration of the Declaration. ISSUE-WISE DETAILED ANALYSIS Issue 1: Eligibility under Section 125 (investigation/enquiry/audit and voluntary disclosure bars) Legal framework: Section 125 prescribes persons ineligible to make a Declaration, notably clauses (e) (subjected to enquiry/investigation/audit with duty amount not quantified on or before 30.06.2019) and (f) (voluntary disclosure after being subjected to enquiry/investigation/audit). Precedent treatment: No binding precedent was treated as overruling these statutory bars; the Court examined scheme text and administrative materials. Interpretation and reasoning: The Court found on material (file notings and recorded statements) that investigation commenced in 2014 and recommenced in December 2019 with statements recorded in December 2019 and February 2020. Therefore the facts fell squarely within Section 125(1)(e) and (f). The Court held that such bars are attracted even though the Declaration was electronically filed and despite the system-based possibility of incorrect selection. Ratio vs. Obiter: Ratio. The holding that an ongoing investigation/enquiry/audit attracts the statutory bars in Section 125 and renders the person ineligible is central to the decision. Conclusion: The declarant was ineligible under Section 125(1)(e) and (f); the Declaration should not properly have been accepted as qualifying under the Scheme. Issue 2: Incorrect category selection as material falsehood triggering Section 129(2)(c) Legal framework: Section 129(1) renders a discharge certificate conclusive; Section 129(2)(c) provides that 'in a case of voluntary disclosure where any material particular furnished in the declaration is subsequently found to be false, within a period of one year of issue of the discharge certificate, it shall be presumed as if the declaration was never made' - with statutory consequences. Precedent treatment: The Court relied on statutory language; it referred to the S.P. Chengalvaraya Naidu principle on fraud invalidating acts but treated that authority as reinforcing the general principle that fraud/misrepresentation vitiates transactions and settlements. Interpretation and reasoning: The Court accepted that the choice of 'Voluntary Disclosure' instead of 'Investigation, Enquiry or Audit' was an incorrect selection and amounted to a material falsehood known to the declarant, given admitted investigations and recorded statements. The plain language of Section 129(2)(c) was read to create a presumption of obliteration of the Declaration on detection of such false material within one year of issuance of the discharge certificate. The Court found the falsehood satisfied the clause and that the presumption was triggered. Ratio vs. Obiter: Ratio. The determination that misclassification of category is a material particular within Section 129(2)(c) and can obliterate the Declaration is central. Conclusion: The incorrect category selection amounted to a material falsehood; Section 129(2)(c) applies and the Declaration is presumed never made for purposes of the Scheme. Issue 3: Effect of obliteration - rescission of subsequent acts (Forms, payment, discharge certificate) and forfeiture of amounts Legal framework: Section 129(2)(c) (presumption of non-existence of the Declaration) and Section 130(1)(b) (amount paid under Scheme shall not be refundable). Interpretation and reasoning: The Court held that obliteration under Section 129(2)(c) is comprehensive, affecting all processes post-submission including issuance of SVLDRS-3, receipt of payment and issuance of SVLDRS-4. Since Section 130(1)(b) forbids refund of amounts paid, the declarant forfeits the payment made under the Scheme. Ratio vs. Obiter: Ratio concerning consequences flowing from statutory text (obliteration effect and non-refundability). Conclusion: The Declaration and all consequent acts are obliterated; amounts paid under the Scheme are not refundable and stand forfeited. Issue 4: Effect of Circulars and administrative guidance on verification and acceptance of Declarations Legal framework: Board Circulars (including Nos. 1072/05/2019 and 1073/06/2019) clarifying Scheme implementation and stating that voluntary disclosures may be accepted without verification but that false declaration may attract action under Section 129(2)(c). Interpretation and reasoning: The Court read the Circulars as consistent with the proposition that voluntary-disclosure Declarations can be accepted without verification but that the Scheme explicitly preserves remedies for false declarations. The Circulars do not immunize a false/materially defective Declaration from obliteration under Section 129(2)(c). The Court found the Circulars to support the conclusion that suppression is fatal and emphasised that acceptance without verification is subject to later action if false particulars are found within the statutory period. Ratio vs. Obiter: Ratio to the extent that administrative guidance does not override statutory safeguards; obiter for peripheral comments on practical acceptance procedures. Conclusion: Circulars do not prevent invocation of Section 129(2)(c) where a material particular is subsequently found false; the Department retains the right to act. Issue 5: Name discrepancy (proprietor name vs. registered dealer name) - materiality and intent Legal framework: Scheme requires truthful particulars in electronic Declaration; materiality assessed in context. Interpretation and reasoning: The Court found that although the application bore the proprietor's name while the GSTN corresponded to the proprietorship firm, departmental records (returns Form ST-3) indicated that the proprietor and the proprietorship were the same for tax purposes. Thus the Court did not regard this discrepancy as necessarily deliberate misrepresentation of material consequence; it treated this point as less serious than the category mis-declaration. Ratio vs. Obiter: Obiter on lesser significance of the name discrepancy relative to the category falsehood. Conclusion: Name discrepancy did not, on the facts, alter the conclusion reached on material mis-declaration; it was not determinative of deliberate fraud in itself. Issue 6: Departmental inaction, prior 'clean chit' communications and estoppel/knowledge Legal framework: Scheme provisions and administrative/investigative record; principles of estoppel and administrative conduct. Interpretation and reasoning: The Court noted that several departmental communications dated late February 2020 indicated no record of investigation to the office processing the Declaration, leading to issuance of Forms and Discharge Certificate. The Court found these to be a product of internal lapses, mis-coordination and oversight. However, such earlier inaction or issuance of 'clean chits' did not preclude later invocation of Section 129(2)(c) when the material falsehood was uncovered within the statutory period. The Court rejected the contention that departmental inaction estops the Department from proceeding; it also observed internal disciplinary steps and administrative warnings against officers for processing lapses, underscoring institutional error rather than immunity of the Declaration. Ratio vs. Obiter: Ratio in holding that departmental inaction does not bar invocation of statutory remedy under Section 129(2)(c); obiter regarding internal disciplinary findings. Conclusion: Prior verification letters/inaction do not prevent the Department from invoking Section 129(2)(c) upon discovery of material falsehood; internal errors do not validate a defective Declaration. Issue 7: Adjudicatory remedy and directions following obliteration Legal framework: Scheme, principles of natural justice and statutory adjudication on show-cause notices; Section 129 and Section 130. Interpretation and reasoning: Given obliteration of the Declaration, the Court concluded the prior show-cause notice may be adjudicated afresh. To safeguard fairness and administrative propriety, the Court directed adjudication in accordance with law, adherence to principles of natural justice, and reassignment of adjudication to another Commissionerate to ensure impartiality and completion within a fixed time-frame. Ratio vs. Obiter: Ratio in directing re-adjudication and adherence to natural justice; procedural directions are consequential to the primary holdings. Conclusion: The Department may proceed with the show-cause notice; adjudication must follow natural justice, be entrusted to a different Commissionerate and be concluded within a stipulated period. No costs were awarded.