2025 (9) TMI 336 - HC - Service Tax

Rejection of SVLDR-1 declaration quashed for lack of hearing; declaration accepted and duty fixed at Rs.1,06,21,929.

HC found rejection of the SVLDR-1 declaration violated principles of natural justice for failure to grant hearing and quashed the rejection. The ... Rejection of the declaration Form SVLDRS-1 filed by the Petitioner - default in payment of Servicetax dues on account of financial crunch - declaration was rejected without giving any opportunity of hearing - Violation of principles of natural justice - HELD THAT:- On the peculiar facts of the present case and since prior to rejection no opportunity of hearing was given to the Petitioner, the declaration filed by the Petitioner under Form SVLDR-1 should be accepted by taking the duty liability at Rs. 1,06,21,929/-. It is also important to note that if rejection of the declaration is to be upheld then show cause notice will have to be adjudicated resulting into order in original against which appeal would lie to the first appellate authority and thereafter to the Tribunal and ultimately to the High Court and/or Supreme Court. Pending the appeal before the first appellate authority and the Tribunal, the Petitioner would be required to pay only pre-deposit of certain percentage of demand and the balance will be stayed. In such circumstances, the Revenue will not get the benefit of recovering the amount demanded immediately but will have to wait for more than a decade, looking at the pendency before the appellate authorities and after a decade again for enforcing the demand if the Respondents succeed which would lead to uncertainty. It is also important to note that by letter dated 1 March 2019 also the Petitioner had quantified and admitted certain liability and requested the Respondents to give their working which till today has not been replied to by the Respondents. Therefore, the two decisions relied upon by the respondent in the case of JSW Steel Limited [2021 (10) TMI 990 - BOMBAY HIGH COURT] and Shri Siddhi Kumar [2021 (2) TMI 982 - BOMBAY HIGH COURT] are not applicable to the facts of the present case. The FAQs issued by the Respondents dated 27 August 2019 (page 68 of the Writ Petition) and answer to question-45 (page 70 of the Writ Petition) also supports the case of the Petitioner that the quantification was done before the cut-off date. Rejection of SVLDR-1 declaration filed by the Petitioner vide e-mail dated 6 February 2020 is quashed and set aside - Respondents to calculate the revised amount payable under the SVLDR Scheme by taking the duty quantified at Rs. 1,06,21,929/- - The revised quantification to be reduced by Rs. 29,72,500/- being pre-deposit made by the Petitioner and subject to verification - Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED Issue 1: Whether the assessees' duty was 'quantified' for the purposes of eligibility under Section 125(1)(e) of the Finance (No. 2) Act, 2019 (SVLDR Scheme) on or before the cut-off date of 30 June 2019. Issue 2: Whether rejection of the SVLDRS-1 declaration without affording an opportunity of hearing violated the statutory requirement under Section 127 (or other applicable provisions) and thereby vitiated the rejection. Issue 3: Appropriate relief and directions where declaration was rejected but (i) a prior admission/quantification appears on record before cut-off and (ii) the petitioner subsequently agreed to the Revenue's quantified figure. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework: Section 125(1)(e) of the Finance (No. 2) Act, 2019, conditions eligibility for SVLDR benefits on the duty being 'quantified' before the cut-off date (30 June 2019). The objective of the Scheme is to enable finalisation of legacy disputes by reference to admitted/quantified liabilities within the specified cut-off. Issue 1 - Precedent Treatment: The Court considered but distinguished decisions relied upon by the Revenue which denied scheme eligibility where no quantification existed by cut-off. Those precedents were found inapplicable because the factual matrix here included express admissions/quantifications on record prior to the cut-off. Issue 1 - Interpretation and reasoning: The Court examined contemporaneous record: a statement recorded on 11 June 2019 during investigation quantifying liability at Rs. 69,26,979/- (and net admitted payables after adjustments), and a letter dated 1 March 2019 wherein the taxpayer computed and requested the Revenue's working. The Court held that these communications constituted quantification within the meaning of Section 125(1)(e). The Revenue's later/uncommunicated internal verification or perceived incompleteness did not negate the existence of a documented quantification by the taxpayer before the cut-off. FAQ guidance issued by the Revenue was read consistently with the taxpayer's contention that written intimation sufficed. Issue 1 - Ratio vs. Obiter: Ratio: A taxpayer's written admission/quantification recorded in investigatory statements or written communication before the cut-off constitutes quantification for eligibility under Section 125(1)(e), notwithstanding the Revenue's internal non-finalisation, unless statutory provisions require a different form of quantification. Obiter: Observations on policy advantages of immediate recovery and reduction of litigation delay (paras on long appellate pendency) are persuasive but ancillary. Issue 1 - Conclusion: The Court concluded the duty was quantified prior to 30 June 2019 and therefore the petitioner satisfied the quantification requirement under Section 125(1)(e) to be eligible for the SVLDR Scheme. Issue 2 - Legal framework: Section 127 and allied procedural provisions require that where a declaration is proposed to be rejected, procedural fairness (including an opportunity of hearing) must be observed before denial of statutory benefits; administrative action must inform the declarant of reasons and allow response where statutorily mandated. Issue 2 - Precedent Treatment: The Court addressed Revenue reliance on authorities upholding rejections where quantification lacked; those precedents typically featured either absence of any pre-cut-off quantification or compliance with procedural steps. Here the Court found the precedents distinguishable for lack of similar factual admissions and for absence of procedural fairness. Issue 2 - Interpretation and reasoning: The declaration in Form SVLDRS-1 was rejected by e-mail on 6 February 2020 without a prior opportunity to be heard. The Court found that the Revenue, having a contrary view on quantum, was obliged to communicate its quantified figure and afford the declarant a chance to accept or contest it before outright rejection. Procedural denial was material because, had the hearing occurred, the declarant would have elected to accept the Revenue's quantified figure and avail the Scheme. Issue 2 - Ratio vs. Obiter: Ratio: Rejection of an SVLDR declaration without giving the declarant an opportunity to be heard and without communicating the Revenue's quantified demand is procedurally impermissible where quantification is in dispute; such omission vitiates the rejection. Obiter: Comments as to the precise content of the hearing and detailed procedural steps to be followed are supplemental and contextual to the facts. Issue 2 - Conclusion: The Court held that rejection without hearing was unlawful in the circumstances and warranted quashing of the rejection. Issue 3 - Legal framework: Relief must give effect to Scheme objectives (finalising disputes, enabling immediate recovery) while respecting admissions and ensuring fairness. Courts may direct recalculation and payment mechanisms, including interest, where acceptance of a quantification is appropriate. Issue 3 - Precedent Treatment: Authorities cited by Revenue were held not to control because they lacked pre-cut-off admissions; therefore, remedial directions previously applied in analogous contexts (acceptance of declarations, recalculation, issuance of discharge certificate) were adopted consistent with established supervisory jurisdiction. Issue 3 - Interpretation and reasoning: On the record the petitioner, after rejection, expressly agreed to accept the Revenue's quantified figure (Rs. 1,06,21,929/-) and to pay interest. The Court weighed competing public interests: (a) allowing rejection to stand would trigger protracted adjudication and appellate delay, undermining immediate recovery and Scheme objectives; (b) acceptance would terminate litigation and secure immediate revenue. Given the petitioner's present willingness to accept the Revenue's quantified figure and the procedural defect in initial rejection, the Court exercised discretion to direct acceptance of the declaration on the Revenue's quantification, subject to usual adjustments (pre-deposit verification) and interest specified. Issue 3 - Ratio vs. Obiter: Ratio: Where a declarant has made pre-cut-off quantification and, following procedural deficiency by the Revenue, is willing to accept the Revenue's quantified demand, the Court may direct acceptance of the SVLDR declaration on that quantified basis and order recalculation, adjustments for pre-deposits, interest, payment timelines, and issuance of discharge certificate. Obiter: Observations about the long delay in appellate process and policy advantages of immediate recovery frame the exercise of discretion but are not prescriptive beyond the facts. Issue 3 - Conclusion: The Court quashed the rejection, directed the Revenue to accept the SVLDR declaration taking duty as Rs. 1,06,21,929/-, adjust it by the verified pre-deposit, levy interest at the specified rate from the date identified, communicate revised amount within a fixed period, allow payment within a fixed period, and issue a discharge certificate thereafter - thereby giving final remedial effect consistent with Scheme objectives and procedural fairness.