2025 (9) TMI 1159 - HC - Service Tax

SCNs issued before 30 June 2019 treated tax dues under Section 123(b); redemption fines covered, discharge certificate per Section 129

Gaurav Jain. Proprietor Of M/s. Gaurav Enterprises, Satish Kumar Jain, Puneet Jain, Proprietor Of M/s. S.K. Jain & Co. Versus Union Of India & Ors.

HC allowed the petition and held that SCNs issued before 30 June 2019 constitute tax dues under Section 123(b) of the SVLDR Scheme and the applicants are ... Seeking directions to declare that the two SCN pertain to the same matter and the discharge certificate issued in respect of SCN concludes the proceedings initiated vide Show Cause Notice - whether redemption fine is to be considered as part of duty, penalty or the amount eventually payable and is hence, covered by the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (the SVLDR Scheme) or not? - HELD THAT:- A perusal of Section 123 (b) of the SVLDR Scheme would show that `tax dues’ in terms of the said provision would mean the duty payable in a show cause notice issued prior to 30th June 2019. In the present case, both SCNs have been issued to the Petitioners prior to the said date. Thus, the SCNs had raised a demand which was pending and yet to be adjudicated. - this Court is of the opinion that the Petitioners herein do not fall under the category of ineligible applicants, as stated under Section 125(1)(a) of the SVLDR Scheme. Thus, the declarations filed by the Petitioners under the Scheme shall not be deemed to be considered ineligible. Various amounts which are prescribed in the SVLDR Scheme are amounts relatable to the show cause notices, tax dues relatable to a show cause notice for late fee or penalty or relatable to amount in arrears. Different percentages have been fixed, which if paid in accordance with the Scheme, under Section 129, the discharge certificate is to be issued by the Department - Section 124(2) of the SVLDR Scheme makes it clear that if the tax payer has deposited any amounts as pre-deposit at the appellate stage, it would be deducted from the amount payable. However, the tax payer would not be entitled for any refund of such amount. A perusal of the provisions of the Central Excise Act, 1944 would show that whenever there is confiscation due to non-payment of excise duty, seizure of relevant material can be done under Section 12F and a fine would have to be paid by the tax payer for release of the goods which have been confiscated. Such a fine is called the redemption fine. Hence, the seizure and/or redemption fine is nothing but a consequence of non-payment of excise duty. The same cannot be considered as a separate category of penalty, insofar as the applicability of the SVLDR Scheme is concerned - Under the SVLDR Scheme, Section 124 provides that only the part of the excise duty has to be paid, depending upon the amount of tax due. Hence, the same can be either 40%, 50%, 60% or 70% of the tax dues and there is no requirement to pay either the balance tax alongwith the penalty or any interest. The redemption fine would be covered under duty and penalty and a separate mention of redemption fine was not required either under SVLDR Scheme-I or in terms of the clauses in the scheme itself - The scheme of the Central Excise Act, 1944 reveals that whenever there is non-payment of excise duty in respect of any goods, there can be various consequences. There can be seizure of goods and/or relevant material, a redemption fine can be imposed for release of goods. Such seizure or imposition of redemption fine, is nothing but a fine being paid due to non-payment of duty. Once the duty itself gets settled under the SVLDR Scheme, it would not be appropriate to interpret the Scheme in a manner that would be contrary to the intention thereof. This Court is of the opinion that when penalties and interest are being waived under the SVLDR Scheme but the redemption fine is not waived, as is being argued by the Respondents, such an interpretation would go contrary to the fundamental purpose and the raison d'être of the SVLDR Scheme itself. In the opinion of this Court, the purpose of the SVLDR Scheme is to give a finality to a particular dispute and not to keep the aspect relating to redemption fine pending. Seizure cases are also no exception to this. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether 'redemption fine' payable in lieu of confiscation/seizure under the Central Excise Act, 1944 constitutes part of 'duty', 'penalty' or the 'amount payable' under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDR Scheme), and thereby is eligible for waiver/immunity upon compliance with the Scheme. 2. Whether a discharge certificate issued under the SVLDR Scheme in respect of one show cause notice (SCN) arising from the same investigation/proceedings operates to conclude and discharge other contemporaneous SCNs arising from the same facts (including SCNs seeking confiscation and SCNs seeking duty), or whether separate payment/ adjudication of redemption fine is a prerequisite. 3. Whether the CBIC communication/clarification that a discharge certificate can be issued in confiscation/redemption-fine cases only after adjudication/quantification and payment of redemption fine is tenable in law in light of the Scheme's language, object and judicial pronouncements. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of 'redemption fine' under the SVLDR Scheme Legal framework: - Relevant SVLDR Scheme provisions: definitions in Section 121 (including 'amount of duty', 'amount in arrears'), Section 123(b) ('tax dues' where SCN received before 30.6.2019), Section 124 (calculation of relief based on 'tax dues'/'amount of duty'), Section 127(8) (issue of discharge certificate on payment), and Section 129 (effects of discharge certificate: waiver of further duty, interest or penalty; immunity from prosecution; conclusiveness). - Central Excise Act, 1944: Section 12F (search and seizure); Section 34 (option to pay fine in lieu of confiscation / redemption fine); Section 34-A (confiscation/penalty not to interfere with other punishments). Precedent treatment (followed): - High Court decisions (Gujarat, Allahabad, Punjab & Haryana, Bombay and coordinate benches) have held that redemption fine is a species of penalty/duty in the statutory scheme and falls within the ambit of 'penalty' or the 'amount payable' for purposes of discharge under the SVLDR Scheme. The CBIC's contra-clarification has been judicially disapproved. The Court follows these precedents. Interpretation and reasoning: - Redemption fine is a statutory consequence of seizure/confiscation under Section 34 of the Central Excise Act; it is payable in lieu of confiscation and arises directly from non-payment of excise duty. - SVLDR Scheme's objective is to resolve legacy disputes by prescribing payment of a percentage of 'tax dues' (defined via 'amount of duty') and thereafter granting waiver of further duty, interest and penalty and immunity. The Scheme's publicity materials, FAQs and CBIC flyers represent that there is 'Total waiver of interest, penalty and fine' and 'Immunity from prosecution.' - The Scheme uses broad terminology (duty, interest, penalty, amount payable) and does not expressly exclude redemption fine; therefore, redemption fine cannot be read out of the Scheme without contravening its object of finality and settlement of legacy disputes. - Reading Section 121(d) ('amount of duty' = central excise duty etc.), Section 123(b) and Section 124 together indicates that what is required to be deposited is the tax dues relatable to the SCN (i.e., amount of duty as stated), and once that payment is made in accordance with the Scheme, the discharge certificate operates to waive further liabilities including penalties/fines arising from the same dispute. Redemption fine being a consequence of non-payment of duty and a 'fine' in lieu of confiscation is naturally encompassed. Ratio vs. Obiter: - Ratio: Redemption fine is part of the liabilities that the SVLDR Scheme is intended to extinguish once the prescribed 'tax dues' are paid and a discharge certificate is issued; absence of an express exclusion in the Scheme means redemption fine falls within 'penalty/fine' waived by Section 129. - Obiter: Observations regarding the utility of CBIC publicity material as an interpretive aid are supportive but ancillary to the statutory construction; however, reliance on contemporanea exposition is treated as legitimate interpretive aid where statutory language is not contrary. Conclusions: - Redemption fine constitutes a penalty/payment that falls within the ambit of amounts waived or rendered non-recoverable upon valid issuance of a discharge certificate under the SVLDR Scheme, and a taxpayer who pays the Scheme-prescribed amount is not liable to a separate redemption fine in respect of the same matter and time period. Issue 2: Effect of discharge certificate issued in respect of one SCN upon other SCNs from same proceedings Legal framework: - SVLDR Scheme Section 123(b), Section 124, Section 127(8), Section 129(1) (conclusiveness) and Section 129(2)(b) (non-preclusion for subsequent time periods/different matters) govern scope and effect of discharge certificates; Central Excise Act provisions (Sections 12F, 34) show confiscation/redemption fine is a consequence of duty evasion. Precedent treatment (followed/distinguished): - Courts have held that where multiple SCNs arise from the same investigation/search/seizure and are plainly interlinked (one SCN for confiscation/seizure and another for duty/penalty), the Scheme contemplates settlement of the dispute as a whole and a discharge certificate should not be issued selectively in a manner that leaves related proceedings unresolved. Interpretation and reasoning: - Where SCNs emanate from the same facts/investigation and amounts/demands are intertwined (e.g., appropriation of sums recovered, continuity between SCN-I and SCN-II), treating them as parts of the same 'case' for SVLDR purposes is consistent with the Scheme's objective of finality. - Issuing a discharge certificate in respect of only the duty SCN while excluding the confiscation SCN (which seeks redemption fine) would frustrate the Scheme's purpose and yield an anomalous outcome; since redemption fine is part of the liabilities arising from the same transaction, settlement should encompass both. Ratio vs. Obiter: - Ratio: Discharge certificate issued after payment under the Scheme in respect of a matter arising from a particular investigation must be construed to conclude other SCNs arising out of the same investigation/transaction/period where the demands are interlinked; separate adjudication or payment of redemption fine is not a pre-condition if the Scheme conditions are otherwise satisfied. - Obiter: Details on administrative steps for consolidation/identification of multiple SCNs are procedural and may vary; the core legal principle is one of substance over form in identifying the 'case'. Conclusions: - The designated committee should treat interrelated SCNs from the same investigation as part of the same case under the Scheme; a discharge certificate issued in respect of one such SCN (upon Scheme compliance) should conclude the related SCN(s), including those involving confiscation/redemption fine, where they arise from the same facts and period. Issue 3: Legality of the CBIC clarification requiring prior adjudication/ payment of redemption fine before issuing discharge certificate Legal framework: - Statutory text of the SVLDR Scheme (Sections 121-129) and the role of administrative clarifications; principle that administrative clarifications cannot override statutory intent and are subject to judicial review. Precedent treatment (overruled/distinguished): - Judicial precedents have held the CBIC's 20.12.2019 clarification - that discharge certificates in redemption-fine cases can be issued only after adjudication/payment of redemption fine - to be contrary to the Scheme's intent and have quashed reliance on that clarification. The present Court aligns with those decisions. Interpretation and reasoning: - The CBIC clarification reads into the Scheme an express requirement that is absent from the statutory text; it restricts the Scheme's benefits contrary to the Scheme's object of finality and settlement and contrary to the Scheme's definitions and waiver provisions. - The Scheme, its definitions and the publicity materials collectively indicate waiver of 'penalty' and 'fine' as consequential upon payment of the prescribed 'tax dues'; hence the Board's narrower administrative interpretation cannot be sustained where it defeats statutory purpose. Ratio vs. Obiter: - Ratio: The CBIC clarification to the effect that discharge certificates in confiscation/redemption-fine matters are contingent on prior adjudication/quantification and payment of redemption fine is inconsistent with the Scheme and cannot bar issuance of discharge certificates where Scheme conditions are met. - Obiter: Comments on estoppel and administrative responsibility for clear FAQs are instructive but ancillary. Conclusions: - The CBIC clarification cannot be invoked to deny Scheme benefits where the statutory scheme, its definitions, objectives and judicial interpretations support inclusion of redemption fine within amounts discharged by a valid discharge certificate; designated committees must act in accordance with the Scheme and judicial precedents. Final operative conclusion applied to the present facts (as considered by The Court) - Redemption fine is covered by the SVLDR Scheme's waiver of duty, interest and penalty once the Scheme-prescribed amount is paid; administrative clarifications to the contrary are not tenable in law in the face of the Scheme and binding judicial precedents. - Where multiple SCNs arise from the same search/seizure/investigation and the demands are interlinked, a discharge certificate issued upon compliance with the Scheme in respect of one SCN should conclude the related SCN(s) (including confiscation/redemption-fine related SCNs) and the Department must issue the requisite discharge certificate(s) under Section 129 within the stipulated period, subject to fulfilment of other Scheme conditions.