Kar Vivad Samadhan Scheme coverage extends to customs demands on warehoused goods despite section 72 invocation

A declaration under the Kar Vivad Samadhan Scheme, 1998 was covered by the Scheme where the customs duty liability had been determined on or before 31 March 1998. The Bombay HC held that the assessee could not be excluded merely because the demand related to warehoused goods or had arisen under section 72 of the Customs Act, 1962. Once the duty, interest, fine or penalty formed part of a tax arrear or demand notice within the Scheme period, the declaration was valid. Rejection on the ground that no dispute existed was contrary to the Scheme and unsustainable.

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Issues: Whether the declaration filed under the Kar Vivad Samadhan Scheme, 1998 was valid and could not be rejected on the ground that the demand arose from warehoused goods and section 72 of the Customs Act, 1962 had been invoked.

Analysis: The Scheme under the Finance (No. 2) Act, 1998 was intended to settle outstanding indirect tax dues and reduce litigation. The definition of tax arrears for indirect taxes included duties, interest, fine or penalty determined as due or payable and also amounts forming the subject matter of a demand notice issued on or before 31 March 1998. The Court held that once duty liability had been incurred and determined on or before that date, the assessee fell within the class of taxpayers in arrears, and no separate classification could be made merely because the demand related to warehoused goods or arose under section 72 of the Customs Act, 1962. The rejection of the declaration on the footing that no dispute existed was held to be contrary to the Scheme.

Conclusion: The declaration was held to be covered by the Scheme and the rejection order was unsustainable.

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