2025 (12) TMI 219 - HC - Central Excise

Sabka Vishwas dispute treated as 'Litigation' category under Section 124(1)(a), not 'Arrears' category under Section 124(1)(c)

M/s. Unique Enterprises Through its Prop. Shri Fardoon Minoo Irani Versus Union of India Through the Secretary, Ministry of Finance, Dept. of Revenue Mumbai, The Designated Committee Under SVLDRS, 2019 CGST Commissionerate Mumbai (East).

HC held that the Petitioner's case under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 falls within the 'Litigation' category under Section ... Paryer for quashing and setting aside form SVLDRS-3 issued to the Petitioner under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - the given case would be covered under the Arrears category under Section 124 (1) (c) of the Finance Act, 2019 or not - HELD THAT:- What is pertinent to note are the observations of the Tribunal in the initial remand order for re-quantification of duty dated 30 December 2010. Here, the Tribunal has clearly noted that the task of re-quantifying the amount of duty stand remitted to the adjudicating authority, the question whether any penalty is imposable on the Assessee under Rule 173Q of the Central Excise Rules, 1944 and if so to what extent should also be determined by the Commissioner. This was in the context of the findings of the Tribunal to the effect that in the given circumstances the burden is on the manufacturer i.e. the Petitioner to show that the price charged by them included the duty element on the air conditioners manufactured. However, the Tribunal opined that such burden should be discharged by the manufacturer before the lower/adjudicating authority, which became the basis of remanding the matter for quantification of the duty amount. On perusal of Section 124 of the Finance Act, it is evident that the proceedings would fall in the Litigation category when the amount of tax/duty has not been confirmed and has not attained finality as on 30 June 2019. Whereas Arrears category would be one where such tax/duty amount is not pending but confirmed, as payable. Adverting to the provisions of Section 124(1)(a) of the Finance Act (supra) the Petitioner’s case would clearly fall under Litigation category under the SVLDRS scheme in the absence of finalization of the quantum of duty demanded from the Petitioner. Although, in these proceedings, as indicated above, the duty demand of Rs. 7,19,997/- was dropped, by order of Tribunal dated 5 September 2014, leaving the balance amount of duty to be adjudicated/finalized in the given factual complexion. It is thus clear that the proceedings in regard to the quantification of duty as imposed vide show cause notice dated 6 January 1993 did not attain finality on 30 June 2019. This is because even if the duty demand to the extent of Rs. 7,19,997/- was ultimately set aside by the Tribunal on 5 September 2014, the quantification issue of duty and penalty still remained pending as on 30 June 2019, making Section 124(1)(a) of the Finance Act, 2019 applicable to the given factual complexion. Form SVLDRS 3 dated 12 March 2020 set aside and it is directed that the second Respondent to determine the correct amount considering the declaration filed under Litigation category - petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the petitioner's tax dues under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 were correctly classified under the 'amount in arrears' category under Section 124(1)(c) of the Finance Act, 2019, or ought to be treated under the 'litigation' category under Section 124(1)(a). 1.2 Whether, on the facts, the show cause notice demand and consequential duty/penalty proceedings had attained finality as on 30 June 2019, so as to justify application of the 'arrears' category. 1.3 Whether the pre-deposit of Rs. 10,00,000/- made pursuant to the Tribunal's interim order was liable to be recognized and adjusted under Section 124(2) of the Finance Act in determining the amount payable under the Scheme. 1.4 Whether Form SVLDRS-3 dated 12 March 2020, quantifying Rs. 12,93,408/- as payable under the 'arrears' category, was legally sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Proper category under Section 124 - 'Litigation' vs 'Arrears' and finality of demand as on 30 June 2019 Legal framework discussed 2.1 The Court extracted and considered Section 124(1)(a), (b), (c), (d) and Section 124(2) of the Finance Act, 2019, governing classification of cases and quantum of relief under the Scheme. 2.2 The Court relied on prior decisions interpreting the distinction between 'litigation' and 'arrears' under Section 124(1): (a) It quoted paragraph 18 of a decision holding that 'litigation' applies where the amount of duty has not been confirmed and has not attained finality as on the cut-off date, while 'arrears' applies where duty has been confirmed and has attained finality (no appeal within limitation, or appellate order attained finality, or admitted liability not paid). (b) It relied on another decision holding that where, by a remand order, the assessee is reverted to the show cause notice stage with no fresh adjudication, the case is to be treated as at the show cause notice stage and eligible for the 'litigation' category. Interpretation and reasoning 2.3 The Court examined the sequence of adjudication and appellate orders: (a) Original demand of Rs. 39,53,517/- under show cause notice dated 6 January 1993 was confirmed by order-in-original dated 19 December 1997. (b) The Tribunal's order dated 30 December 2010 remanded the matter for re-quantification of duty, expressly remitting the task of re-quantifying duty to the adjudicating authority and keeping open the question of penalty under Rule 173Q, to be determined by the Commissioner. (c) The High Court subsequently set aside the Tribunal's order confirming Rs. 7,19,997/- and remanded the matter to the Tribunal for de novo consideration. (d) The Tribunal then, by order dated 5 September 2014, dropped the quantified demand of Rs. 7,19,997/- as unsubstantiated. 2.4 On this factual matrix, the Court held that the remand order of 30 December 2010 relegated the matter to the show cause notice stage for re-quantification, with both duty and penalty quantification left open for determination by the Commissioner. The issue of quantification of duty and penalty, other than the portion specifically dropped, thus remained pending and not finally adjudicated. 2.5 The Court emphasized that, as on 30 June 2019, proceedings for quantification of the balance demand under the show cause notice had not attained finality. The show cause notice remained pending for purposes of quantification; hence the tax dues were relatable to a pending show cause notice/appeal within the meaning of Section 124(1)(a). 2.6 The Court accepted the petitioner's working that, after the dropping of Rs. 7,19,997/-, the balance demand as per the show cause notice was Rs. 32,33,520/- (Rs. 39,53,517/- minus Rs. 7,19,997/-). This remaining demand was precisely the subject matter of pending quantification proceedings and therefore fell within the 'litigation' category. 2.7 The Court rejected the respondents' contention that part of the duty (Rs. 7,93,255/-) had become 'arrears' for want of appeal and therefore the case attracted Section 124(1)(c). It held that such an approach overlooked the undisputed fact that the Tribunal's remand order had kept the entire issue of re-quantification of duty and penalty open, thereby preventing finality of the demand as on the relevant date. 2.8 The Court further held that the respondents' interpretation of Section 124, which would bring the case under 'arrears' despite the remand and pending quantification, was inconsistent with the scheme and decisions cited, and if accepted would render the Scheme 'redundant' and 'unworkable'. Conclusions 2.9 The petitioner's case falls under the 'litigation' category under Section 124(1)(a) of the Finance Act, 2019, and not under the 'amount in arrears' category under Section 124(1)(c). 2.10 As the quantum of duty/penalty under the show cause notice had not attained finality and remained pending for re-quantification as on 30 June 2019, the demand could not be treated as 'arrears'. Section 124(1)(c) was inapplicable. 2.11 The petitioner is legally entitled to avail relief at 70% of the tax dues under the litigation category on the quantum properly relatable to the pending show cause notice (Rs. 32,33,520/- after deduction of the dropped amount). Issue 3: Recognition and adjustment of pre-deposit of Rs. 10,00,000/- under Section 124(2) Legal framework discussed 3.1 The Court considered Section 124(2), which mandates that any pre-deposit at any stage of appellate proceedings, or deposit during enquiry, investigation or audit, shall be deducted when issuing the statement indicating the amount payable by the declarant, with a proviso barring refund if deposit exceeds the amount payable. Interpretation and reasoning 3.2 The petitioner produced challans evidencing payment of Rs. 10,00,000/- as pre-deposit pursuant to the Tribunal's interim order dated 29 July 1998, and asserted that this amount had already been adjusted by the authorities while issuing Form SVLDRS-2 dated 7 January 2020. 3.3 The Court noted that Form SVLDRS-2 on record in fact showed adjustment of Rs. 10,00,000/- as pre-deposit and estimation of duty payable accordingly, thus corroborating the petitioner's contention. 3.4 The Court observed that the respondents' affidavit and submissions did not place any concrete contrary material on record to doubt or disbelieve the challans or the factum of pre-deposit. Nor was there any explanation in the record as to why the same pre-deposit recognized in SVLDRS-2 could be ignored at the stage of SVLDRS-3. 3.5 In this backdrop, the Court held that the petitioner's stand regarding payment and adjustability of the pre-deposit 'inspires confidence' and that, on the present material, the respondents' objection that such pre-deposit could not be verified or adjusted was untenable. 3.6 At the same time, the Court clarified that the respondents remain at liberty to verify the pre-deposit position, consistent with the Scheme and Section 124(2). Conclusions 3.7 The pre-deposit of Rs. 10,00,000/- paid pursuant to the Tribunal's order is to be recognized and adjusted in terms of Section 124(2) while determining the amount payable by the petitioner under the Scheme. 3.8 The respondents cannot, in the absence of contrary material and in light of their own earlier adjustment in SVLDRS-2, disregard such pre-deposit when issuing the final statement. Issue 4: Validity of Form SVLDRS-3 dated 12 March 2020 quantifying Rs. 12,93,408/- under 'arrears' Interpretation and reasoning 4.1 The contested Form SVLDRS-3 treated the petitioner's case under the 'arrears' category and granted only 60% relief, resulting in a quantified payable amount of Rs. 12,93,408/-. 4.2 The Court found that this classification under 'arrears' was premised on the respondents' incorrect assumption that the duty demand had attained finality and that a portion of the demand (Rs. 7,93,255/-) was confirmed arrears for which no appeal had been filed. 4.3 In view of its findings that: (a) the matter had been remanded for re-quantification with duty and penalty left open for determination; and (b) as on 30 June 2019, the show cause notice proceedings remained pending without final quantification; the Court held that the foundational premise for treating the case as 'arrears' was erroneous. 4.4 The Court additionally noted that Form SVLDRS-3 was inconsistent with Form SVLDRS-2, which had recognized and adjusted the pre-deposit of Rs. 10,00,000/-. The subsequent overlooking of this adjustment indicated non-application of mind and added to the infirmity of the final quantification. Conclusions 4.5 Form SVLDRS-3 dated 12 March 2020, classifying the case under 'arrears' and quantifying Rs. 12,93,408/- as payable, is legally unsustainable and is liable to be quashed and set aside. 4.6 The designated authority is directed to redetermine the amount payable by the petitioner by correctly treating the case under the 'litigation' category under Section 124(1)(a), and by giving due effect to Section 124(2) including adjustment of pre-deposit. This exercise is to be completed within two months from the date of uploading of the Court's order.