Dispute Resolution Scheme

[Adarsh Gupta]

Dear Sir's,

SCN was issued against a company for non payment of service tax on a RCM transaction. The company deposited entire ST and claimed CENVAT credit in 2010. However demand was confirmed along with interest and penalty. The company preferred an appeal for tax, interest and penalty which is pending before CESTAT on 30.06.19.

Can the company take relief under LDRS scheme for interest and penalty?

Also, whether the company needs to reverse the CENVAT already claimed?

Regards.

[Rajagopalan Ranganathan]

Sir,

Please indicate the amount confirmed and the amount paid by you. Then only I can calculate the relief.

[Adarsh Gupta]

58 Lacs Paid towards Service Tax and CENVAT Claimed for 58 Lacs.

[Rajagopalan Ranganathan]

Sir,

The relief available to you will be as follows:-

Tax confirmed: ₹ 58,00,000/-.

Amount deposited: ₹ 58,00,000/-.

Relief available:

Tax : 50% of 58,00,000/- = 29,00,000 - ₹ 58,00,000 = 29,00,000.

Refund of excess deposit cannot be claimed by you.

Interest: 100% relief.

Penalty: 100% relief.

Final amount payable: 58,00,000 -29,00,000-58,00,000.

You cannot claim refund of excess deposit of ₹ 29,00,000/-.

Interest: Nil

Penalty: Nil.

You have to submit proof of withdrawal of appeal pending before CESTAT while filing the declaration under LDRS scheme.

[CSSANJAY MALHOTRA]

Hi Adarsh,

You are eligible for relief if the case has not been heard of finally till 30.06.19. Note that in case of Service Tax Payment under RCM, citation of Apex Court is already there wherein No Penal action is warranted as is Revenue Neutral i.e. you get Credit if output service is charged to tax.

Simply file the declaration under Litigation (Appeal Pending) at CBIC Portal in Form SVLDRS-1 and Tax Dues will be calculated by system as NIL.

You will be issued SVLDRS-4 "Discharge Certificate as an evidence for conclusion of proceedings.

Further if you have not been issued any Notice demanding CENVAT Credit, then no issue of CENVAT Reversal. I presume that in present case SCN has been issued demanding Service Tax under RCM and not the inadmissibility of CENVAT Credit. Hope my understanding is correct.

[KASTURI SETHI]

I agree with Sh.Ranganathan, Sir. Relevant extract of Circular No.1071/4/2019-CX.8 (Para No.10(d) is appended below:

(d) With respect to penalty/late fee matters [Section 124(1)(b) refers], a doubt has been expressed that only show cause notices for late fee or penalty are covered under this Scheme as there is no mention of appellate proceedings. It is clarified that the provisions apply to any show cause notice for penalty/late fee, irrespective of the fact that it is under adjudication or appeal. Moreover, there can be a show cause notice that originally also involved a duty demand, and the amount of duty in the said notice became 'nil' whether on account of the fact that same has been paid under this Scheme or otherwise. Such cases are also covered under Section 124(1)(b).

[Adarsh Gupta]

Dear Sir's,

Thanks for the valuable feedback.

Would like to draw your attention towards S 130 of FA 2019 which reads as;

130. (1) Any amount paid under this Scheme,-

(a) shall not be paid through the input tax credit account under the indirect tax enactment or any other Act;

(b) shall not be refundable under any circumstances;

(c) shall not, under the indirect tax enactment or under any other Act,-

(i) be taken as input tax credit; or

(ii) entitle any person to take input tax credit, as a recipient, of the excisable goods or taxable services, with respect to the matter and time period covered in the declaration.

In light of the restriction imposed under S 130 of FA 2019, would request your views if CENVAT needs to be reversed for the amount already paid by the applicant. To my view, the scheme would not yield any revenue to the executive if the CENVAT is claimed by the applicant either earlier or during the scheme. Accordingly, same should be reversed. However, another question could be whether 29 Lacs needs to be reversed or entire 58 lacs needs to be reversed or nothing needs to be reversed?

[CSSANJAY MALHOTRA]

Dear Adarsh,

Presently, you don't have to pay anything and NO CENVAT Reversal to be made (Case is not CENVAT inadmissibility). Amount deposited earlier has been adjusted in your case. Any amount to be paid now is covered under restrictions. Better to file withdrawal application in CESTAT when department demands as Rule 8 of SVLDRS-2019 provides proof of withdrawal of Appeal from High Court / Supreme Court. But once the SVLDRS-4 is issued, do file withdrawal letter with CESTAT.

[KASTURI SETHI]

Sh.Sanjay Malhotra CS, Sir needs no parameters. His reply is always crystal clear, final and fool proof. What is indigestible is that Sh.Malhotra, sir seldom appears on this forum.

[Rajagopalan Ranganathan]

Sir,

The scheme proposes denial of credit of the amount paid under the scheme. In your case the tax is paid well before announcement of the scheme. Therefore there is no bar to avail the credit of the amount already deposited by you.

[CSSANJAY MALHOTRA]

Always appreciate the courtesy extended by Sh. Kasturi ji. Highly grateful. Sir, always love to be part of this platform.

AI Summary

Company Can Get 100% Relief on Interest and Penalty Under LDRS Scheme; No CENVAT Reversal Required A company faced a service tax issue due to non-payment on a reverse charge mechanism (RCM) transaction, leading to a demand for tax, interest, and penalty. The company appealed to CESTAT and inquired about relief under the LDRS scheme for interest and penalty, and whether CENVAT credit needs reversal. Respondents advised that the company could receive 100% relief on interest and penalty, with no refund of excess tax paid. They suggested filing a declaration under the scheme, withdrawing the appeal, and clarified that no CENVAT reversal is needed as the tax was paid before the scheme's introduction.