TaxTMI 
TaxTMI 
TaxTMI 
2011 (11) TMI 1
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....heme, 1998 (hereinafter referred to as "the Scheme") to those who were in arrears of duties etc., as on 31.03.1998 but to whom the notices were issued after 31.03.1998 and further, has struck down the expression "on or before the 31st day of March 1998" under Section 87(m)(ii)(b) of the Finance (No. 2) Act, 1998 as ultra vires of the Constitution of India and in particular, Article 14 of the Constitution on the ground that the said expression prescribes a cut-off date which arbitrarily excludes certain category of persons from availing the benefits under the Scheme. The High Court has further held that as per the definition of the 'tax arrears' in Section 87(m)(ii)(a) of the Act, the benefit of the Scheme was intended to be given to all persons against whom the amount of duties, cess, interest, fine or penalty were due and payable as on 31.3.1998. Therefore, this cut-off date in Section 87(m)(ii) (b) arbitrarily denies the benefit of the Scheme to those who were in arrears of tax as on 31.03.1998 but to whom notices were issued after 31.3.1998. This would result in unreasonable and arbitrary classification between the assessees merely on the basis of date of issuance of Demand Noti....
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....actments, the benefit of the scheme was intended to be given to those against whom the amount of duties, cess, interest, fine or penalty were due or payable upto 31.3.1998. Viewed in this context it is quite illogical to exclude the persons like the petitioners from whom the amount of duties, cess, interest, fine, penalty, etc. were due as on 31.3.1998 but to whom Demand Notices were issued after 31.3.1998. In our opinion, the distinction made between those who were in arrears of indirect taxes as on 31.3.1998 only on the basis of the date of issuance of notice is wholly arbitrary and irrational. The classification sought to be made between those Demand Notices or Show Cause Notices may have been issued on or before 31st day of March, 1998 and those to whom such notices were issued after 31.3.1998 is per se unreasonable and has no nexus with the purpose of the legislation, namely to provide a quick and voluntary settlement of tax dues outstanding as on 31.3.1998. The irrationality of the classification becomes more pronounced when the issue is examined in the backdrop of the fact that the scheme was made applicable with effect from 1.9.1998, and in terms of Sections 88 (amended) a....
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....ling of the excisable goods, which are liable to be confiscated under the Excise Act. In the meantime, the Scheme was introduced by the Hon'ble Finance Minister through the 1998 Budget, which was contained in the Finance (No. 2) Act of 1998. The Scheme was made applicable to tax arrears outstanding as on 31.3.1998 under the direct as well as indirect tax enactments. Originally, the benefits of the Scheme could be availed by any eligible assessee by filing a declaration of his arrears under Section 88 of the Act on or after 1.9.1998 and on or before 31.12.1998. However, the period for declaration under the Scheme was extended upto 31.1.1999 by the Ordinance dated 31.12.1998. However, the cut-off date prescribed by the Scheme under Section 87(m)(ii)(a) and (b) of the Act for availing the benefits under the Scheme excluded the respondents from its ambit. Being aggrieved, the respondents filed a Special Civil Application before the High Court of Gujarat, inter alia, seeking a writ to strike down the words "on or before the 31st day of March 1998" occurring in Section 87(m)(ii) of the Finance Act, 1998. They had further prayed for issuance of an appropriate direction to the petitioner t....
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....show-cause notice issued on or before the 31st day of March, 1998 under that enactment but remaining unpaid on the date of making a declaration under section 88, but does not include any demand relating to erroneous refund and where a show-cause notice is issued to the declarant in respect of seizure of goods and demand of duties, the tax arrear shall not include the duties on such seized goods where such duties on the seized goods have not been quantified. Explanation.-Where a declarant has already paid either voluntarily or under protest, any amount of duties, cesses, interest, fine or penalty specified in this sub-clause, on or before the date of making a declaration by him under section 88 which includes any deposit made by him pending any appeal or in pursuance of a Court order in relation to such duties, cesses, interest, fine or penalty, such payment shall not be deemed to be the amount unpaid for the purposes of determining tax arrear under this sub-clause; Section 88 - Settlement of tax payable Subject to the provisions of this Scheme, where any person makes, on or after the 1st day of September, 1998 but on or before the 31st day of December, 1998, a declaration to th....
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.... is trite that where such beneficial legislation has a scheme of its own and there is no vagueness or doubt therein, the court would not travel beyond the same and extend the scope of the statute on the pretext of extending the statutory benefit to those who are not covered thereby. (See Regional Director, ESI Corpn. v. Ramanuja Match Industries)" 10. In Maruti Udyog Ltd. v. Ram Lal, [2005] 2 SCC 638, this Court has observed: "A beneficial statute, as is well known, may receive liberal construction but the same cannot be extended beyond the statutory scheme. (See Deepal Girishbhai Soni v. United India Insurance Co. Ltd.)" 11. In Pratap Singh v. State of Jharkhand, [2005] 3 SCC 551, this Court has held : "93. We are not oblivious of the proposition that a beneficent legislation should not be construed so liberally so as to bring within its fore a person who does not answer the statutory scheme. (See Deepal Girishbhai Soni v. United India Insurance Co. Ltd.) " 12. The object and purpose of the Scheme is to minimize the litigation and to realize the arrears of tax by way of Settlement in an expeditious manner. The object of the Scheme can be gathered from the Speech of the Financ....
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....sioner of Income-tax, [2002] 2 SCC 697, this Court observed: "5. KVSS was introduced by the Central Government with a view to collect revenues through direct and indirect taxes by avoiding litigation. In fact the Finance Minister while explaining the object of KVSS stated as follows: "Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered in pursuing large number of litigations pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentivise honest taxpayers, it would enable the Government to realize its reasonable dues much earlier but coupled with administrative measures, would also make the system more user-friendly.... " 15. In Killick Nixon Ltd., Mumbai v. Deputy Commissioner of Income Tax, Mumbai, [2003] 1 SCC 145, this Court has held: "9. The scheme of KVSS is to cut short litigations pertaining to taxes which were frittering away the energy of the Revenue Department and to encourage litigants to come forward and pay up a reasonable amount of tax payable in accordance with the Scheme after declaration thereu....
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....various disputes. 2. Essentially, these disputed cases involving duties, cesses, fine, penalty and interest on Customs and Central Excise side are proposed to be settled - case by case - if the concerned party agrees to pay up in each case a particular amount (which may be termed settled amount) calculated as per provisions of the scheme, following the laid procedure. Whereas the department gets immediate revenue and it results in reduction in pending disputes which may be prolonged otherwise before final assessment, the party also gets significant benefit by way of reduced payments instead of the disputed liability and immunity from prosecution. 3... 3.1 The relevant extracts containing provisions of the Samadhan Scheme as incorporated in the enacted Finance (No. 2) Act, 98 (21 of 1998) are enclosed herewith. The salient features of the Samadhan Scheme in relation to Indirect Taxes are briefly discussed below:- 4. APPLICABILITY OF THE SCHEME A. CATEGORY OF CASES TO WHICH SCHEME APPLICABLE 4.1 The Scheme is limited to Customs or Central Excise cases involving arrears, of taxes (including duties, cesses, fine, penalty of (sic.) interest) which were not paid up as on 31.3.98 an....
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....collusion/abetment etc. thus will not be covered by the scheme. However, whenever quantified amount of duties are demanded and penal action also proposed for various violations even at Show Cause Notice stage benefits under the scheme for such Show Cause Notices can be claimed. 19. In view of the aforementioned Trade Notice, it is clear that the object of the Scheme with reference to indirect tax arrears is to bring down the litigation and to realize the arrears which are considered due and locked up in various disputes. This Scheme is mutually beneficial as it benefits the Revenue Department to realize the duties, cess, fine, penalty or interest assessed but not paid in an expeditious manner and offers assessee to pay disputed liability at discounted rates and also afford immunity from prosecution. It is a settled law that the Trade Notice, even if it is issued by the Revenue Department of any one State, is binding on all the other departments with equal force all over the country. The Trade Notice guides the traders and business community in relation to their business as how to regulate it in accordance with the applicable laws or schemes. In Steel Authority of India v. Collecto....
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....he time of filing the declaration. He further submits that the present Scheme is statutory in character and its provision should be interpreted strictly and those who do not fulfill the conditions of eligibility contained in the Scheme are not allowed to avail the benefit under the Scheme. In support of his contention, he has relied on the Judgment of this Court in Union of India v. Charak Pharmaceuticals (India) Ltd., [2003] 11 SCC 689. Learned senior counsel, relying on the, Speech of the Finance Minister dated 17.7.1998, [232 ITR 1998 (14)] asserts that the purpose or the basic object of the Scheme is the collection of tax and settlement of disputes and it is intended to be beneficial to both assessee as well as the Revenue. He further contends that the determination of arrears or issuance of Show Cause Notice before or on 31.3.1998 is a substantive requirement for eligibility under the Scheme and filing of declaration of unpaid arrears under Section 88 of the Act is the procedural formality for availing the benefits of the Scheme. Therefore, he submits that the extension of time to file declaration under the Scheme on or before 31.1.1999 is just a procedural formality and in no....
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....eme extends the benefit of reduction of tax and does not deprive or withdraw any existing benefit to the assessees. He also submits that if certain section of assessees is excluded from its scope by virtue of cut-off date, they cannot challenge the entire Scheme merely on ground of their exclusion. 24. Per contra, Shri. Paras Kuhad, learned senior counsel, submits that the Scheme became effective from 1.09.1998 and remained operative till 31.1.1999. However, the arrears in question should relate to the period prior to or as on 31.3.1998 which is the essence of the Scheme or the qualifying condition. He submits that Section 87(f) defines 'disputed tax' as the total tax determined and payable, in respect of an assessment year under any direct tax enactment but which remains unpaid as on the date of making the declaration under Section 88. In this regard, he submits that the factum of arrears exists even on the date of filing of declaration. He contends that the Finance Act uses the expression 'determination' instead of 'assessment' in order to include the cases of self assessment. He submits that in the case of direct tax and payment of advance tax, the process of determination aris....
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....and not vacillating like date of issuance of Show Cause Notice. He further submits that the hardships arising out of normal cut-off criteria is acceptable and justified but when injustice arises out of operation of the provision which prescribe criteria which is variable for same class of persons for availing the benefit of the Scheme, is against the mandate of Article 14 of the Constitution. He relies on the decision of this Court in State of Jammu and Kashmir v. Triloki Naths Khosa, [1974] 1 SCC 19 in order to buttress his argument that the classification is a subsidiary rule to the Fundamental Right of Equal Protection of Laws and should not be used in a manner to submerge and drown the principle of equality. Learned senior counsel contends that the purpose of the Scheme is to end the dispute qua assessee, who is in arrears of taxes and has not paid such arrears. He further submits that in case of Central Excise, the excise duty is determined on removal of goods but the actual payment is made later and also, in case of self assessment, the tax arrears are determined before the actual payment or possible dispute. He submits that as per Rule 173F of the Excise Rules, the assessee ....
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....r any amount representing duty, cesses, interest, fine or penalty determined. The legislation, by using its prerogative power, has restricted the dues of duties quantified and payable as on 31st day of March, 1998 and remaining unpaid till a particular event has taken place, as envisaged under the Scheme. The date has relevance, which aspect we would elaborate a little later. The definition is inclusive definition. It also envisages instances where a Demand Notice or Show Cause Notice issued under indirect tax enactment on or before 31st day of March, 1998 but not complied with the demand made to be treated as tax arrears by legal fiction. Thus, legislation has carved out two categories of assessees viz. where tax arrears are quantified but not paid, and where Demand Notice or Show Cause Notice issued but not paid. In both the circumstances, legislature has taken cut off date as on 31st day of March 1998. It cannot be disputed that the legislation has the power to classify but the only question that requires to be considered is whether such classification is proper. It is now well settled by catena of decisions of this Court that a particular classification is proper if it is based....
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....ance of the assessee is that the date fixed is arbitrary and deprives the benefit for those assessees who are issued Demand Notice or Show Cause Notice after the cut off date namely 31st day of March, 1998. The Legislature, in its wisdom, has thought it fit to extend the benefit of the scheme to such of those assessees whose tax arrears are outstanding as on 31.03.1998, or who are issued with the Demand or Show Cause Notice on or before 31st day of March, 1998, though the time to file declaration for claiming the benefit is extended till 31.01.1999. The classification made by the legislature appears to be reasonable for the reason that the legislature has grouped two categories of assessees namely, the assessees whose dues are quantified but not paid and the assessees who are issued with the Demand and Show Cause Notice on or before a particular date, month and year. The Legislature has not extended this benefit to those persons who do not fall under this category or group. This position is made clear by Section 88 of the Scheme which provides for settlement or tax payable under the Scheme by filing declaration after 1st day of September, 1998 but on or before the 31st day of Decem....
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....rger discretion to the Legislature in the matter of classification, so long as it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways." (Khandige Sham Bhat v. Agricultural Income Tax Officer, Kasargod; V. Venugopala Ravi Verma Rajah v. Union of India.) 10. Again, on a challenge to a statute on the ground of Article 14, the Court would generally raise a presumption in favour of its constitutionality Consequently, one who challenges the statute bears the burden of establishing that the statute is clearly violative of Article 14. "The presumption is always in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there is a clear transgression of the constitutional principle." (See Charanjit Lal v. Union of India.) 32. In Anant Mills Co. Ltd. v. State of Gujarat, [1975] 2 SCC 175, this Court has observed: "25. It is well-established that Article 14 forbids class legislation but does not forbid classification. Permissible classification must be founded on an intelligibl....
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....the General Clauses Act, 1897, deals with the effect of repeal of an enactment and its provisions apply unless a different intention appears in the statute. It is for the Legislature to decide from which date a particular law should come into operation. It is not disputed that no reason has been suggested why pending proceedings cannot be treated by the Legislature as a class for the purpose of Article 14. The date first April, 1962, which has been selected by the Legislature for the purpose of clauses (f) and (g) of Section 297(2) cannot be characterised as arbitrary or fanciful." 34. In Murthy Match Works v. CCE, [1974] 4 SCC 428, this Court has observed: "15. Certain principles which bear upon classification may be mentioned here. It is true that a State may classify persons and objects for the purpose of legislation and pass laws for the purpose of obtaining revenue or other objects. Every differentiation is not a discrimination. But classification can be sustained only it it is founded on pertinent and real differences as distinguished from irrelevant and artificial ones. The constitutional standard by which the sufficiency of the differentia which form a valid basis for cla....
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....tion in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. This rule is based on the assumption, judicially recognised and accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation. "8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and t....
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....ersons and property similarly situated, or by proceedings for the assessment and collection of taxes which follows the course usually pursued in the State. It prohibits any person or class of persons from being singled out as special subject for discrimination and hostile legislation; but it does not require equal rates of taxation on different classes of property, nor does it prohibit unequal taxation so long as the inequality is not based upon arbitrary classification. Taxation will not be discriminatory if, within the sphere of its operation, it affects alike all persons similarly situated. It, however, does not prohibit special legislation, or legislation that is limited either in the objects to which it is directed, or by the territory within which it is to operate. In the words of Cooley: It merely requires that all persons subjected to such legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and in the liabilities imposed. The rule of equality requires no more than that the same means and methods be applied impartially to all the constituents of each class, so that the law shall operate equally and uniformly upon all ....
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....e it is necessary to point out that in the field of taxation the decisions of this Court have permitted the legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes." 41. In State of Kerala v. Aravind Ramakant Modawdakar, [1999] 7 SCC 400, this Court has held: "Coming to the power of the State in legislating taxation law, the court should bear in mind that the State has a wide discretion in selecting the persons or objects it will tax and thus a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is also well settled that a very wide latitude is available to the legislature in the matter of classification of objects, persons and things for the purpose of taxation. While considering the challenge and nature that is involved in these cases, the courts will have to bear in mind the principles laid down by this Court in the case of Murthy Match Works v. CCE wherein while considering different types of classifications, this Court held: (AIR Headnote) "[T]hat a pertinent principle of differentiation, whic....
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....ty to error, the bewildering conflict of the experts, and the number of times the Judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability." 12. The legislature gaining wisdom from historical facts, existing situations, matters of common knowledge and practical problems and guided by considerations of policy must be given a free hand to devise classes - whom to tax or not to tax, whom to exempt or not to exempt and whom to give incentives and lay down the rates of taxation, benefits or concessions. In the field of taxation if the test of Article 14 is satisfied by generality of provisions the courts would not substitute judicial wisdom for legislative wisdom. 43. In Aashirwad Films v. Union of India, [2007] 6 SCC 624, this Court has held: 14. It has been accepted without dispute that taxation laws must also pass the test of Article 14 of the Constitution of India. It has been laid down in a large number of decisions of this Court that a taxation statute for the reasons of functional expediency and even otherwise, can pick and choose to tax some. Importantly, there is a rider operating on this wi....
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....ate for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the Court will be reluctant and perhaps ill-equipped to investigate. It has been laid down in a large number of decisions of this Court that a taxation Statute, for the reasons of functional expediency and even otherwise, can pick and choose to tax some. A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the Judicature cannot rush in where even the Legislature warily treads. All these operational restraints on judicial power must weigh more emphatically where the subject is taxation. Discrimination resulting from fortuitous circumstances arising out of particular situations, in which some of the tax payers find themselves, is not hit by Article 14 if the legislation, as such, is of general application and does not single them out for harsh treatment. Advantages or disadvantages to individual assesses are accidental and inevitable and are inherent in every taxing Statute as it has to draw a line somewhere and some cases necessarily fall on the other side of the line. The point is illustrated by two....