TaxTMI 
TaxTMI 
2000 (11) TMI 19
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....on to challenge the Order of 1998 issued under the Kar Vivad Samadhan Scheme arose on the following legal and factual developments. The company Apollo Tyres Ltd. was assessed to duty, cess and penalties on various excisable articles under the provisions of the Central Excise Act of 1944. The petitioners in the present group of cases as executives and managers were also proceeded against for imposition of penalty under the Central Excise Act and Rules 173(q) and 209A of the Central Excise Rules. The objectives of promulgating the KVS Scheme by the Finance (No. 2) Act of 1998, are contained in the Finance Minster's Budget Speech of 1998, which is as under: "Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered away in pursuing a 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, enable Government to realise its reasonable dues much earlier but coupled with administrative measures, would also make the system more user-friendly. I, therefore, propose to introd....
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....his Scheme, the Central Government may, by order, not inconsistent with the provisions of this Scheme, remove the difficulty: Provided that no such order shall be made after the expiry of a period of two years from the date on which the provisions of this scheme come into force. (2) Every order made under this section shall, as soon as may be after it is made, be laid before each House of Parliament." In exercise of powers under section 97, the Order of 1998 was issued to remove difficulties in implementation of the scheme. The explanatory memorandum annexed to the Order of 1998 is relevant for our purposes and provides an insight into the aim and object of the issuance of the Order of 1998. The explanatory memorandum reads thus: "Explanatory memorandum: Under the Kar Vivad Samadhan Scheme, 1998, announced as a part of the Union Budget, 1998, attention of the Government has been drawn to the difficulties being encountered in settlement of certain categories of cases of pending show-cause notices involving also certain co-noticees against whom penal action is proposed in the same case for the alleged involvement for the irregularities committed by the principal noticee." In ....
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....e show-cause notices. By common order dated June 10, 1998, the excise authority imposed penalties on the petitioners. Aggrieved by the order imposing penalties all the petitioners being executives of the company preferred appeals before the Customs, Excise and Gold Control Appellate Tribunal (CEGAT), Mumbai. The company has also preferred appeals against the orders imposing duty and penalty on it. To get the benefit of the KVS Scheme and with a view to settle their excise cases on payment of 50 per cent. of the duties and penalties separate declarations were filed in each of the cases by the company as main noticee and its executives, i.e., the petitioners, as co-noticees. The petitioners as co-noticees during the pendency of their appeals against imposition of penalty paid 50 per cent. of the penalty arrears to obtain waiver of the remaining 50 per cent. of the arrears towards penalties. The above facts are not in dispute. What has however been stated now by the petitioners in these petitions is that such declarations were made and filed by the petitioners, i.e., executives of the company with deposit of 50 per cent. of dues towards penalty for waiving the remaining 50 per cent.....
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....heme with the main noticee. The Kerala High Court in its Division Bench by an unreported judgment in Original Petition No. 13806 of 1999 (with other group petitions), dated March 7, 2000--since reported in Onkar S. Kanwar v. Union of India [2001] 249 ITR 258, allowed the petitions and granted relief to the petitioners as co-noticees of the benefit of the KVS Scheme with the settlement of cases with the main noticee, i.e., the company. It is submitted that the Kerala High Court has also granted relief of directing refund of the amount deposited by the co-noticees under the scheme to them. Referring to the legal dictionary meaning of the word "proceeding", it is submitted that in the legal sense it includes not only the original proceedings but all proceedings in appeal or even in writ petition. The alternative submission made by learned counsel on behalf of the petitioner is that if the expression "civil proceedings" used in the Order of 1998 is not read down to include in it all proceedings pending in appeal or writ petition--the provisions contained in the order restricting its operation only to co-noticees who have been served with show-cause notices for imposition of penalties....
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....on behalf of the petitioners to include within the words "civil proceedings" proceedings also in appeal. Shri M.R. Shah, learned counsel appearing for the Union of India, in opposing the petition and replying to the contentions advanced, invited attention of this court to the contents of Trade Notice No. 100 of 1998, dated December 11, 1998, issued by the Commissioner of Central Excise and Customs, Vadodara, on the subject of benefit of the KVS Scheme. It is pointed out that the stand of the Department on perusal of the Order of 1998, containing the KVS Scheme, is amply clear that on settlement of the case on 50 per cent. payment of tax arrears by the main noticee all proceedings for imposition of fine or penalty against the co-noticees pending at the show-cause notice stage alone shall lapse. The Order of 1998 nowhere manifests any intention to extend the benefit of the KVS Scheme, on settlement of the case with the main noticee, as against co-noticees where against the latter fine or penalty has already been determined by adjudication and the matter is pending in appeal. In such cases, the co-noticees have to file separate declarations and pay 50 per cent. of the tax arrears un....
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....n merits. 6. In the last three months of operation of the Scheme, if in any case the assessee has filed a declaration covering his appeal only, he will also have the facility to file another declaration if he so desires in relation to the amount involved in any pending departmental appeal in that case. This declaration can be entertained and disputed amount settled in accordance with the provisions of this Scheme (i.e., paying up 50 per cent. of the duty amount in dispute). 7. All the Trade Associations/Chambers of Commerce and Members of Regional Advisory Committee are requested to publicise the contents of this Trade Notice among their Members/Constituents." On behalf of the Union of India, learned counsel submits that in the Order of 1998 issued under the KVS Scheme for the purpose of removal of difficulties, more than what is stated therein cannot be read by recourse to the principle of "reading down". It is submitted that the benefit of the KVS Scheme to the declarant who is the main noticee would also get extended to the co-noticees only if the proceedings are at the stage of show-cause notice against the latter. This is clear from the language used in para. 2 of the Orde....
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....nalties have been quantified. The Scheme and the order envisage that some of the co-noticees might have paid 50 per cent. of tax arrears for settlement of cases against them under the scheme. The orders issued under the. Scheme do not contemplate refund of penalties already deposited by co-noticees under the KVS Scheme under separate declarations filed by them. The aim and object of the scheme, is not in the least, to confer any benefit on the tax evaders. The Scheme has dual purposes to achieve firstly to ensure collection of tax dues within a reasonable period by encouraging taxpayers to make voluntary payments of taxes and secondly save themselves from long drawn litigations which might involve them in coercive action and prosecution. In his counter reply learned counsel for the petitioner reiterated his earlier submissions and submitted that qualification or non-quantification of penalties and fine is not a rational basis to discriminate between co-noticees facing penal proceedings at the show-cause notice stage and others who have suffered the proceedings by quantification of the amount and are at the appellate stage. We have considered the rival contentions advanced by th....
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....ty, credit of duty or any amount representing duty), cesses, interest, fine or penalty determined as due or payable under that enactment as on the March 31, 1998, but remaining unpaid as on the date of making a declaration under section 88 ; or (b) the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty which constitutes the subject-matter of a demand notice or a show-cause notice issued on or before the March 31, 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." In relation to indirect tax enactment, sub-clause (a) of clause (ii) of section 87(m) defines "tax arrears" to mean "the amount of duties, cesses, interest, fine or penalty determined as due or payable under the relevant enactment as on March 31, 1998, but remaining unpaid as on the date of making....
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....rs under sub-clauses (a) and (b) of clause (ii) of section 87(m) what we have to ascertain is the nature of "doubt" which has been removed by the Central Government by issuing the Order of 1998. We have already quoted the explanatory memorandum annexed to the Order of 1998 issued under section 97(1) of the Scheme. The said explanatory memorandum is very clear in stating that 'difficulties are being encountered in settlement of certain categories of cases of pending show-cause notices involving also certain co-noticees against whom penal action is proposed in the same case for the alleged involvement in the irregularities committed by the principal noticee." The explanatory memorandum quoted above clearly declares the reason and necessity for issuing the Order of 1998 for removal of difficulty. It appears that it was experienced by the authorities that settlement of cases against the main noticee at the show-cause notice stage was beset with difficulties because even if the case is settled on payment by the main noticee, the proposed penal action against the co-noticees has to continue. This difficulty arose in the matter of giving effect to settlement of tax arrears as defined an....
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.... necessary by the Central Government to issue an order of removal of difficulties. It was so necessitated because the main noticee facing proceedings at the show-cause notice or demand notice stage were not coming forward to settle their cases in the absence of any benefit of the Scheme to the co-noticees against whom proceedings for penal action or penalty were pending on the same subject-matter. Since the present provision was acting as a deterrent to the main noticees in settlement of case, it was found necessary by the Central Government to issue an order so as to remove the difficulties or doubts in implementation of the Scheme against the co-noticees facing proceedings at the show-cause notice or demand notice stage and to allow with the main noticee, settlement of cases also of the co-noticees. Thus, the relevant part of the Scheme and Order, as dealt with above, clearly includes within its ambit, proceedings against the main noticee and co-noticees pending at the demand notice or show-cause notice stage only and not at the appellate stage. The Scheme is a parent legislation which is an Act of the Legislature. The Order of 1998 issued by the Central Government under sectio....
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....aid under the Scheme by the co-noticees for settlement of cases against them on their individual declarations, the Central Government, purposely, in its Order of 1998 restricted the extension of benefit of settlement of cases to the co-noticees with cases of main noticees but only if the former are at the demand notice or show-cause notice and not at the appellate stage. Learned counsel for the Department appears to be perfectly right in submit ting that para. 2 of the Order of 1998 does not extend the benefit to the cases of co-noticees, where penalties have been quantified and/or appeals were preferred by the co-noticees. In cases before us, for settlement of the case under the Scheme the petitioners have submitted the declarations and have actually paid 50 per cent. of the tax arrears individually due against them. The above aspect of the matter was totally overlooked by the Division Bench of the Kerala High Court in the decision relied on on behalf of the petitioners. With respect, we are unable to agree with the view expressed by the High Court of Kerala in their decision Onkar S. Kanwar v. Union of India [2001] 249 ITR 258. Much argument was advanced on behalf of the petiti....
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.... supplementing any alleged unconscious omissions sought to be perceived in it. At this stage, a reference may be made to the decision of the Supreme Court in the case of Mathew M. Thomas v. CIT [1999] 236 ITR 691. In the case before the Supreme Court, the provisions that came up for consideration were those under Chapter XXC introduced in the Income-tax Act enabling the tax authorities to acquire the properties intended to be sold for apparent undervalue. By section 269RR, Chapter XX-A was made inapplicable to transfer of an immovable property after September 30, 1986. The Central Board of Direct Taxes issued a circular which stated that with a view to achieve earlier finalisation under the existing Chapter XX-A of the Income-tax Act, the Board has decided with effect from April 1, 1986, that acquisition proceedings under section 269C will not be initiated in respect of an immovable property for which the apparent consideration is Rs.5 lakhs or less and where acquisition proceedings have been initiated for issuance of a notice under section 269D, the proceedings will be dropped if the apparent consideration of the immovable property is below Rs.5 lakhs. The question that arose wa....
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....of India. In our considered opinion, for implementing the Scheme with the order of removal of difficulties, the co-noticees against whom the penalties have been quantified at the appellate stage and have made declaration and payment, constitute one separate class from those co-noticees who are facing proceedings at the show-cause notice stage against proposed penalty, irrespective of the stage of proceedings for recovery of tax and penalty against the main noticees. The two classes of co-noticees can reasonably be treated differently for the purpose of extending the benefit of the Scheme. As we have noticed above, the intention and object of the Scheme is not to help or reward the tax evaders or those who have not paid tax in time. The purpose of the Scheme is to allow the Department to minimise litigation expenses and establishment charges and to make possible recovery of tax dues with reasonable speed. The ancillary object at the same time is to encourage the assessees, i.e., taxpayers to make voluntary disclosures concerning their tax liability and pay tax ungrudgingly and without delay with a view to shorten the litigation and to save them from coercive and/or penal action. The....