Completion Of Investigation Not A Condition Precedent For Eligibility Under 'Sabka Vishwas' Scheme : Bombay High Court

A division bench of Justices RD Dhanuka and SM Modak, in a judgement last week, observed against the relevant tax authorities,

"….the view taken by the respondents is not only contrary to various principles of law laid down by this Court … but also contrary to the objects, reasons and intent of the Central Government in introducing the said scheme for the benefit of the assessee and to bring them out of litigation forever pending under pre-GST regime."

The court was hearing a petition filed by one Nabeel Construction Pvt. Ltd. against the Secretary, Department of Revenue, Ministry of Finance; Designated Committee – I (SVLDRS) and the Principal Additional Director General, Directorate General of GST Intelligence.

The Case

The Designated Committee – I (SVLDRS), while issuing a show-cause cum-demand notice against Nabeel Construction pegged the company's total tax liability at Rs.1,26,62,148. This was after the Committee, in February 2020, rejected the SVLDRS-1 declaration by one of the directors of the company dated December 30, 2019.

As per the case details, the Directorate General of GST Intelligence, Zonal Unit, Mumbai, had initiated an inquiry against the petitioner company in February 2019. During the investigation, the petitioner submitted copies of the documents from October 2013 to June 2017 based on demand from the concerned officers. After this, Mohd. Azhar Ali, Director of the petitioner, tendered a statement before the Senior Intelligence officer voluntarily declaring and admitting total tax liability of Rs.1,28,88,541. The petitioner also paid an amount of Rs. 30 lakhs before recording the said statement and Rs.60 lakhs after recording the said statement in two instalments.

In August that year, the Union Government launched the SVLDR scheme, and it was brought into force on September 1, 2019. The Central Board of Indirect Taxes and Customs (CBIC) issued a circular on August 27, 2019 to all the Principal Chief Commissioners, Chief Commissioners, Principal Director Generals and Director Generals, explaining and qualifying the said scheme.

On December 30, 2019, the petitioner filed a Declaration, based on his declaration in February 2019 before the Senior Intelligence officer, seeking benefit of the SVLDR scheme and also made a representation on January 31, 2020. However, the declaration was rejected in February 2020 and a show cause cum demand notice was issued in September 2020, without calling the petitioner for a personal hearing.

Petitioner's Arguments

Citing the Rules under the SVLDR Scheme, Advocate Abhishek Rastogi, submitted that the petitioner was eligible to make a declaration under section 125 of the said Scheme and said that the amount of duty involved had already been quantified in this case on or before June 30, 2019 – the cut-off date mentioned in the scheme.

He also cited the definition of the term 'quantified' under Section 121(r) of the scheme to submit that during the course of enquiry, the statement of one of the Directors was recorded where he admitted total service tax liability and had made payments of Rs. 90 lakhs. He further submitted that the modified amount of the tax dues even according to the respondents was less than the amount admitted and quantified by the petitioner itself during the course of recording the statement by the Investigating Officer.

On the point of principal of natural justice, the advocate argued that the rejection of application (Declaration) would lead to various civil consequences for the petitioner as they would have to face all the consequences of enquiry, investigation or audit, therefore considering the statement made by the Finance Minister deduced from the statement of objects and reasons, the respondent ought to have taken a liberal interpretation to the scheme and a personal hearing should have been given.

Arguments by Tax Authorities

Senior Advocate Pradeep Jetly argued that, in August 2020, the petitioner was clearly informed that the investigation was still going on and the authorities were yet to quantify the tax liability, therefore, the amount admitted in the statement by the petitioner cannot be said to be final.

He submitted that as per section 123(c) of the scheme, a case where an enquiry or investigation or audit is pending against the declarant, the amount of duty payable under any of the indirect tax enactment which has been quantified on or before June 30, 2019 would be considered as 'tax dues'. He submitted that since in this case, the show-cause notice for recovery of service tax, interest and penalty was issued much later than on September 26, 2020, no relief can be granted.

He added that as per Section 127, the statement of the Director recorded by the investigating officer would not amount to quantification of tax dues.

Court Observations

The Court observed that the inquiry of February 2019 was deemed to be a judicial proceeding according to which using false and fabricated statements in the proceedings with an intention is an offence punishable under section 193 of the Indian Penal Code. The court noted that the Director of the petitioner company had admitted that he had understood that his statement would be binding on him and the same could be used as evidence.

The bench observed that based on Section 125(1)(e) of the scheme, the Director's statement of February 2019 would amount to notifying the tax liability and that the same was mentioned in the CBIC Circular of August 2019 as well.

"In our view, the submission made by the learned senior counsel for the respondent is contrary to plain meaning of term "quantified" read with paragraph 4(a) and 10(g) of the circular dated 27th August, 2019 issued by CBIC, clarifications in Frequently Asked Questions and more particularly question no.53 and section 123(c) of the said scheme. For the purpose of eligibility under section 125(1)(e) completion of the investigation is not necessary as a condition precedent for the purpose of eligibility under the said scheme. None of the provisions under the said scheme contemplates that the investigation should be completed and tax liability should have been finally determined," the court observed.

The court also observed that summary rejection of the application under the said scheme without rendering any opportunity of hearing to the declarant would be in violation of the principles of natural justice. "If personal hearing would have been rendered to the petitioner, it could have pointed out admission of the quantification of tax dues of the petitioner during the course of recording statement of the director by the investigating officer and not disputed by the respondents," the bench observed

Case title: Nabeel Construction Pvt.Ltd vs Union Of India And 2 Ors

Citation: LiveLaw (Bom) 18