S. 124 of Finance Act, 2019 Not Violative of Article 14: Punjab & Haryana High Court

The bench of Justices Tejinder Singh Dhindsa and Pankaj Jain remarked that the legislature, in order to achieve the objective of encashing the disputes without creating liabilities, has repeatedly reiterated the condition that no refund can be granted to the declarant/ assessee under the Scheme.

Holding that Sections 124 and 130 of the Finance Act have a close nexus with the objective sought to be achieved by the Act, the Court added that the ‘tests of vice of discrimination’ in a taxing law is less rigorous.

The petitioner, M/s Schlumberger Asia Services Ltd, claimed to have deposited an amount under protest with respect to a show cause notice issued by the Service Tax Department for the relevant financial years. During the pendency of the appeal filed by the petitioner before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), challenging the service tax liability imposed on the petitioner, the Union of India promulgated the Finance Act, 2019 notifying the ‘Vivad se Vishwas Scheme’. The petitioner filed the requisite declaration under the Scheme for availing the benefit of the Scheme.

Seeking adjustment of the amounts already paid by the petitioner under protest, the petitioner filed a writ petition before the Punjab and Haryana High Court. The petitioner sought refund of the excess amounts already paid by it.

The petitioner also challenged the constitutional validity of Sections 124(2) and 130(2) of the Finance Act, 2019, contending that they were discriminatory in nature.

The petitioner, Schlumberger Asia Services, argued before the High Court that, while computing the amount payable under the Scheme, Section 124(2) only allows adjustment/ deduction of pre-deposits made during the appellate proceedings or of the deposits made during an enquiry, investigation or audit. However, any amount deposited other than by way of the said pre-deposit/ deposit, is not qualified for adjustment/ deduction, it averred.

Further, as per the proviso to Section 124(2) and Section 130(2) of the Finance Act, the declarant shall not be entitled for refund of any excess amount paid by it, it argued.

Thus, the petitioner averred that the provisions contained in Sections 124(2) and 130(2) breed hostile discrimination since they only benefit assessees who have deposited/ pre-deposited the amounts, as stipulated, and not assessees like the petitioner, who are contesting the demand after having deposited the same under protest.

The petitioner thus claimed that the said provisions were violative of Article 14 of the Constitution of India.

The Union of India (respondent) submitted before the Court that as per the settled proposition of law, the legislature enjoys wide latitude in taxation statutes and the same should not be subjected to the minute gravities of Article 14 of the Constitution of India. It added that the Scheme is optional in nature and there is no compulsion for an assessee to opt for the same.

Section 124 (2) of the Finance Act, 2019 provides that any amount paid as pre-deposit at any stage of appellate proceedings under the indirect tax enactment or as deposit during the enquiry, investigation or audit, shall be deducted while computing the amount payable by the declarant/ assessee under the ‘Vivad se Vishwas Scheme’.

However, the proviso to Section 124 (2) provides that the assessee/declarant shall not be entitled to any refund if the amount of pre-deposit or deposit already paid by the declarant, exceeds the amount payable by the declarant under the Scheme. Section 130 (2) of the Finance Act also stipulates the same.

Referring to the relevant provisions of the Finance Act, 2019, the Court remarked that the legislature in its own wisdom has repeatedly reiterated that the declarant under the Scheme shall not be entitled for any refund, irrespective of the fact that the amount of pre-deposit or deposit already paid by the declarant exceeds the amount payable under the Scheme.

Rejecting the petitioner’s contention that Section 124 of the Finance Act, 2019 violates Article 14 and breeds hostile discrimination, the Court said, “Trite it is wooden equality is neither feasible nor the mandate of Part-II of the Constitution of India.”

The bench further held that though the Finance Act, 2019, has been enacted with reference to a fiscal statute, it does not create or exempt levy of tax. “It has been enacted with the objective to reduce legacy litigation involving disputed levies of indirect taxes. The object of the scheme is to liquidate the legacy dispute and not to grant any kind of amnesty,” the Court added.

While reiterating that the ‘tests of vice of discrimination’ in a taxing law is less rigorous, the Court noted that as per the Apex Court’s decision in Federation of Hotel & Restaurant Association of India vs. Union of India (1989), the classification contemplated under the taxation law must be rational and must have a rational nexus with the object sought to be achieved by the law.

Holding that the object sought to be achieved by the Finance Act, 2019, is to end the disputes without creating liabilities, the Court concluded that Sections 124 and 130 of the Act have close nexus and are in consonance with the objective sought to be achieved by the legislature in enacting the Act. “Legislature in its own wisdom in order to achieve the objective of encashing the disputes has reiterated the underlying condition i.e., no refund has to be granted,” the bench reckoned.

Taking note that the said Scheme is optional, the Court ruled that the petitioner is under no obligation to opt for the same. “Petitioner may opt after weighing benefits or may opt to continue with pending appeal”, it said.

Dismissing the argument that the Scheme was discriminatory, the bench held, “The argument raised by senior counsel for the petitioner that the same will be discriminatory to the petitioner as the assessee who has not deposited more than the pre-deposit will have a march over an assessee like petitioner who has deposited more than pre-deposit is misconceived. If the said argument is stretched further, it would mean that the assessee who has not disputed the demand and deposited the whole amount is the one who is bound to lose the most. He also can invoke Article 14 to say that he is the only one who has been left out of the scheme. The same shall result in an absurd situation and the objective sought to be achieved shall remain a far cry.”

The Court thus dismissed the writ petition.

Case Title: M/s Schlumberger Asia Services Ltd versus Union of India & Anr.

Citation: 2023 LiveLaw (PH) 30

Dated: 03.02.2023

Counsel for the Petitioner: Mr. Puneet Bali, Sr. Advocate assisted by Mr. Sandeep Goyal, Mr. Arun Gupta, and Ms. Isha Malik, Advocates

Counsel for the Respondent: Mr. Sourabh Goel, Sr. Standing Counsel – CBIC assisted by Ms. Samridhi Jain and Ms. Rani Pal, Advocates

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