06 August 2024 Indirect Tax >> Tax Laws  

In a recent judgment, the court addressed the complexities surrounding the Sabka Vishwas Legacy Dispute Resolution Scheme (SVLDRS) and the quantification of service tax dues. The case involved Muthukrishnan Iyyappan, the director of the petitioner, who represented himself, prompting the appointment of Mr. Raichandani as Amicus Curiae. The court acknowledged the valuable assistance provided by Mr. Raichandani in reaching its decision.

Background:

The petitioner received a communication from the GST audit team on April 5, 2019, indicating a mismatch in service tax payments from the financial years 2014-2015 to 2017-2018. The discrepancy was a mere Rs.1, and the petitioner was urged to pay this amount immediately. Surprisingly, instead of resolving this minor issue, the petitioner opted to navigate a more challenging route, ultimately willing to pay Rs.22,00,414 as service tax for the specified financial years. After conducting an internal audit, the petitioner recognized the shortfall and decided to declare this amount under the SVLDRS. On November 6, 2019, a declaration was submitted for Rs.16,04,367, which was accepted by the respondents, who required payment within 30 days. However, instead of complying, the petitioner submitted a second declaration on December 30, 2019, quantifying the total dues at Rs.22,00,414 under a different category.

Rejection of the Declaration:

The respondents rejected this second declaration, citing that the tax dues had not been quantified before the cut-off date of June 30, 2019, rendering it ineligible under the SVLDRS. This decision was based on specific provisions within the scheme that dictate the eligibility criteria for tax dues being quantified before the specified date. In response, the petitioner contended that a letter dated May 6, 2019, clearly outlined the shortfall of Rs.22,00,414 due to calculation errors, thereby qualifying the dues as quantified before the cut-off date.

Legal Arguments:

During the proceedings, Mr. Raichandani referenced relevant case law, including Thought Blurb v. Union of India and Joseph Daniel Massey v. Union of India, arguing that the petitioner’s acknowledgment of the dues prior to the cut-off date should suffice for the declaration to be valid.

Conversely, Ms. Date, representing the respondents, argued that the petitioner’s unilateral communication could not constitute proper quantification of tax liability, citing precedents where similar claims were dismissed due to lack of comprehensive disclosure.

Court’s Findings:

The court concluded that the petitioner had indeed quantified the tax dues prior to the June 30, 2019 cut-off date. The judgment emphasized the intent of the SVLDRS to resolve past disputes surrounding service tax and central excise, advocating for a liberal interpretation of the scheme. Notably, the court found that the petitioner’s letter and subsequent communications with the respondents demonstrated an admission of liability for the service tax amount. It highlighted the importance of enabling businesses to resolve historical tax disputes efficiently, thus allowing them to move forward.

Conclusion:

As a result, the court quashed the rejection of the petitioner’s declaration and mandated that the respondents re-evaluate the December 30, 2019 application. A decision was to be rendered by September 30, 2024, ensuring due process and consideration of the petitioner’s position. Furthermore, related show-cause notices and prior orders against the petitioner were also set aside.

This ruling underscores the necessity for administrative bodies to adopt a cooperative stance in facilitating tax dispute resolutions, aligning with the broader objectives of the SVLDRS aimed at alleviating the burdens of pre-GST tax disputes. The implications of this case could serve as a precedent for similar disputes under the SVLDRS, reinforcing the importance of clarity and acknowledgment in tax liability declarations.