Kaarya Facilities & Services Ltd v. Union of India

1. Heard learned counsel for the parties.

2. Rule. The rule is made returnable immediately at the request and with the consent of the learned counsel for the parties.

3. The Petitioner challenges the rejection of its Application under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (“the SVLDRS Scheme”) and the consequent orders including show cause notice dated 23 February 2021, on various grounds, including inter-alia, non-consideration of CBIC Circular dated 27 August 2019, and the answers to the Frequently Asked Questions (FAQs), prepared by the Department on 24 December 2019.

4. At the outset, Mr Mishra, the learned counsel for the Respondents, raised the issue of delay and laches. He pointed out that the impugned rejection was communicated to the Petitioner on 26 December 2019, but this Petition was instituted only on 19 April 2021. Accordingly, he submitted that this Petition ought not to be entertained due to delay and laches in its institution. He relied on Kundan Industries Limited V/s. Union of India And Ors.,[1] disposed of by a Coordinate Division Bench of this Court on 01 April 2022 to support this contention.

5. We have considered the objection based on delay and laches, and in the circumstances of the present case, we are satisfied that such an objection cannot be upheld. Firstly, this Petition was not initiated after any unreasonable delay, which might have given rise to parallel rights in favour of the Respondents. Moreover, it is indisputable that the period between 26 December 2019 and 19 April 2021 was at least partially impacted by the COVID-19 pandemic. The details in Kundan Industries Limited (Supra) provide no valid comparison. Despite the leniency demonstrated by the authorities, the Petitioner, Kundan Industries Limited, failed to take action or approach the Court within a reasonable timeframe. For all these reasons, we do not uphold the objection based on delay or laches.

6. The Petitioner’s Application under the SVLDRS Scheme was rejected on the ground that the Petitioner was not found to be eligible. The alleged ineligibility was qualified or sought to be explained with the following remarks: “Tax dues not quantified as on 30.06.2019 as reported by DGGI vide their letter No.DGGSTI/MZU/I&IS ‘C’/12(1) 250/2018 Dated 03.02.2020.”

7. The SVLDRS Scheme indeed requires the quantification of the tax dues as on 30 June 2019. However, the CBIC Circular dated August 27, 2019, clarifies the position. The clarification in para 10(g) of this Circular is quite relevant and transcribed below: “(g) Cases under an enquiry, investigation or audit where the duty demand has been quantified on or before the 30th day of June, 2019 are eligible under the scheme. Section 2(r) defines "quantified" as a written communication of the amount of duty payable under the indirect tax enactment. It is clarified that such written communication will include a letter intimating duty demand; or duty liability admitted by the person during enquiry, investigation or audit; or audit report etc."”

8. In terms of the above clarification, the written communication as contemplated by Section 2(r) of the Finance (No.2) Act, 2019, would include a letter intimating duty demand, or duty liability admitted by the person during enquiry, investigation or audit, or audit report, etc. This position was further clarified through the answers to the FAQs, prepared by the Department on December 24, 2019.

9. If the Circular dated 27 August 2019 and the answers to the FAQs prepared by the Department on 24 December 2019 were considered, it was clear that the tax dues were duly quantified as of 30 June 2019. On this basis, therefore, there was no reason to deem the Petitioner ineligible.

10. The record shows that the summons was issued to the Petitioner on 24 December 2018, pursuant to which a statement of the Petitioner’s Director was recorded on 04 January 2019. In his statement, the Petitioner’s Director clearly stated that the Petitioner had quantified the total short-paid liability of service tax as Rs. 120.16 lakhs. The Petitioner’s Director reiterated this position in his statement recorded on 17 March 2020. This material, if considered in the context of the CBIC Circular dated 27 August 2019 and the answers to FAQs prepared by the Department on 24 December 2019, makes it clear that there was a necessary quantification of the tax dues before the cut-off date of 30 June 2019, as contemplated by the scheme. The ground for declaring the Petitioner ineligible, therefore, cannot be sustained.

11. Besides, we note that in the affidavit-in-reply filed on behalf of the Respondents, it is stated that after the finalisation of investigation for unpaid service tax liability was found to be Rs. 1,16,82,896/-, which, varies from the admitted liability in the statement dated 04 January 2019, which was Rs.1.21 Crores.

12. Thus, this is a case where the Petitioner had quantified the tax liability at Rs.1.21 Crores, and the department, upon finalisation and adjustment, found that the liability would come to Rs. 1.16 Crores or thereabouts, i.e less than the liability quantified by the Petitioner. This could hardly have been a valid ground to declare the petitioner ineligible to avail the benefits of the SVLDRS scheme.

13. In Thought Blurb V/s. Union of India And Ors.,[2] and Landmark Associates V/s. Union of India And Ors.,3, the Coordinate Division Benches, comprising Ujjal Bhuyan J. (as His Lordship then was) and Abhay Ahuja, J., after taking cognizance of CBIC Circular dated 27 August 2019 and the answers to the FAQs prepared by the department on 24 December 2019, agreed with the Petitioner’s contentions that tax liability was indeed quantified before the cut-off date vide the statements during investigation. In those cases, the quantification was for amounts less than those ultimately found payable by the Petitioners. The Division Bench, therefore, clarified that the quantification is only to determine eligibility under the Scheme and not to investigate alleged tax evasion. The Petitioner in the present case is in a better position because, after finalisation and adjustment, the 2020-TIOL-1813-HC-MUM-ST 2021-TIOL-93-HC-MUM-ST department accepts the liability is less than what was quantified by the Petitioner.

14. Mr Mishra, the learned counsel for the Respondents, quite fairly and reasonably did not dispute that the Petitioner’s case on merits stands substantially covered by the above two decisions relied upon on behalf of the Petitioner. But he submitted that if any relief is to be granted to the Petitioner, the same must be subject to payment of some reasonable interest by the Petitioner.

15. The aspect of interest can be considered. Though the rejection of the Petitioner’s application under the scheme may not be proper, the Petitioner retained and used the amount for all these years. Since the Petitioner seeks equitable relief, the Petitioner should also be prepared to do equity and pay interest at some reasonable rate.