2002 (9) TMI 101 - SC - Income Tax

Benefit of the Kar Vivad Samadhan Scheme - Whether the directors/officers are entitled to a refund? Held that - A reading of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order shows that where a declaration had been made in respect of a tax arrear and where in respect of the same matter a show-cause notice had also been issued to any other person, then the settlement in favour of the declarant has to be deemed to be full and final in respect of other persons on whom show-cause notices had been issued. It is settled law that when an appeal is pending there is no finality to the proceedings. The proceedings are then deemed to be continuing. Undoubtedly, at one place the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order seems to state that the show-cause notice should be pending adjudication. However, the same order also talks of the show-cause notice being in respect of the same matter on which the show-cause notice has been issued to the main declarant. Then the order provides that a settlement in favour of the declarant will be deemed to be full and final in respect of other persons also. This order has to be read as a whole. Thus, even though the show-cause notice may have been adjudicated upon and an appeal is pending a party could still take the benefit of the Kar Vivad Samadhan Scheme and file a declaration. The object of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order is to give benefit of a settlement by the main party (i.e., the company in this case) to all other co-noticees. Admittedly, in this case, all the officers have paid the amounts in pursuance of the declaration made by them under section 88. Even if they have paid the amounts under protest they are not entitled to refund. The directors/officers in Kerala would also not have been entitled to refund by virtue of section 93. However, section 93 does not seem to have been pointed out to the High Court of Kerala. As, pursuant to the order of the High Court of Kerala, they have received refund we do not direct that they should repay the amounts to the Revenue.

Summary

Issues Involved:
1. Applicability of the Kar Vivad Samadhan Scheme (KVSS) to directors/officers of a company.
2. Interpretation of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order.
3. Entitlement to refund of amounts paid under protest by directors/officers.

Issue-wise Detailed Analysis:

1. Applicability of the Kar Vivad Samadhan Scheme (KVSS) to Directors/Officers of a Company:

The primary issue was whether the directors/officers of a company could avail the benefits of the KVSS, specifically regarding penalties imposed on them. The respondents in the appeals were directors/officers of a company that had settled its excise duty and penalty under the KVSS. The directors/officers also filed declarations under the KVSS and paid the determined settlement amounts. They later sought refunds, claiming they were entitled to the benefits of the KVSS (Removal of Difficulties) Order.

The court noted that under the KVSS, there is no adjudication on the subject matter of the demand notice or show-cause notice, but rather a settlement of "tax arrears." Each entity/person (company and directors/officers) had to file separate declarations and settle their respective tax arrears. Section 91 of the KVSS grants immunity only in respect of matters covered in the declaration, meaning the company's settlement did not cover the directors/officers' tax arrears.

2. Interpretation of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order:

The directors/officers argued that the Removal of Difficulties Order implied that once the company settled under the KVSS, the directors/officers should also benefit from the settlement. The court examined the Order, which states that if a declaration is made in respect of tax arrears and a show-cause notice is issued to another person for the same matter, the settlement in favor of the declarant should be deemed full and final for the other person as well.

The court clarified that the Order should be read as a whole, indicating that a settlement by the main declarant (the company) should operate as a full and final settlement for all co-noticees (directors/officers) if the proceedings were still pending in appeal. The court rejected the restrictive interpretation that the benefit applied only if the show-cause notice was pending adjudication, emphasizing that such an interpretation would be unreasonable and discriminatory.

3. Entitlement to Refund of Amounts Paid Under Protest by Directors/Officers:

The final issue was whether the directors/officers were entitled to refunds of the amounts they paid under protest. Section 93 of the KVSS explicitly states that any amount paid in pursuance of a declaration made under section 88 shall not be refundable under any circumstances. The court noted that all officers had paid the amounts in pursuance of their declarations under section 88, and even if paid under protest, they were not entitled to refunds.

However, the court acknowledged that the High Court of Kerala had ordered refunds to the officers in Kerala, and since section 93 was not pointed out during those proceedings, the court did not direct the officers to repay the amounts to the Revenue.

Conclusion:

The Supreme Court upheld the judgment of the High Court of Kerala, allowing the directors/officers to benefit from the company's settlement under the KVSS. It dismissed the appeals against the Kerala judgment and allowed the appeals against the Gujarat judgment, setting aside the Gujarat High Court's decision. The court affirmed that the directors/officers were not entitled to refunds of amounts paid under the KVSS, except for those who had already received refunds pursuant to the Kerala High Court's order.