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2021 (5) TMI 462 - HC - Service TaxDefaulter under the SVLDRS scheme or not - failure to pay the amount mentioned in SVLDRS-3 in time - Seeking adjustment of refund under Income Tax with amount payable under SVLDRS - modification of garnishee notice based on Form No.SVLDRS-3 issued by 2nd respondent - seeking restraint on respondent nos.1 and 2 from taking any coercive or punitive actions against petitioner-Company s officials and directors - HELD THAT - The 3rd respondent is a creature of the Income Tax Act, 1961 and is obliged to discharge his functions strictly in accordance with the provisions of the Income Tax Act, 1961; and he is not entitled to act in violation of the said provisions of the said Act by allowing a set off of Income tax refund due to the petitioner against Service tax dues of the petitioner under the Finance Act, 1994 - Merely because the Principal Chief Commissioner of Income Tax, Hyderabad vide letter dt.20.11.2020 accorded approval for adjusting income tax refund against dues to the Service Tax Department, the action of the 3rd respondent, which is per se illegal and in violation of Section 245 of the Income Tax Act, 1961, does not get validated. It would be a travesty of justice to allow the plan of respondent No.s 1 to 3 to somehow or other ensure that petitioner gets the tag of a defaulter in payment of Service Tax dues, to succeed. The petitioner shall be deemed to have made payment of ₹ 18,91,37,548/- determined under Form No.SVLDRS-3 dt.28.01.2020 before 30.06.2020; the respondents are restrained from declaring that the petitioner had committed a default under the SVLDRS Scheme 2019 and also restrained from taking any coercive action against the Directors, officials of the petitioner or against the petitioner; the respondents 1 and 2 are directed to release to the petitioner the amount of ₹ 12,01,23,118/- out of the Income Tax refund amount of ₹ 30,92,60,666/- payable to it within four (4) weeks; the 3rd respondent shall pay petitioner interest on the sum of ₹ 30,92,60,666/- from 21.5.2020 ( the date of expiry of the 3 month period as per Section 243 (1) (b) of the Income Tax Act,1961) till 24.11.2020 at 15% per annum within four (4) weeks; the respondents 1 and 2 shall also pay petitioner interest at 15% per annum on ₹ 12,01,23,118 ₹ 30,92,60,666/- less ₹ 18,91,37,548/- ₹ 12,01,23,118/- from 25.11.2020 till date of payment within four (4) weeks; costs of ₹ 10,000/- shall also be paid by respondent no.1 and respondent no.3 to the petitioner within four (4) weeks.
Issues Involved:
1. Validity and modification of the Garnishee Notice. 2. Application of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS). 3. Appropriation of Income Tax refund towards Service Tax dues. 4. Entitlement to interest on delayed Income Tax refund. 5. Alleged arbitrary and prejudicial actions by the Income Tax Department. 6. Estoppel against petitioner due to prior consent for adjustment of refund. Detailed Analysis: 1. Validity and Modification of the Garnishee Notice: The petitioner, engaged in infrastructure development, faced a Garnishee Notice issued by the GST authorities to the Income Tax Department to recover Service Tax dues. The petitioner sought modification of this notice to align with the reduced liability under the SVLDRS scheme. The court found that the respondents' refusal to amend the Garnishee Notice was arbitrary, unreasonable, and contrary to Circular No.996/3/2015-CX, dt.28.02.2015, which allows for such modifications. The court held that it was the duty of the respondents to modify the notice to reflect the reduced liability, enabling the petitioner to settle dues under the SVLDRS scheme. 2. Application of the SVLDRS Scheme: The petitioner applied under the SVLDRS scheme, which reduced its Service Tax liability from ?59,20,19,079/- to ?18,91,37,548/-. The court emphasized that the SVLDRS scheme should be liberally interpreted to fulfill its objective of resolving past tax disputes and providing relief to taxpayers. The court criticized the respondents for not facilitating the petitioner to benefit from the scheme, which was against the scheme's intent and purpose. 3. Appropriation of Income Tax Refund Towards Service Tax Dues: The Income Tax Department appropriated the petitioner's Income Tax refund of ?30,92,60,666/- towards its Service Tax dues. The court held that this action violated Section 245 of the Income Tax Act, 1961, which allows set-off only against Income Tax dues, not Service Tax dues. The court declared this appropriation illegal and directed the respondents to release the balance amount to the petitioner. 4. Entitlement to Interest on Delayed Income Tax Refund: The court noted that the petitioner was entitled to an Income Tax refund as per the intimation received under Section 143(1) of the Income Tax Act, 1961. The court found that the Income Tax Department's delay in releasing the refund was arbitrary and illegal, entitling the petitioner to interest at 15% per annum on the delayed refund amount from 21.05.2020 to 24.11.2020, and on the balance amount from 25.11.2020 till the date of payment. 5. Alleged Arbitrary and Prejudicial Actions by the Income Tax Department: The court observed that the Income Tax Department's actions, including soliciting a fresh Garnishee Notice and delaying the refund, were not bona fide and indicated prejudice against the petitioner. The court condemned these actions as arbitrary and violative of Articles 14 and 300A of the Constitution of India. 6. Estoppel Against Petitioner Due to Prior Consent for Adjustment of Refund: The respondents argued that the petitioner was estopped from challenging the set-off due to a prior letter and affidavit consenting to such adjustment. The court rejected this argument, stating that there is no estoppel against a statute, and the petitioner's consent could not override the statutory provisions of Section 245 of the Income Tax Act, 1961. Conclusion and Relief: The court allowed the writ petition, directing that the petitioner be deemed to have made the payment under the SVLDRS scheme before the due date. The respondents were restrained from declaring the petitioner as a defaulter and from taking any coercive actions. The court ordered the release of the balance refund amount to the petitioner, along with interest, and imposed costs on the respondents.
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