2025 (1) TMI 547 - HC - Service Tax

Disallowance of ineligible CENVAT credit - recovery with interest and penalty - whether SCN issued to the petitioner is valid in light of the Sabka Viswas (Legacy Dispute Resolution) Scheme, 2019? - HELD THAT - It appears that petitioner had attempted to settle the dispute and had filed a declaration in Form SVLDRS 1 stating that the petitioner was in arrears of tax for a sum of Rs. 64,32,402/-. The declaration filed by the petitioner in SVLDRS 1 was also acknowledged. Later the respondent issued Form SVLDRS 3 dated 28.02.2020. It appears that after the receipt of the SVLDRS 3 dated 28.02.2020, the petitioner has also paid the tax amount pursuant to which SVLDRS 4 has been issued to the petitioner which is a final Discharge Certificate as is contemplated under Section 127 of the Finance Act No.2 Act, 2019 read with Rule 9 of the Saba Viswas (Legacy Dispute Resolution) Scheme, 2019. After the Discharge Certificate was issued, the Department had issued a Notice dated 07.02.2022 bearing Reference C.No.V/15/05/2020 Adj.Ch.Outer, wherein, a reference is made to the impugned Show Cause Notice dated 06.02.2020. Therefore, issuance of Form SVLDRS 3 and the question of unsettling the case settled under the provisions of the Chapter V of the Finance Act 2 of 2019, the contentions that Sabka Viswas (Legacy and Dispute Resolution) Scheme, 2019 cannot be countenanced. Petition allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Show Cause Notice issued to the petitioner is valid in light of the Sabka Viswas (Legacy Dispute Resolution) Scheme, 2019.
Whether the petitioner is liable for the recovery of ineligible CENVAT credit and associated penalties and interest under the CENVAT Credit Rules, 2004 and the Finance Act, 1994.
Whether the petitioner is liable for the payment of service tax, interest, and penalties under the reverse charge mechanism as per the Finance Act, 1994.
Whether the issuance of the Discharge Certificate under the Sabka Viswas Scheme precludes further action by the Department regarding the settled tax liabilities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Show Cause Notice in light of the Sabka Viswas Scheme

Relevant legal framework and precedents: The Sabka Viswas (Legacy Dispute Resolution) Scheme, 2019, was introduced to resolve pending tax disputes and provide relief to taxpayers. Section 127 of the Finance Act No.2 Act, 2019, and Rule 9 of the Sabka Viswas Scheme are pertinent.
Court's interpretation and reasoning: The court noted that the petitioner had availed the benefits of the Sabka Viswas Scheme by filing a declaration and receiving a Discharge Certificate, indicating settlement of the disputed tax liabilities.
Key evidence and findings: The issuance of Form SVLDRS-3 and the subsequent Discharge Certificate (SVLDRS-4) were crucial in establishing that the petitioner had settled the tax arrears under the scheme.
Application of law to facts: The court applied the provisions of the Sabka Viswas Scheme to conclude that the issuance of the Discharge Certificate precluded further action on the settled matters.
Treatment of competing arguments: The Department's argument that the Show Cause Notice could still be pursued was rejected, as it contradicted the finality conferred by the Discharge Certificate.
Conclusions: The court concluded that the Show Cause Notice was invalid concerning the settled matters under the Sabka Viswas Scheme.

Issue 2: Liability for recovery of ineligible CENVAT credit and associated penalties and interest

Relevant legal framework and precedents: Rule 14 of the CENVAT Credit Rules, 2004, and Sections 73(1), 75, 77, and 78 of the Finance Act, 1994, govern the recovery of ineligible CENVAT credit and imposition of penalties and interest.
Court's interpretation and reasoning: The court did not delve into the merits of this issue, as it was rendered moot by the settlement under the Sabka Viswas Scheme.
Key evidence and findings: The court relied on the Discharge Certificate to conclude that the liabilities had been settled.
Application of law to facts: The court found that the issuance of the Discharge Certificate nullified the need to address the recovery of CENVAT credit and associated penalties.
Treatment of competing arguments: The court dismissed the Department's position that the Show Cause Notice could proceed despite the settlement.
Conclusions: The court concluded that the petitioner was not liable for the recovery of ineligible CENVAT credit due to the settlement.

Issue 3: Liability for service tax, interest, and penalties under the reverse charge mechanism

Relevant legal framework and precedents: The reverse charge mechanism under the Finance Act, 1994, requires the recipient of services to pay the service tax.
Court's interpretation and reasoning: Similar to the previous issue, the court did not address the merits due to the settlement under the Sabka Viswas Scheme.
Key evidence and findings: The Discharge Certificate was pivotal in determining the resolution of the tax liabilities.
Application of law to facts: The court applied the provisions of the Sabka Viswas Scheme to conclude that the liabilities under the reverse charge mechanism were settled.
Treatment of competing arguments: The court rejected the Department's argument for pursuing the Show Cause Notice post-settlement.
Conclusions: The court concluded that the petitioner was not liable for service tax, interest, and penalties under the reverse charge mechanism due to the settlement.

Issue 4: Effect of the Discharge Certificate on further action by the Department

Relevant legal framework and precedents: The finality of the Discharge Certificate under the Sabka Viswas Scheme is established by Section 127 of the Finance Act No.2 Act, 2019.
Court's interpretation and reasoning: The court interpreted the Discharge Certificate as final and conclusive, preventing any further action on the settled matters.
Key evidence and findings: The issuance of the Discharge Certificate was decisive in concluding that the tax liabilities were resolved.
Application of law to facts: The court applied the legal provisions to affirm the finality of the Discharge Certificate.
Treatment of competing arguments: The court dismissed the Department's contention that the Show Cause Notice could still be pursued.
Conclusions: The court concluded that the Discharge Certificate precluded any further action by the Department regarding the settled tax liabilities.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The issuance of Form SVLDRS-3 and the subsequent Discharge Certificate (SVLDRS-4) were crucial in establishing that the petitioner had settled the tax arrears under the scheme."
Core principles established: The finality of the Discharge Certificate under the Sabka Viswas Scheme precludes further action on settled tax liabilities.
Final determinations on each issue: The court determined that the Show Cause Notice was invalid concerning the settled matters, and the petitioner was not liable for the recovery of CENVAT credit, service tax, interest, and penalties due to the settlement under the Sabka Viswas Scheme.

← Previous Next →