Sabka Vishwas Legacy Dispute Resolution Scheme, 2019 - An Analysis

[Priyanka Rathi]

1. Introduction

The Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (“scheme”) introduced by the Finance Minister in the Budget 2019 is one of the main highlights of this budget and has garnered much attention of the taxpayers owing to its projected benefits.

Reduction in past indirect tax litigation has been one of the topmost priorities of the Government so that the focus remains on the effective implementation of the present taxation regime and further to cope up with the challenges and issues arising thereunder.

In GST regime, various cases have been filed before the High Courts challenging the provisions on various grounds. Also, the advance rulings have also created lot of confusion in the minds of taxpayers. Thus, it has become all the more imperative for the Government to offset the past litigation and tackle emerging issues under GST. One step towards this was revision of monetary limits vide CBIC instructions dated 11.07.2019, for filing appeals before various forums. Further, vide the said instructions, proposals for withdrawal of Appeals as per the revised monetary limit has also gained momentum. This is evident from the Apex Court Order dated 06.02.2019 in CCE v. Nalwa Steels and Power Ltd. in Civil Appeal No. 21847 of 2017 wherein the Court allowed withdrawal of 386 cases by Department on account of low tax effect. This step has brought down past indirect tax litigation to some extent. However, the introduction of the scheme will further stimulate the process and is a laudable step to clear the past backlog.

Under this scheme, taxpayers have been offered one time opportunity to mitigate the tax dispute with the tax authorities. While the scheme is yet to be notified and the final rules are yet to be put in place, an insight into the key features of the amnesty scheme and the issues which may arise for consideration would be worthwhile.  

2.  Key Features of the scheme

• Applicability of the Scheme to various enactments

The scheme has wide sweep and covers disputes under indirect tax enactments such as Central Excise, Service Tax and various other enactments like Coffee Act, 1972, Spices Cess Act, 1986 etc. Further, any other enactment which may be notified by the Central Government will also be covered under the scheme. It is noteworthy that the Scheme is not applicable for disputes pertaining to Customs Act, 1962 and also Value Added Tax (“VAT”) etc., which are covered under amnesty schemes of the respective State Governments.

• Disputes sought to be covered under the Scheme

The disputes that are sought to be covered for resolution under this scheme range from the stage of investigation / audit till the matters pending before Supreme Court. Inclusion of disputes from the investigation stage is beneficial and will particularly benefit those who do not want to engage in protracted litigation with Department and may wish to settle the dispute at early stages right from the stage of audit etc. This is more so, as the litigation process involves huge cost with no predictable outcomes. Further, it may take years for final resolution of dispute.

3. Eligibility under the scheme

As far as eligibility criteria under the scheme is concerned, the Scheme can be opted to, by all the tax-payers except in the following cases:

• The matter has been finally heard in any Appeal or Show-cause Notice (“SCN”) on or before June 30, 2019;
• The person has been convicted under the concerned indirect tax laws with respect to the matter for which he intends to file declaration;
• The matter relates to erroneous refund or any refund;
• The matter pertains to enquiry or investigation and the tax amount has not been quantified by June 30, 2019;
• The assesse has voluntarily disclosed the tax dues pursuant to an enquiry or investigation or audit or the disclosure pertains to amount which was indicated in the return but has not paid it;
• The assesse has filed an application before Settlement Commission;
• The matters pertains to excisable goods such as tobacco and petroleum products

As per the eligibility criteria set out in the Scheme, every taxpayer has been given the option to settle the dispute barring certain cases as mentioned above. In terms of restricted category of cases, only matters wherein hearing has been concluded and order is pending have been kept out of the purview of this scheme. This is to ensure completion of proceedings by adhering to due process of law. Further, once the order is passed or the show cause notice is adjudicated, there is a fair possibility that the demand against the taxpayer may get dropped, in which case, it will only be advantageous for the tax payer as nothing (tax dues) is required to be paid. On the other hand, if the scheme was opted for, by the taxpayer, it would have been required to pay the amount as stipulated. Furthermore, in such cases, even if the demand gets confirmed at a later stage then the taxpayer has been given the option under the scheme to file for dispute resolution.

4. Benefit/ Incentive under the Scheme 

The scheme envisages settlement of “tax dues” by the taxpayer. Further, the term “tax dues” has been defined to include the amount of duty in the show cause notice or in the appeal, the amount of duty stated in the declaration (in case of voluntary disclosure), the amount in arrears. The sum and substance of the above implies that it is the amount of duty which is to be taken into consideration while arriving at the tax dues under the scheme.

Further, the scheme prescribes the following benefits to the taxpayers opting under it:

Particulars	Relief if Tax Demand < 50 Lakhs	Relief if Tax Demand > 50 Lakhs
Where tax dues relate to SCN or Appeals and duty and penalty are both involved	70% tax	50% tax
Where tax dues in SCN relate to only penalty or late fee	Entire amount of Penalty	Entire amount of Penalty
Where tax dues pertain to amount is arrears, [i.e. in cases where (i) Appeal not filed; (ii) order has attained finality; (iii) liability declared in return but not paid]	60% tax	40% tax
Where tax dues are linked to an enquiry, investigation or audit conducted on or before 30.06.2019	70% tax	50% tax

5. Process of claiming the benefit

In order to claim the benefit of the Scheme, the prescribed process is as follows:

• A declarant, i.e. a person who files a declaration under the Scheme declaring the tax dues, has to make such declaration in electronic form.
• Pursuant thereto, a designated committee, the composition and functions of which will be provided under the relevant Rules, will verify the ‘correctness’ of the said declaration and issue an electronic statement indicating the tax dues. The said statement is to be issued within 60 days from the date of receipt of declaration. However, in case the committee is of the view of that the amount declared is less, it shall issue a statement of estimated amount due within 30 days and provide an opportunity of hearing. Post this, an e-statement indicating the amount payable will be issued.
• The amount indicated in the statement shall be paid electronically through internet banking within a period of 30 days from the date of issuance of statement.
• It is noteworthy that on payment of dues indicated in the statement, appeal filed before any appellate forum, other than the High Court of Supreme Court, shall be deemed to be withdrawn. For appeal pending before the High Court of Supreme Court, the declarant has to file an application of withdrawal.
• Upon submission of proof of payment and withdrawal application as the case may be, a discharge certificate will be issued as proof of payment. Thereafter, the declarant will not be liable for payment of interest and penalty.  

Here, it is relevant to note that amount determined has to be paid in cash and cannot be paid using the Input Tax Credit nor can it be claimed as credit. Further, pre-deposit already paid by the taxpayer will also be adjusted against the dues. However, in case of excess pre-deposit, the difference would not be refundable.

6. Effect of resolution under the scheme

Once the taxpayer receives the discharge certificate proving the payment of dues under the scheme, the Department cannot reopen the case further and matter reaches a closure. Further, the declarant would also be immune from any kind of prosecution. This comes as a relief to taxpayers since the matter once settled under the scheme is, for all practical purposes, deemed to be closed.  

7. Analysis of the scheme

• Penalty amount can also be settled (where tax dues are paid or nil)

The scheme lays down that where tax dues are relatable to SCN for late fee or penalty and the amount of duty has been paid by the taxpayer or is nil, then relief can be availed for entire amount of penalty.

Thus, as per the above settlement option, if duty amount under SCN has been paid, then relief from entire amount of penalty is available. Further, where the amount of tax in the SCN is nil then also, relief from entire amount of penalty is available. This implies that where SCN is issued only for imposition of penalty then, even though penalty has not been separately included in the definition of “tax dues” (which pertain to the amount of duty in all cases), dispute resolution under the scheme can be opted for the said penalty cases also. However, it is still uncertain if taxpayers would get relief in case of any kind of penalty or only bonafide belief cases are sought to be covered under the scheme etc. The scheme is further silent on the aspect when the imposition of penalty is pursuant to any order. Thus, as of now no relief would be available in such penalty cases.

•   Anomaly in voluntary disclosure cases

A perusal of the draft scheme shows that in voluntary disclosure cases (where the amount of duty was indicated by the taxpayer in the return but was not paid) are not covered under the scheme. However, relief clause stipulated under the scheme shows that even in such cases, relief is available and declarant is required to pay only 40% of tax dues where amount is 50 Lakhs or less and 60% where the amount of tax dues more than 50 Lakhs. Thus, there appears to be some error in the drafting of the exclusion clause of the scheme and the intention appears to cover such voluntary disclosure cases also. This is so because in such cases, if the SCN is issued (where amount is disclosed in the return but not paid) then the case automatically gets covered under the scheme. Hence, no purpose would be served to exclude similar cases where assesse is coming forward on his own to pay the tax dues.

• Disputes pertaining to cenvat credit

Though the scheme does not specifically mention that disputes pertaining to cenvat credit are also covered but it appears that the same would be covered under the ambit of “tax dues” under the scheme and hence eligible under the scheme. As mentioned, “tax dues” include the amount of duty and the expression “amount of duty” would include cenvat. This is so as the expression “duty” under Section 2A of the Central Excise Act 1944 includes “CENVAT” as follows:

“SECTION 2A. References of certain expressions. - In this Act, save as otherwise expressly provided and unless the context otherwise requires, references to the expressions “duty”, “duties”, “duty of excise” and “duties of excise” shall be construed to include a reference to “Central Value Added Tax (CENVAT)”

Thus, where disputes pertain to recovery of cenvat credit, the tax payers can very well avail the options available under the scheme for resolution of dispute.

• No verification by Designated Committee in Voluntary disclosure cases

Another grey area in the scheme is regarding non-verification of estimated amount to be paid by tax payer in voluntary disclosure cases. The scheme provides that once a declaration has been made by the declarant, the Designated Committee will verify the correctness of the declaration. However, the exception in such cases is a case of voluntary disclosure where the scheme provides that there would be no such verification. However, the Scheme subsequently provides that in case, the particulars submitted in voluntary disclosure is found to be false within 1 year of issuance of discharge certificate, it shall be presumed as if the declaration was never made and proceedings under the relevant enactment shall be instituted.  Thus, in effect, though there is no verification at the initial stage, voluntary disclosure is susceptible to review post the issuance of discharge certificate. Thus, one needs to be mindful of this aspect as this mode of disclosure is also not free from scrutiny.

8. Other Schemes vis-a-vis the present Scheme

Like the present amnesty scheme, various States have also formulated their dispute resolution scheme post the introduction of GST such as the State of Maharashtra, Kerala, Karnataka etc settle pre-GST disputes. These amnesty schemes cover disputes pertaining to various State levies, including VAT, CST, Entry Tax, Professional Tax etc. However, such schemes provide waiver of interest and penalty on payment of tax or partial waiver of tax, interest and penalty. For example, the amnesty scheme introduced in Karnataka, namely, Comprehensive Karasamadhana Scheme, 2019 provides for 100% waiver of arrears of penalty and interest payable by a dealer under various state laws upon fulfillment of certain conditions. The scheme introduced by the State of Maharashtra, called Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fee Ordinance, 2019, provides partial waiver of arrears of tax, interest, penalty or late fee. Further, the State Amnesty Schemes are available to all taxpayers. There is no express restriction, as in the present scheme.

Thus, a combination of these schemes provide good opportunity to the taxpayers to settle Central as well as State level tax disputes and smoothly transition to GST regime.

9. Conclusion

The analysis reveals that overall the scheme appears to be beneficial for taxpayers as it intends to offer substantial relief from tax dues apart from interest and penalty. There are certain discrepancies which are expected to iron out once the relevant Rules are framed in this regard. Pragmatically speaking, where there is a precedent on any issue from higher forum against the taxpayer, exploring options under the scheme would be fruitful. The only impediment in the scheme is that the tax dues are required to be paid in cash and no credit would be available for the same. However, as this is a conditional scheme, benefit would only be available on fulfilment of the relevant criteria. Thus, in case of substantial demand, the businesses would be required to keep in mind the rigors posed under the scheme, assess their financial health and make a decision for availing benefits under the scheme.

By - Priyanka Rathi and Ashwini Chandrasekharan (Advocates, Supreme Court of India)

Discussions to this article

[Ganeshan Kalyani]

The dues should have been allowed to be paid through ITC. It is seen that credit carry forwarded in new tax regime remains to be unutilised as there is ITC accumulation on fresh purchase as well.