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TMI Blog2015 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... nor is the petitioner in any manner affected by the class of persons being excluded from the benefit of KVSS 1998 for the reason of prosecution being launched for enforcement of the civil liabilities. Furthermore, the Petitioner is seeking a relief under the KVSS 1998 and at the same time, he is calling upon the Court to strike down Section 95 thereof, which will result in all persons being entitled to the KVSS 1998. This will lead to the entire scheme being unworkable. The relief prayed for under the Scheme and the argument of the Petitioner seeking to destroy the entire scheme, is difficult to reconcile. The Petitioner was charged for offence of cheating and his class has been rightly excluded from the benefit of the Scheme. Nevertheless we have examined the challenge and not found any merit in it. Thus, the challenge to Section 95 of the KVSS 1998 mounted by the Petitioner must fail. - Decided against assessee. - Writ Petition No. 1027 of 1999 - - - Dated:- 13-10-2015 - M. S. Sanklecha And N. M. Jamdar, JJ. For the Petitioner : Mr. Amit Jhaveri, Petitioner-in-Person For the Respondent : Mr. Anil Singh, Additional Solicitor General a/w Mr. Suresh Kumar and Mr. Afr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax was the amount of tax, penalty or interest determined on or before 31 March 1998 and remaining unpaid as on the date of the filing a declaration in the prescribed form. The declaration in the prescribed form had to be filed by a person invoking the benefit of KVSS 1998 on or after 1 September 1998 but before 31 December 1998. The scheme provided that on the date of filing of the declaration, there must be a pending dispute with regard to the tax arrears which is being sought to be settled under the KVSS 1998. The settlement of tax dispute was mutually beneficial measure, both to the revenue and assessee, inasmuch as it benefited the revenue to realize its assessed dues not paid, in an expeditious manner and offers the assessee an opportunity to pay the disputed liability at an discounted rate coupled with an immunity from imposition of penalty and prosecution. The KVSS 1998, inter alia, provided for a declaration to be made in the prescribed form by the assessee who seek to settle the dispute in the aforesaid manner to the designated authority thereunder. In case the designated authority accepted the declaration within the sixty days as provided, by grant of a certificate dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in CBI Vs. Sashi Balsubramanian 2006(13)SCC 252 while considering Section 95 (iii) of the KVSS 1998 has held that the term 'instituted' would not mean filing of chargesheet but would also include mere filing of a complaint. Accordingly, the view of this Court in not admitting the Petitioner's challenge to letter dated 12 February 1999 stands approved by the Apex Court in Sashi Balsubramain (supra). Submissions : 9. As the petitioner was appearing in person, we had appointed Mr. Chinoy, learned Senior Counsel as an amicus curiae. Mr. Chinoy, learned Senior Counsel graciously agreed and rendered valuable assistance. We place on record our appreciation. Mr. Chinoy submitted that unequals are grouped together in Section 95 and for that reason Section 95 of KVSS 1998 is discriminatory and liable to be questioned. He, however, pointed to the consequences of the upholding the challenge will lead to reopening the entire scheme and unsettle decided issues. 10. The petitionerinperson in support of the petition submitted as under: (a) A taxing statute like any other Act of Parliament is subject to equality clause provided under Article 14 of the Constitution of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of KVSS 1988 submits as under: (a) The KVSS 1998 is a part of Finance Act, 1998 by which the Parliament has enacted the same with the object of settling the pending dispute between the assessee and the State. These pending disputes has resulted in large amount being blocked up in the resolution of the dispute. Therefore, KVSS 1998 seeks to settle litigation. In the process, the Parliament in its wisdom has sought to exclude certain category of assessee as specified in Section 95 of the KVSS 1998 from the benefit of the Scheme of Settlement including those involved in socialeconomic crimes. This classification of various classes of assessee not being entitled to the benefit of KVSS 1998 is founded on an intelligent differentia between those excluded from the benefit of KVSS 1998 and to those the benefit have been offered having a rational nexus to its object. Therefore Section 95(iii) of KVSS 1998 does not fall of foul of Article 14 of the Constitution of India; (b) The Petitioner himself undisputedly falls within a Section 95(iii) of the KVSS 1998, in as much as a prosecution has been instituted against the petitioner under Chapter XVII of the Indian Penal Code prior to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrear in respect of such assessment year under such direct tax enactment; (c) to a case where no appeal or reference or writ petition is admitted and pending before any appellate authority or the High Court or the Supreme Court on the date of filing of declaration or no application for revision is pending before the Commissioner on the date of filing declaration; (ii) in respect of tax arrear under any indirect tax enactment ( a) in a case where prosecution for any offence punishable under any provisions of any indirect tax enactment has been instituted on or before the date of filing of the declaration under section 88, in respect of any tax arrear in respect of such case under such indirect tax enactment; (b) in a case where showcause notice or a notice of demand under any indirect tax enactment has not been issued; (c) in a case where no appeal or reference or writ petition is admitted and pending before any appellate authority or the High Court or the Supreme Court or no application for revision is pending before the Central Government on the date of declaration made under section 88; (iii) to any person in respect of whom prosecution for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultra vires Articles 14 and 19 (1)(g), it would be apposite to notice the wellestablished principles for testing any legislation before it can be declared as ultra vires. It is not necessary for us to make a complete survey of the judgments in which the various tests have been formulated and reaffirmed. We may, however, make a reference to the judgment of this Court in Budhan Choudhary v/s. State of Bihar AIR 1955 SC 191 wherein a Constitution Bench of seven Judges of this Court explained the true meaning and scope of Article 14 as follows: 5 .. .. .. .. It is now wellestablished that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely (i) that the classification must be founded on an intelligent differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) that differentia must have a rational relation to the object sought to be achieved by the statue in question. The classification may be founded on different bases; namely, geographical, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a tax legislation like any other legislation is subject to a rigour of Article 14 of the Constitution of India (Chhotalal Jethabhai Patel v/s. Union of India AIR 1962 SCC 1006 and Aashirwad Films v/s. Union of India 2007 (6) SCC 624). However, a tax legislation dealing with economic activities have to be judged with greater latitude and the legislature should be allowed greater play in the joints than say a law relating to right of free speech. We can do no better than to reproduce the observation of the Apex Court in R. K. Garg (supra) wherein paragraph 8 has been observed as under: 8:-Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straightjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues. (emphasis supplied) Consideration: 15. Keeping the above broad parameters in mind, we shall now examine the Petitioner's challenge to Section 95 of the KVSS 1998. At the very out set, it must be pointed out that the Petitioner is a person who admittedly falls within the exclusion clause namely Section 95 (iii) of the KVSS 1998. Secondly, KVSS 1998 is a benefit which is accorded to the assessee and is a deviation from strict implementation of a taxing statute. It is in the aforesaid circumstances, that the Petitioner has assailed the Constitutional validi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This exclusion has no nexus to the objects of the Act and thus is arbitrary to Article 14 of the Constitution of India. 16 A common thread running through the petitioner s challenge to Section 95(iii) of the Act is that the classification made therein is not based on intelligible differentia and the differentia does not bear a rational relation to the objective/ purpose of the legislation. The Apex Court in the case of Sashi Laxman Kale v/s. Union of India 1990 (4) SCC 366 has held that the purpose or the object of the legislation can be found out by looking at the circumstances which prevail when the law was passed including the necessity of the law. It is, therefore, permissible to look at the statement of objects/ reasons while introducing the Act and also the historical facts and surrounding circumstances to ascertain the mischief sought to be remedied. In the present case, the objective/ purpose of the KVSS 1998 can be discerned from the speech of the Finance Minister while introducing the Finance Act, 1998 as set out by the Apex Court in Union of India v/s. NITDIP Textiles Processors (P) Ltd. 2012 (1) SCC 226 at paragraphs 17 and 18 as under: 17:-The object and purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended to settle disputes when there is no corresponding gain to the other party. The basic objective of the Scheme cannot be altered. (emphasis supplied) In fact the Supreme Court has repeatedly held that KVSS 1998 was introduced with a view to collect revenue and avoid litigation (Sushila Kumari v/s. CIT 2000 (2) SCC 697, Killick Nixon Ltd v/s. CIT 2003 (1) SCC 145). In fact, in CIT v/s. Shatru Saliyana Jadeja 2005 (7) SCC 294, the Apex Court held that the objective of the KVSS 1998 was to settle tax arrears in litigation at a substantial discount. This is so, because it was noticed that a large number of cases were pending at recovery stage, the scheme, therefore, was in substance a recovery scheme to put an end to all pending disputes between the Revenue and the Assessee whether before the authority or before the Court. 17. The State has filed an affidavit indicating that the policy / intent of KVSS 1998 to exclude offenders specified under Section 95 (iii) of the Act from the benefit of the KVSS 1998. The benefit of KVSS 1998 was not to be extended to all those who have, inter alia, income/ property which had been acquired by illicit means. The benefit of KVSS 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person from the benefit of KVSS 1998 in respect of whom a complaint has been filed in a Criminal Court, alleging offences under Chapter IX and XVII of the Indian Penal Code is arbitrary. This it is submitted is in view of the fact that the complaint in the Criminal Court is filed on mere suspicion and if ultimately the person so excluded is discharged even then the benefit of KVSS 1998 would not be available. The legislation does not factor in the likelihood of honourable discharge. Thus it is arbitrary according to the Petitioner. The Parliament in its wisdom has provided a window period during which an offer of settlement under KVSS 1998 is kept open subject to certain conditions being satisfied on the date of filing of the declaration. This providing of cut off days as held by the Supreme Court in NITDIP Textile Processors (supra) would always result in same disadvantage to some individuals but in economic legislations there has to be some free play on the joints. The parliament in its wisdom did not desire to make the offer of settlement available to those under a shadow of culpability in respect of socio economic offences. This wisdom of Parliament of excluding pending prosec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t referred to therein. The classification is restricted only to those persons who are involved in crimes which in Parliament's experience/ wisdom could have lead to generation of income/ wealth/ property. It is these classes of persons who have been excluded. This classification certainly has a nexus to the objective of the Act namely recovering revenue which has been clogged and the income which is being offered to tax under the KVSS 1998 is not shadowed by a likelihood of the same having arisen from socioeconomic crimes for which prosecution has been launched as provided in Section 95(iii) of the Act. Serious crimes like murder etc per se according to the wisdom of Parliament, may have no nexus to the generation of income. In any case at the very highest, the grievance of the Petitioner appears to be that the classification is not proper and there is room for more classification by including into those categories listed in Section 95(iii) of the Act, those who have been left out. Grievance made is one of under inclusion. 21. The issue of under inclusion in tax litigation arose before the Supreme Court in M/s. Murthy Match Works and Others v/s. Assistant Collector of Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing on microclassification to work out perfect justice is left to executive expediency and legislative judgment and not for forensic wisdom. (American Jurisprudence 2d : vol. 16, para 496): The relationship between the legislative and judicial departments of Government in the determination of the validity of classification is well settled . . . . the authorities state with unanimity that the question a judicial question except for the purpose of determining in any given situation, whether the legislative action is clearly unreasonable. The legislative classification is subject to judicial revision only to the extent of seeing that it is founded on real distinctions in the subjects classified, and not on artificial or irrelevant ones used for the purpose of evading the constitutional prohibition. In a classification for governmental purposes there cannot be an exact exclusion or inclusion of persons and things. The constitutional command for a state to afford equal protection of the law sets a goal not attainable by the invention and application of a precise formula. Classification in law, as in the other departments or knowledge or practice, is the grouping of things ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... civil court leading to institution of criminal prosecution. This certainly has nexus to the object of KVSS 1998 to settle disputes with regard to those who are honest and are not under any shadow of being persons whose methods of earning income are a matter of grave doubt as prosecutions have been launched against them. It does not include within its scope, any civil suit pending between two independent parties, as sought to be contented by the Petitioner. 23. In any case, so far as the Petitioner is concerned, he is not being excluded from the benefit of KVSS 1998 for an institution of prosecution for the enforcement of the civil liabilities. The petitioner admittedly at the time when he filed his declaration was being prosecuted for offences of cheating under Chapter XVII of the Indian Penal Code. So far as the Petitioner is concerned, he does not fall within the class of the persons against whom proceedings have been instituted for enforcement of any civil liabilities. Therefore, only a person who has been excluded from the benefit of KVSS 1998 on the ground of prosecution for the enforcement of the civil liabilities approaches the Court, would the issue arise for our examin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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