JULY 10, 2019

By Atul Gupta, Advocate/Partner, Lakshmikumaran & Sridharan

THE Central Government has attempted an enormous task by introducing the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 in the Finance (No. 2) Bill 2019 to reduce/wipe out the litigation pending at various stages including investigations. The proposed scheme also encompasses the matters in which demand of duty, interest and penalty have already been confirmed and such confirmation has attained finality due to various reason such as appeal being finally decided by the Hon'ble Supreme Court or because no appeal preferred by the assessee.

Two aspects, which need attention of the legislature have been highlighted in this article for suitable changes in the scheme by introducing amendment in the Bill.

Incongruity in Clause 124(1) of the Finance (No. 2) Bill 2019

It is to be noted that the proposed scheme has been made available to all persons, however, clause 124(1) of the Bill provides for certain exclusions i.e. cases in respect of which the benefit of the scheme will not be available. Such exclusions have been enumerated under clause 124(1) of the Bill. A reading of the proposed clause conveys incongruity in the interpretation of the scheme and gives such results which may not be intended under the scheme.

In this regard, attention may be given to clause 124(1)(b), which is reproduced below:

124. (1) All persons shall be eligible to make a declaration under this Scheme except the following, namely:-

(b) who have been convicted for any offence punishable under any provision of the indirect tax enactment for the matter for which he intends to file a declaration;

The provision restricts a person to avail the benefit if such a person has been convicted for any offence punishable under any provision of the indirect tax enactment in respect of the same matter for which he intends to file a declaration. The unambiguous meaning that can be assigned to above provision is that if a person is filing a declaration for a matter and in respect of the same matter, he was convicted, then he is ineligible to file the declaration in respect of such matter. The provision does not mean that if a person has once been convicted for any offence punishable under any provision of the indirect tax enactment, such person is debarred from filing any declaration in respect of any matters.

However, the other provisions of clause 124(1) creates ambiguity in interpretation in terms of the words used in the proposed Bill. For example, clause (a) conveys a meaning that a person is ineligible to avail benefit of the scheme in respect of all the matters, if such person has filed an appeal before the appellate forum and such appeal has been heard finally on or before the 30th day of June, 2019, even though all other matters have no bearing/connection with the appeal which was finally heard. From the spirit of the proposed scheme, it appears that the intention is to exclude certain matters from the operation of the scheme and the intention is not to debar a person from availing benefit in respect of all other matters also, if such person is involved in any manner in respect of a matter which falls under the matters narrated in clause 124(1).

The language of the proposed scheme may be suitably modified before discussion on and passing of the Bill in the Parliament. The following language may be used for this purpose:

124. (1) All persons shall be eligible to make a declaration under this Scheme except in respect of the following, namely:-

(a) in respect of a matter in which an appeal has been filed before the appellate forum and such appeal has been heard finally on or before the 30th day of June, 2019;

(b) a person in respect of a matter for which he has been convicted for any offence punishable under any provision of the indirect tax enactment for the matter;

(c) in respect of a matter in which a show cause notice has been issued to a person under indirect tax enactment and the final hearing in respect of such person has taken place on or before the 30th day of June, 2019;

(d) in respect of a matter in which a show cause notice has been issued under indirect tax enactment for an erroneous refund or refunds;

(e) a matter in respect of which an enquiry or investigation or audit has been conducted and the amount of duty involved in the said enquiry or investigation or audit has not been quantified on or before the 30th day of June, 2019;

(f) a matter in which a voluntary disclosure has been made by a person after being subjected to any enquiry or investigation or audit;

(g) in respect of a matter in which an application has been filed in the Settlement Commission for settlement of a case;

(h) with respect to a matter related to excisable goods set forth in the Fourth Schedule to the Central Excise Act, 1944;.

In any case, it seems that there is a conflict in the provision contained in clause 124(1)(f)(ii) and 123(1)(c)(iii), therefore, the provision contained in clause 124(1)(f)(ii) is required to be deleted. Therefore, the scheme in the Bill need to be modified before the Bill becomes an enactment.

Procedural incompleteness of the Scheme

The procedure part of the scheme has been provided under clauses 124(2), 125, 126, 127 and 128 of the Bill. In terms of Clause 124(2), a declaration has to be submitted by a declarant and the designated committee will verify the correctness of such declaration. It has been provided that the declarant may declare an estimate of an amount which is payable and then the designated committee will estimate based on its verification. In case both the estimates tally, then the declarant has to pay the amount as estimated. In case, estimation of the designated committee exceeds the estimate of the declarant, then an opportunity of hearing will be provided to the declarant and based on such hearing, the designated committee may stick to the earlier estimate or provide a revised estimate. As per such estimate of the designated committee, the declarant has to pay the amount.

It has been provided under Clause 126(6) that the appeal of the declarant shall be deemed to be withdrawn, if the same was pending before any authority other than a High Court or the Supreme Court. It has also been provided under Clause 126(7), that in case if appeal/reference is pending before a High Court or the Supreme Court, then the declarant will apply for withdrawal and withdraw such appeal/reference with the leave of the Court and then submit the proof of such withdrawal with the proof of deposit of the above referred amount. It has been provided under Clause 126(8) that the discharge certificate will be issued only after submission of proof of deposit and withdrawal of appeal/reference, if applicable.

However, the aforesaid clauses have not provided the point of time at which the appeal will be deemed as withdrawn or the declarant has to apply for withdrawal and get it withdrawn. It is not clear whether at the point of filing of declaration, the appeal will be deemed to be withdrawn or at the point of time at which the estimate will be provided by the designated committee or at the time the declarant made the deposit of the amount estimated by the designated committee. In similar manner, whether the appeal/reference before the High court or the Supreme Court is required to be withdrawn before the estimate is submitted or at the time of payment of the amount estimated by the designated committee.

It is important to specify the point of time as in case, at time of filing of declaration, the appeal is deemed to be withdrawn and afterwards the designated committee concludes that the matter in respect of which declaration filed is not covered by the Scheme, then the declarant may be in lurch. Similar is the position, if the declarant is not agreeing to the amount of estimate provided by the designated committee. In such case, he may not like to pursue the scheme further. However, in such a situation, if appeal is already withdrawn, then the declarant will not be getting benefit of the scheme and at the same time, he cannot now pursue his appellate remedy.

It has to be provided in the scheme that in such eventualities, the appeal of the declarant may be deemed to be restored, if the same is already deemed to be withdrawn. Therefore, it is important that the scheme either specifies the point of time at which the appeal will be deemed to be withdrawn or provide that the appeal will be restored if the declarant opts out or falls out of the scheme. Alternatively, the scheme may provide that once an estimate is issued by the designated committee, then in absence of any fraud/mis-statement, etc., the matter will continue to be governed by the scheme, even if the matter is otherwise not falling under the scheme.

It is also to be provided that in such a situation, the amount deposited by the declarant will be refunded and the filing of declaration will not be considered as an admission in any subsequent proceedings.

It is also to be considered that a declaration may be filed by a person against whom a show cause notice is pending, it has to be provided in the scheme that on occurrence of any of the eventuality such as (i) the declarant opting out of the scheme at any time after the estimate is provided by the designated committee; or (ii) the designated committee decides not to issue estimate of the amount as the declarant is not falling or fulfilling the criteria to be governed by the scheme; the filing of declaration may not be considered as an admission by the declarant in any of the subsequent proceedings.

It is also to be provided that in an event if any similar eventuality as referred above occurs after payment of the estimated amount provided by the designated committee then such amount will also be refunded with interest to the declarant.

The Budget proposals made in respect of the aforesaid scheme are enticing for an assessee but the assessee will have to wait for the complete procedure to be notified by way of Rules/ Order. The Government needs to take care of above issues also in the Rules so as to achieve the intended purpose smoothly.

(The views expressed are strictly personal.)