AUGUST 19, 2019

By G Natarajan, Advocate, Swamy Associates

THE following issues require clarification from the Government, to avoid any disputes around implementation of the Sabka Vishwas scheme.

Issue 1.

As per Section 125(1)(g) of the Finance Act, 2019 any person who has filed an application in the Settlement Commission for settlement of a case is not entitled to settled the dispute under this scheme.

It has been further clarified in the FAQ issued by the Government as below.

Q 14. I have filed an application in the Settlement Commission for settlement of the case. Am I eligible for the Scheme?

Ans. No, you are not eligible to file a Declaration for a case for which you have filed an application in the Settlement Commission.

There may be situations, where the Settlement Commission might not have entertained the application for various reasons and sent back the case for adjudication and the issue would be pending at various levels, such as adjudication, appeals, etc. It is not clear whether such cases are entitled for opting under Sabka Vishwas Scheme.

It is felt that there is no reason to disentitle such cases from the applicability of this scheme. A suitable clarification in this regard would dispel the doubts.

Issue 2.

In several instances, hearings have been concluded but no orders were passed by the adjudicating authorities mainly due to administrative delay. In many such cases, the adjudicating authorities who have conducted the hearings have also been transferred and fresh hearings should be granted. As per Section 125 (1) (c) of the Finance Act, 2019, show cause notices in respect of which final hearing has been completed before 30.06.2019 are not entitled to opt for the scheme.

In this connection, reference is invited to CBEC's Circular NO. 1053/2/2017 Dated 10.03.2017 wherein it has been laid down that the adjudicating authorities have to pass orders within a period of 30 days of conclusion of the hearing. To quote,

14.10 Issue and Communication of order : In all cases where personal hearing has been concluded, it is necessary to communicate the decision as expeditiously as possible as but not later than one month in any case, barring in exceptional circumstances to be recorded in the file.

It is required to be clarified that wherever adjudication orders are not passed within 30 days from the date of hearing or where the adjudicating authorities are transferred before issue of orders, it shall be deemed that no final hearing has taken place.

Issue 3.

There are cases, where adjudication orders have been passed on or before 30.06.2019 and the due date for filing appeals falls after 01.07.2019. As the budget was presented on 05.07.2019, where knowledge about the Sabka Vishwas scheme has become public, some of the assessees might not have filed any appeal and waiting to opt for the scheme and there is no difficulty for them to opt under this scheme. Their cases would be covered under the category of "amount in arrears". But in some cases, without knowledge of the scheme or for any other reason, the parties might have already filed appeals against such orders post 01.07.2019.

In this connection it is relevant to refer to the FAQ issued by the Government, wherein it has been clarified as below.

Q 7. What is the scope under the scheme when adjudication order determining the duty/tax liability is passed and received prior to 30.06.2019, but the appeal is filed on or after 01.07.2019?

Ans. No, such a person shall not be eligible to file a declaration under the Scheme.

In this connection it is felt that when appeals pending as on 30.06.2019 could be withdrawn or deemed to be withdrawn for the purpose of opting for the scheme, there is no rational justification in denying the same concession to the appeals filed post 01.07.2019. Hence it is requested that the above clarification may kindly be revisited. Notwithstanding the fact that an appeal against the order was filed on or after 01.07.2019 but within appeal period, the case is still covered by the expression "amount in arrears" as on 30.06.2019 and hence entitled for the scheme.

In an Order in Original a duty demand of Rs.15 lakhs has been confirmed along with interest and penalties. Out the above, appeal has been filed contesting a demand of Rs.5 lakhs only and no appeal has been filed in respect of Rs. 10 lakhs. But no amount has been paid so far. How the entitlement for the scheme has to be determined in such cases?

As far as Rs.10 lakhs is concerned it will be an "amount in arrears" and as far as Rs.5 lakhs is concerned it will be "tax dues". Accordingly, the tax relief in respect of amounts in arrears of Rs. 10 lakhs would be 60 % (amount payable would be Rs. 4 lakhs) and in respect of tax dues of Rs.5 lakhs, the tax relief would be 70 % (amount payable would be Rs.1.5 lakhs) and hence a total amount of Rs.5.5 lakhs is payable under the scheme. This may be clarified.

Issue 5.

In an Order in Original a duty demand of Rs.15 lakhs has been confirmed along with interest and penalties. No appeal has been filed against the order and already a sum of Rs. 5 lakhs has been paid.

If the above assessee intends to opt for the scheme under "amounts in arrears" category, the amounts in arrears would be considered as Rs.10 lakhs (excluding the amount already paid) or as Rs.15 lakhs? If only Rs. 10 lakhs has to be treated as "amounts in arrears" entitled for the scheme, the immunity from payment of interest and penalties would also be limited only to the interest and penalties pertaining to Rs.10 lakhs or entire Rs.15 lakhs. This is required to be clarified.

Issue 6.

In a case, the Internal Audit group has pointed out wrong availment of credit of Rs.15 Lakhs and during the course of audit itself, the assessee reversed the entire credit of Rs. 15 Lakhs but no interest was paid as the disputed credit was not utilised. However, the internal audit has issued notice demanding interest and penalty apart from appropriating the credit reversed

In terms of Section 124(1)(b) of the Act, where the tax dues are relatable to a show cause notice for late fee or penalty only, and the amount of duty in the said notice has been paid or is nil, then, the relief is available for the entire amount of late fee or penalty. But this sub section does not cover demand of interest and penalty only.

A conjoint reading of Section 124 and 129, it appears that the above show cause notice is also covered under the scheme and no interest or penalty is payable by the assessee under the scheme, as the entire tax due is paid. As the issue is not free from doubt, appropriate clarification may be issued to cover such cases.

Issue 7.

As per Section 130 (1) (a) of the Finance Act, 2019 the amount paid under this scheme, shall not be paid through any input tax credit account but has to be paid in cash.

As per Section 124 (2) of the Act, any amount paid during investigation or as pre deposit is also to be considered as part of payment under the scheme. To quote,

(2) The relief calculated under sub-section (1) shall be subject to the condition that any amount paid as predeposit at any stage of appellate proceedings under the indirect tax enactment or as deposit during enquiry, investigation or audit, shall be deducted when issuing the statement indicating the amount payable by the declarant.

Now, the doubt is if such pre deposit or payments during investigation were paid out of Cenvat Credit, whether the same can be considered as a payment under the scheme. For example, tax dues in respect of a pending appeal is Rs. 20 lakhs. During investigation a sum of Rs. 1 lakh was paid from cenvat credit and as directed by the appellate forum a further pre deposit of Rs. 2 lakhs has been made, which was paid by cash to an extent of Rs.1 lakh and out of cenvat credit to an extent of Rs.1 lakh. As per the scheme, the amount payable is 30 % of Rs.20 lakhs, i.e. Rs.6 lakhs. The total amount already paid is Rs.3 lakhs, out of which Rs.2 lakhs was paid out of cenvat credit. Can the said payment of Rs. 2lakhs out of cenvat credit also be taken into account now and only a balance amount of Rs. 3 lakhs to be paid under the scheme or only Rs.1 lakh paid in cash alone can be considered against the scheme.

It is felt that since payment of pre deposit or payment during investigation is permitted to be made from Cenvat Credit account, the same shall also be considered as payments under the scheme. The fresh payments now being made under the scheme alone is required to be paid in cash. A suitable clarification to this effect is required to be issued.

Issue 8.

Whether the scheme is an open ended scheme or has a fixed life. The provisions of Chapter V of the Finance Act, 2019 dealing with this scheme does not prescribe any date by which the declarations have to be filed. Neither the rule making powers granted under 132 ibid, provides for prescribing any last date by the Government. Further the term "amounts in arrears" has not been stated to be with reference to 30.06.2019. All the above suggest that the scheme is an open ended one and even if an Order in Original or Order in Appeal is passed at a later date (however late it may be), at that stage the assessee can opt for the scheme, by opting for the scheme under "amounts in arrears" category. This may be clarified.

It is earnestly requested that the above issues may kindly be studied and suitable clarifications may kindly be issued by the Government, in the interest of avoiding any disputes around the interpretation of the Dispute Resolution scheme.

[The views expressed are strictly personal.]