SEPTEMBER 06, 2019

By Sunil Achutan

"THOSE who cannot remember the past are condemned to repeat it."

Perhaps this rightly summarizes what would befall the new SVLDRS, 2019 that was launched on 1st September 2019 and which would end on 31 st December 2019, unless, of course, any extension is given.

Coining fancy names and abbreviations is a fad these days and the SVLDRS is no exception.

Be that as it may, SVLDRS stands for Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 which blueprint was laid down in the Budget speech of the Hon'ble Finance Minister, thus -

The figure of 'more than Rs.3.75 lakh crore' presumably includes the litigation initiated by the department too.

Going back to the quote on history, one needs to remember that we had the famous Kar Vivad Samadhan Scheme, 1998 (KVSS) which was introduced by the Government as a part of the Finance Act (No. 2) of 1998. It was applicable to both Direct as well as Indirect Taxes (Central Excise & Customs).

The object of the scheme as explained by the Finance Minister was -

The scheme envisaged an abatement of 50 percent of the outstanding tax along with waiver of penalty, interest & immunity from prosecution.

The benefits of the scheme were available in respect of tax arrears where (a) notice of demand was issued on or before 31st March 1998, or (b) an appeal, revision or writ was admitted and pending before any appellate authority/court on the date of filing of the declaration under the Scheme. The benefit of the scheme was, however, not available in cases where prosecution for any offence punishable under any provision of any Direct tax and other enactments had been instituted on or before the date of filing of the declaration.

The scheme was in operation from 1 st September 1998 to 31 st December 1998 but was extended to January 1999.

The CBEC had come out with a handy booklet explaining the salient features of the scheme in the form of Q&A, seventeen in all, along with the format of declaration form that was to be filed by the applicant.

Not much is heard or read about the success of the scheme but the fact of the matter is that disputes regarding KVSS, 1998 reverberated for many more years after the scheme died a natural death, even resulting in a recently reported judgement of Bomaby High Court. 2019-TIOL-1393-HC-MUM-ST.

Thankfully, a chunk of alleged irregularities as pointed out by the CAG which audited cases disposed under the KVSS, 1998 were regularised by the Central government by the Finance Act, 2000.

Inasmuch as section 90(2) of the Finance Act, 1998 was amended on 12/05/2000 by the Finance Act, 2000 with retrospective effect from 01/09/1998. The amendment was to substitute the words "within 30 days from passing of an order" with the words "within 30 days from the receipt of the order passed by the designated authority".

The thirty days period was the time given to the applicant to pay the settlement amount determined by the designated authority. The section, in its original avatar, required the applicant to pay the amount within 30 days from passing the order unmindful of whether the order was actually communicated/received by the applicant. So, the retrospective amendment.

Interestingly, in the KVSS, 1998 booklet, the following question featured and which is reproduced for quick reference –

Thankfully, the CBEC could answer this question with an AYE because Section 87 of the Finance Act, 1998 contained the following definition –

(m) "tax arrears" means,

(ii) in relation to indirect tax enactment,_

(a) the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty determined as due or payable under that enactment as on the 31st day of March, 1998 but remaining unpaid as on the date of making a declaration under  section 88; or

(b) the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty which constitutes the subject matter of a demand notice or a show-cause notice issued on or before the 31st day of March, 1998 under that enactment but remaining unpaid on the date of making a declaration under  section 88, but does not include any demand relating to erroneous refund and where a show-cause notice is issued to the declarant in respect of seizure of goods and demand of duties, the tax arrear shall not include the duties on such seized goods where such duties on the seized goods have not been quantified.

In the present scheme of things, although section 121(d) of Finance (No.2) Act, 2019 defines the amount of duty as -

(d) "amount of duty" means the amount of central excise duty, the service tax and the cess payable under the indirect tax enactment;

the FAQ (consolidated with 60 Q&A) clarifies thus –

Thankfully, none except the CAG may complain about this "inclusion" in the years to come.

Incidentally, those who participated in KVSS, as an applicant or as an officer or as an Auditor may very well be also aware of the changes made to the KVSS Scheme by way of clarificatory circulars towards the fag end of the scheme tenure so as to not leave anyone out in the cold from enjoying the warmth of the 'once-in-a-lifetime-scheme'. Notable amongst these were extending the benefits of the Scheme to co-noticees without they having to pay the 50% of penalty, fine etc.

There were, nonetheless, serious objections raised by the CAG in the matter of fraudulent availment of MODVAT credit. For eg. The duty paying document indicated the duty paid as Rs.50,000/- whereas the assessee availed a credit of Rs. 5,00,000/- attributing it as a clerical error on account of oversight. The demand notice was issued for recovery of the excess amount of credit availed of Rs.4,50,000/- and since the applicant satisfied the other conditions of the scheme, he finally paid up Rs.2,25,000/- (50% of the amount of duty payable/in arrears) and was granted complete waiver from payment of fine, penalty and interest involved, if any, apart from waiver of the balance duty due or payable. Thus pocketing a cool Rs.2,25,000/-.

The assessee pointed out to the Board Q & A "6" [reproduced above] and laughed his way to the bank!.

There was also another modus operandi seen those days.

A prospective applicant filed application under KVSS, 1998 on 1 st September 1998 or thereafter and tested the waters insofar as whether his application would be entertained by the designated authority. After being intimated about the "amount payable by the declarant under the Scheme for the full and final settlement of the case covered" and which exercise was mandated to be completed within sixty days by the designated authority, the applicant does the vanishing act. He does not honour the 'certificate of intimation' within the period of 30 days as permitted to him and there was nothing the department could do. Assuming that the DA had intimated the applicant by the end of October 1998, the applicant was required to pay the amount (by cash or Demand Draft or by debit to PLA) by November end, but he did not. And so, he could not reap the benefits of the scheme. There was also no provision for extension of time by the DA.

But the applicant had a far brighter idea, unthinkable by the framers of the Scheme.

The applicant filed a fresh application towards the end of December 1998 (when the Scheme was supposed to end) and there was nothing in law barring him from doing the same.

The application was reprocessed, the amount payable was intimated and the applicant paid the same by the due date thus saving himself from availing the 'early-bird offer' and letting go of valuable cash early on during the lifetime of the Scheme.

The Audit officers raised an objection that the applicant had not honoured the Scheme and had resorted to jugaad but the applicant thundered that nothing in the law prevented him from doing so.

A similar fate awaits the current Scheme too.

Incidentally, while on the subject, it is pertinent to note the following appearing in the CBIC Circular 1071/4/2019-CX dated August 27, 2019, point number 10 refers –

(j) Section 127(5) of the Scheme provides that the declarant shall pay the amount indicated in the Statement issued by the Designated Committee within a period of thirty days. If the declarant does not pay the amount within the stipulated time, due to any reason, the declaration will be treated as lapsed.

Interestingly, the ST VCES, 2013 (Service Tax Voluntary Compliance Encouragement Scheme, 2013) was a far more refined Scheme in the sense that Section 110 of the Finance Act, 2013 stipulated that where the declarant failed to pay the tax dues, either fully or in part, as declared by him, such dues along with interest thereon shall be recovered under the provisions of section 87 of the Chapter.

Excerpts from the Speech of the Finance Minister while presenting the Union Budget 2013-

Perhaps, it is time to go back to the drawing board and get one's priorities right (right meaning that which is correct, just, or honourable and not the right, meaning a legal entitlement to have or do something).

If not, the SVLDRS, 2019 would turn out to be a Behemothian blunder!

(The views expressed are strictly personal.)