SEPTEMBER 09, 2019

By Sunil Achutan

THE soul of any Amnesty or Samadhan or Resolution Scheme lies in the treatment it gives to the part payments and deposits made by the declarant when they opt for the scheme.

Let us visit the following Q&A appearing in the KVSS, 1998 handbook -

The above examples highlight that in the KVSS, 1998, the declarant who had voluntarily (or under protest) paid amounts during the investigation etc. is a loser because the amount already paid has no impact on the benefits that he was, otherwise, supposed to get.

Much hue and cry was raised but to no avail. Emphasis was placed by the authorities on the fact that since an amount was already paid during investigation or as pre-deposit, this amount no longer remained as "tax arrears".

Strange it may sound, but in the case of a duty demand of Rs.1.50 crores, as per the example above, a declarant who had not paid any amount was able to settle his tax dispute for 50% of this amount, namely, Rs.75 lakhs but in a similar case, a declarant who had already paid Rs.50 lakhs was required to pay another Rs.50 lakhs for settlement of his case, since the balance tax arrears for the purpose of the scheme was considered as Rs.1 crore.

This gave rise to the oft repeated complaint that such schemes place the honest and peace loving assessee in a position worse than a dishonest and/or belligerent assessee.

One would be eager to know as to how the SVLDRS, 2019 tackles such an issue.

For this purpose, we take a hypothetical situation wherein the SCN has raised a CEX/ST duty/tax demand of Rs.60 lakhs. An amount of Rs.10 lakhs was paid by the assessee during investigation and this amount is sought to be appropriated in the SCN, as is the practice.

As per section 124(1)(a) of the Finance (No.2) Act, 2019, the tax relief, where the tax dues are relatable to a show cause notice, and if the amount of duty is,-

(i) rupees fifty lakhs or less, then, seventy per cent. of the tax dues;

(ii) more than rupees fifty lakhs, then, fifty per cent. of the tax dues;

Scenario-I:

Applying the above relief factor to the situation on hand, the same would be fifty percent of the tax dues i.e. the declarant would be entitled for a relief of Rs.30 lakhs (50% of Rs.60 lakhs).

Therefore, the amount payable by the declarant would be Rs.30 lakhs.

After subtracting the deposit made of Rs.10 lakhs, the final amount payable would be Rs.20 lakhs.

Thus, the total outgo from the declarant's side is Rs.30 lakhs.

Now, consider a scenario where the deposit made during investigation is deducted from the duty demand made in SCN before computing the tax relief.

Scenario-II:

Assuming that the relief slab remains the same since it is to be applied based on the tax dues relatable to the show cause notice, then the tax relief and the amount payable would be -

50% of Rs.50 lakhs (Rs.60 lakhs minus Rs.10 lakhs) = Rs.25 lakhs PAYABLE.

It is apparent from the above that if the deposit made is adjusted towards the tax dues and then the relief is computed, the declarant is a loser as his total outgo would be Rs.10 lakhs plus Rs.25 lakhs = Rs.35 lakhs.

The above, as can be seen, was the manner in which KVSS, 1998 treated the part payments/deposits.

Scenario-III:

Since the tax dues after deduction of the amount already paid comes to Rs.50 lakhs (Rs.60 lakhs minus Rs.10 lakhs already paid), the relief slab should change from that given in s.124(1)(a)(i) to s.124(1)(a)(ii) and the computation would be -

30% of the tax dues i.e. 30% of Rs.50 lakhs = Rs.15 lakhs PAYABLE.

In this scenario, the declarant stands to gain vis-à-vis the computation in Scenario-I/II since the total outgo from his side would be Rs.15 lakhs plus Rs.10 lakhs = Rs.25 lakhs.

The aforementioned three scenarios are tabulated below :-

The manner of computation as indicated in Scenario-II vis-à-vis Scenario-I would bring us at par with the inconsistency and hazards of opting for a Samadhan or Vikas scheme but, which was, unfortunately a reality insofar as the KVSS, 1998 was concerned.

Scenario-III looks the best but I am certain that there would not be many takers for this mode of computation although this possibility cannot be ruled out entirely.

But does SVLDRS, 2019 place such declarants (who have made part payments/deposit) on the winning side?

Let us take a look at the sections that are germane to the context.

++ Section 124(2) of the Finance (No.2) Act, 2019 reads -

"(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:

Provided that if the amount of predeposit or deposit already paid by the declarant exceeds the amount payable by the declarant, as indicated in the statement issued by the designated committee, the declarant shall not be entitled to any refund."

++ Section 121(e) defines "amount payable" thus -

(e) "amount payable" means the final amount payable by the declarant as determined by the designated committee and as indicated in the statement issued by it, in order to be eligible for the benefits under this Scheme and shall be calculated as the amount of tax dues less the tax relief;

++ 123. For the purposes of the Scheme, "tax dues" means-

(a) where -

x x x

(b) where a show cause notice under any of the indirect tax enactment has been received by the declarant on or before the 30th day of June, 2019, then, the amount of duty stated to be payable by the declarant in the said notice:

++ As per s.121(t), "tax relief" means -

(t) "tax relief" means the amount of relief granted under section 124;

A harmonious reading of the above terms viz. amount payable, tax dues, tax relief coupled with section 124(2) would lead one to conclude that the 'tax relief' is to be computed first vis-à-vis the 'tax dues' (meaning the duty/tax demanded in the show cause notice) and not after appropriating the amount deposited during investigation etc.

Although the fact remains that the SCN may seek appropriation of the amount paid during investigation, but that would be only after raising the demand for the duty/tax that has not been paid. It is for the adjudicating authority to decide regarding appropriation of amounts paid/deposited against the duty confirmed and the SCN issuing authority can only propose the same.

And this is precisely the reason that the proviso to s.124(2) speaks of not granting any refund if the predeposit or deposit already paid by the declarant exceeds the amount payable by the declarant.

To conclude, this special treatment of 'part payments/deposits" given in the SVLDRS, 2019 deserves commendation and a big thumbs up!

(The views expressed are strictly personal.)