Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 : A Miscarriage Before The Baby Is Born

The Intention of the government is crystal clear: There is a need to unload the legacy litigation baggage and allow business to move on, thus proposed Legacy Dispute Resolution Scheme that will allow quick closure of these litigations. It is a historical scheme and one of the best so far. However, there is a fear that the bureaucratic mindset may kill the baby before it is born. There are ample chances of a Miscarriage.

BUDGET SPEECH

Budget 2019 will always be remembered for Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 announced by the Honourable Finance Minister Ms. Nirmala Sitharaman. During the course of statement before the parliament in the budget speech she said and I quote

"141. GST has just completed two years. An area that concerns me is that we have huge pending litigations from pre-GST regime. More than Rs. 3.75lakh crore is blocked in litigations in service tax and excise. There is a need to unload this baggage and allow business to move on. I, therefore, propose, a Legacy Dispute Resolution Scheme that will allow quick closure of these litigations. I would urge the trade and business to avail this opportunity and be free from legacy litigations."

Source: budget.nic.in

INTENTION OF THE GOVERNMENT

The Intention of the government was crystal clear: There is a need to unload this legacy litigation baggage and allow business to move on, thus proposed Legacy Dispute Resolution Scheme that will allow quick closure of these litigations.

The Finance Minister further appealed to the trade and industry to come forward and take the advantage of opportunity and be free from legacy litigations.

AMENESTY SCHEMES IN THE PAST

It is not that in past, such amnesty schemes were not introduced by the governments, however, when one compares the earlier schemes, such as,KVSS- Kar Vivad Samadhan Scheme 1998 or VCES 2013,Voluntary Compliance EncouragementScheme,2013, the current Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019(SVLDRS 2019) is far better and much more attractive than its previous Avatars.

As per my humble opinion SV-LDR-S 2019,is one of the best taxation amnesty scheme since independence.

Unfortunately, it appears that the bureaucratic machinery and old mindset may kill the baby before it is born. And that is exactly my area of Concern. It is time to Red Flag this ASAP.

HUGE PENDENCY OF LITIGATIONS AT ALL LEVELS

The scheme was announced on 5th July 2019. The Finance Act No-2, 2019, was enacted on 1st August 2019.The effective date was notified later as 1st September 2019. Rules were notified vide Notification no. 05/2019 Central Excise-NT dated 21st August 2019.

There are basically two perspectives to this Legacy Dispute Resolution Scheme. One as regards as the locked up revenue is concerned, which are declared in the Parliament by the Hon Finance Minister and which pegged about Rupees 3.75 lakh crore. The other leg to this dispute resolution scheme is to minimize the no. of pendency at all levels as far as the legacy cases are concerned, in other words all pending cases of Central Excise and Service tax, (except those goods which belong to the fourth schedule and are still under the Central Excise-regime).

The pendency of appeal cases related to indirect taxes in the Supreme Court, High Court and CESTAT has reduced 61 per cent to 1.05 lakh in almost 2 years, Parliament was informed on Tuesday.

Minister of State for Finance Anurag Thakur in a written reply to a question in the Rajya Sabha said the total pendency of appeals at the Supreme Court, High Court and CESTAT (Customs Excise and Service Tax Appellate Tribunal) as on June 30, 2017, was 2,73,591.

Source : economictimes.indiatimes.com

Thus, as on 30th June 2017, the pending appeal cases were 2.73 lakhs.

A study carried out as regards the CESTAT is concerned showed alarming figures too. A Bench wise statement showing pendency, institution and disposal of appeals and stay applications with year wise break-up of appeals pending as on 01/08/2019 was circulated for the purpose of information vide a circular dated 9th August 2019 issued from F. No 06/CESTAT/Statementl2011-C-R.

The relevant extract of the said report is as below

Apart from the above pending litigations, there is a major pendency at all levels, where in either the cases are pending before Commissioner Appeals, Commissioners, Additional and Joint Commissioners, AC/DC, right upto superintendents. The numbers of litigations at all these levels are huge as far as the legacy cases are concerned.The all India figures of pendency are not in the public domain, however, according to the sources, the no. of cases pending at all levels with respect to the legacy cases is in Lakhs.Moreover, on going investigations and audits are there.

FOCUS:MINIMIZE THE NO. OF PENDING LEGACY LITIGATIONS.

Thus, apart from the revenue, it is this huge no. of pending litigations at all levels, which need to be resolved and weeded off. Only then the purpose of this scheme is achieved. Only then the officers will be able to concentrate of the issues pertaining to GST.

The ground reality is that majority of the GST officers are preoccupied with the legacy matters and thus are unable to fully concentrate and focus their energies and give quality time to GST issues. The officers have to keep themselves abreast with the latest developments and frequent changes in the GST. In absences of the same, they are unable to do justice to their job. Thus only if the officers are free from the past burden of huge pendency and are able to unload the baggage, they can move ahead. Though the FM said that the Industry is carrying the burden of the baggage, the fact remains that it is the officer who is equally burdened.That is the need of the hour.

The whole purpose of the scheme is to wipe out the old pendency of legacy cases and move forward. As regards the revenue involved, the FM in her speech said it was to the tune of 3.75 lakh Crores.

As the scheme gives a relief across all categories ofeligible declarants, a complete waiver of Penalty and Interest, it is evident,that collecting penalty is not the motive of government (as regards the current scheme is concerned), as the main focus is to minimize the no. of pending legacy litigations.

Thus both these targets are to be achieved on 31st December 2019 (the last date of the scheme)Maximum Revenue recovered andminimumNo. of cases pending.

Anything short, will label the scheme as unsuccessful.

LEARN FROM THE HISTORY : Don't repeat Blunders.

One learns from Past experiences and those who ignore the past,are bound to be doomed as they may repeat the same blunders which were committed in the past by theirpredecessors.

Both the previous amnesty schemes saw a major litigation where in many parties who came forward for opting in the said scheme, found unnecessary hurdles and rejections, by the certain section of the officers, who had a biased and an unopen mindset.Many faced further notices and objections, thus making the schemes unsuccessful to that extent.Those who do notknow the failures in the history, are bound to repeat.

CO-NOTICEE MAY NOT BE MY CO-BROTHER

From the above we have already seen that there is a huge no of litigations pending at all levels and the said no may run into lakhs of cases. The said cases /appeals can be broadly divided into two major categories.

1. The main accused who committed the alleged Tax evasion commonly known as main Noticee. The said Noticee faces a case wherein the tax /Duty is demanded from him. He is also liable to pay penalty and Interest.

2. Co-Noticee, who may befacingthe allegation of either conspiracy or violation of some proviso, whereinhe may be charged and asked to pay penalty. At times the companies directors or owners may be facing charges as co-noticee but majority of the times, the co-noticee facing penal charges may be a Transporter; Godown or warehouse keeper; some employee; a third party who has dealt with the goods or service, who are not related to the main party but may be caught in the cross fire. The co-noticee may not be a co-brother or in any way related to the main party. There are instances wherein there are multiple no of co-noticees in a case as compared to a single Noticee.

THE LAW GOVERNING THE SCHEME

Chapter V of the Finance (02) Act 23 of 2019 dated 1st August 2019 governs the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019.(Section 120 to Section 135). Out of these, there are three most important Sections.

Section 123 which defines 'Tax Dues' for the purpose of the said scheme.

Section 124 which elaborates the Reliefs available under the said scheme.

And

Section 125which deals with those who can file Declaration under the scheme. However, the said section in fact displaysa list of those persons who are excluded under the said scheme.

Further, to appreciatethe perspective of the scheme few more relevant extract of sections / sub sections are reproduced as under:

MEANING AND SCOPE OF CERTAIN TERMS USED IN THE SCHEME

121. (h) 'declarant' means a person who is eligible to make a declaration and files such declaration under section 125

(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;

Meaning and scope ofthe term "TAX DUES"

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

(a) where-

(i) a single appeal arising out of an order is pending as on the 30th day of June, 2019 before the appellate forum, the total amount of duty which is being disputed in the said appeal;

It is pertinent to note that, in case of 'single appeal' ( situation where the departmental appeal is not filed ), there can be situations, in case of co-accused or co-noticee,where the there is no duty / tax payable by the declarant and only penalty is being challenged.

123. (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:

Provided that if the said notice has been issued to the declarant and other persons making them jointly and severally liable for an amount, then, the amount indicated in the said notice as jointly and severally payable shall be taken to be the amount of duty payable by the declarant;

There may bea situations, where the amount of duty ( tax in case of services ) payable by the declarant is NIL as only penalty is proposed on the co-noticee. As regards jointly and severally liable for an amount, such situation is not in each and every case of co-noticee. Practically, majority of the Show Cause notices, do not propose that the co-noticeeis jointly and severally liable for an amount.

Relief available under Scheme.

124. (1) (b) 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 entire amount of late fee or penalty;

It is pertinent to notethat, theremay be situations wherethe Tax Dues can be NIL speciallywhere there is only penalty which is to be paid by the declarant.

Section 125 deals with all persons who are eligible to make a declaration under the head scheme exceptthe ones which are mention there under.

Section 125 is reproduced as below

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

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

(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;

(c) who have been issued a show cause notice, under indirect tax enactment and the final hearing has taken place on or before the 30th day of June, 2019;

(d) who have been issued a show cause notice under indirect tax enactment for an erroneous refund or refund;

(e) who have been subjected to an enquiry or investigation or audit 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 person making a voluntary disclosure: -

(i) after being subjected to any enquiry or investigation or audit; or

(ii) having filed a return under the indirect tax enactment, wherein he has indicated an amount of duty as payable, but has not paid it;

(g) who have filed an application in the Settlement Commission for settlement of a case;

(h) persons seeking to make declarations with respect to excisable goods set forth in the Fourth Schedule to the Central Excise Act, 1944.

THE MISCHIEF: THE BUREAUCRATIC MINDSET.

From the above Section 125, it is obvious that All persons shall be eligible to make a declaration under this Scheme except theones who have been specifically mentioned at 125(1) (a ) to (h).

The law of the land is clear. There can be absolutely no addition or deletion or modification from this list of excluded categories of persons by issuing Circulars or FAQs or Flyers or Twitter or press releasesetc…

In the First week of August 2019,the Directorate General of Taxpayer Services, Central Board of Indirect Taxes And Customs, came out with the FAQs on the said scheme.

The relevant portion of the FAQ released by the Central Board Of Indirect Taxes And Customs Directorate General Of Taxpayer Services(question number 26)is reproduced as below :

26. What is the coverage of SCNs under the Scheme with respect to main noticee vis-à-vis co-noticee particularly when the tax amount is paid?

Ans. In case of a SCN issued to an assesse demanding duty and also proposing penal action against him as well as separate penal action against the co-noticee/s specified therein, if the main noticee has settled the tax dues, the co-noticee/s can opt for the scheme for the waiver of penalty.

Source: FAQ published by the DGTS, CBIC

Thereafter, the CBIC came out with a circular dated 27th August 2019, claiming to clarify doubts and issues which pertain to the scheme. The relevant para pertaining to the issue of concern is reproduced as below:

PARA 10 ( i ) Section 124(1) (b) provides that 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 entire amount of late fee or penalty will be waived. This section, inter alia, covers cases of penal action against co-noticees. In case of a show cause notice demanding duty/tax from main taxpayer and proposing penal action against co-noticees, it is clarified that the co-noticees can't avail the benefits of the scheme till such time the duty demand is not settled.Once, the main-noticee discharges the duty demand, the co-noticees can apply under this Scheme. This will also cover cases where the main noticee has settled the matter before the Settlement Commission and paid the dues and in which co-noticees were not a party to the proceedings before the Settlement Commission.

Source: Circular No. 1071/4/2019-CX.8 dated 27th August 2019

Thus the board formed its opinion that in case of a show cause notice demanding duty/tax from main taxpayer and proposing penal action against co-noticees, it is clarified that the co-noticees can't avail the benefits of the scheme till such time the duty demand is not settled. Once, the main-noticee discharges the duty demand, the co-noticees can apply under this Scheme.

Thus, the board inserted its own opinion and made it the law of the land by superseding and overwriting or ignoring the section 125. We have already seen that section 125no wheresays that a co-noticee cannot avail the benefit of the scheme. The said section nowhere excludes co-noticee. The said section no where puts a precondition that 'Once, the main-noticee discharges the duty demand, the co-noticees can apply under this Scheme'.The said scheme no where mentions that the co-noticee can't avail the benefits of the scheme till such time the duty demand is not settled( by the main noticee)

The circular specifically bars the co-noticee to avail the benefit of the Sabka Vishwas Scheme unless and until the main noticee has complied with the scheme. In case where duty is demanded the Government is giving benefit from 50% to 70% as far as taxes is concerned and 100% benefit from interest and penalties. Then the questions arises why such benefit should not be forwarded to lakhs of co-noticees whose cases are pending pan India.

QUESTIONS : EVERYONE IS ASKING

• If that is not the intention of the scheme nor the law pronounced under the scheme, then what made the CBIC officers to conclude that co-noticee cannot avail the benefit till the main party settles the tax dues?

• Why would such elite class of CBIC officer, commit such a blunder which may result into a miscarriage before the baby is born?

• Are they biased against such a scheme and do not intend that lakhs of cases pertaining to the co-noticeemay be closed and the GST officers are freed from the burden as well as the Industry and Trade is relieved of stress?

• Why did they form such an opinion? What was at the back of their minds when they formed such a view?

• Will this stand the Test in the Court of the law?

• Is it because of some past law or procedure, such a view was formed?

ANSWER:HIDDEN IN THE VERY QUESTION

Theanswers was hidden in the very question.The CBIC CIRCULAR para 10(i) itself had the answer as to Why did they form such an opinion. What was at the back of their minds when they formed such a view? Further reading of the said circular makes it clear that the CBIC Officers had the Settlement Commission and the prevailing law whichpertains to settlement, wherein unless and until the main noticee does not apply, the co-noticee cannot avail benefit of the settlement commission.

THE SCHEME REFLECTS THE MISSION AND VISION OF GOVERNMENT -MODI 2.0 VERSION : NAYA BHARAT

This was exactly running in the back of the mind who was drafting the said circular. However, the CBIC Officer failed to appreciate that the scheme is not based on any of such existing lawsnor has any precedents which one needs to follow. The officers failed to appreciate that The scheme is far beyond that. The Scheme reflectsthe Mission and Vision of Government -Modi 2.0 Version. The scheme is what the country was expecting fromthis Government. The scheme breaks all past barriers, biased mindsets,old school of thought and it moves ahead into a 'Naya Bharat'

The Settlement Commission Law and procedures cannot be applied to the scheme across the board (unless and until specifically laid down in the law).

Nothing can be added or subtracted from the exclusion list as mentioned in section 125 of the scheme.Unfortunately we have always seen in the past that the bureaucratic mind set spoils the show and unnecessarily comes out withsuch views which create hurdles for a common taxpayer and which ultimately defeats the whole purpose of such schemes. Lakhs of cases pertaining to the co-noticees cannot be kept out of the scheme, just because of a misinterpretation of law by some officers.

With a Positive hope that the CBIC comes out with a clarification on the same, soon and saves the baby which is yet to be born

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