India: Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - A Once In A Lifetime Opportunity To Settle Litigation(s)

Last Updated: 10 July 2019
Article by AMLEGALS  

INTRODUCTION

The Finance Minister Ms. Nirmala Sitharaman during her maiden budget, presented on 5th July, 2019, declared a scheme namely "Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019".

It is aimed to settle the unresolved issues pertaining to pre-Goods and Services Tax (GST) regime.

During her speech she said that,

"More than (Rs) 3.75 lakh 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," she said.

It can be said that this scheme has been developed on the sidelines of previous schemes under indirect & direct taxes.

The implementation of the scheme will be notified at a later date.

RELEVANT PROVISIONS

The Clauses 119 to 134 of Finance (No.2) Bill, 2019 deals with the scheme.

APPLICABILITY

The scheme has applicability on the tax dues under the following enactments:

  1. the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or Chapter V of the Finance Act, 1994 and the rules made thereunder;
  2. the following Acts, namely:— (i) the Agricultural Produce Cess Act,1940; (ii) the Coffee Act, 1942; (iii) the Mica Mines Labour Welfare Fund Act, 1946; (iv) the Rubber Act, 1947; (v) the Salt Cess Act, 1953; (vi) the Medicinal and Toilet Preparations (Excise Duties) Act, 1955; (vii) the Additional Duties of Excise (Goods of Special Importance) Act, 1957; (viii) the Mineral Products (Additional Duties of Excise and Customs) Act, 1958; (ix) the Sugar (Special Excise Duty) Act, 1959; (x) the Textiles Committee Act, 1963; (xi) the Produce Cess Act, 1966; (xii) the Limestone and Dolomite Mines Labour Welfare Fund Act, 1972; (xiii) the Coal Mines (Conservation and Development) Act, 1974; (xiv) the Oil Industry (Development) Act, 1974;(xv) the Tobacco Cess Act, 1975; (xvi) the Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Cess Act, 1976; (xvii) the Bidi Workers Welfare Cess Act, 1976; (xviii)the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978; (xix) the Sugar Cess Act, 1982; (xx) the Jute Manufacturers Cess Act, 1983; (xxi) the Agricultural and Processed Food Products Export Cess Act, 1985; (xxii) the Spices Cess Act, 1986; (xxiii)the Finance Act, 2004; (xxiv) the Finance Act, 2007; (xxv) the Finance Act, 2015; (xxvi) the Finance Act, 2016;
  3. any other Act, as the Central Government may, by notification in the Official Gazette, specify

HOW IT OPERATES?

The operation of entire scheme is based upon three interlinked factors:

  1. quantum of tax dues,
  2. stage of proceedings & investigation and
  3. Proportionate relief

WHAT IS THE RELIEF?

As per the Bill, the relief related to different stages and can be understood as under:

1. Tax Dues Related To Show Cause Notice or Appeal(s)

  • Where the resultant tax dues are due to a SCN or a resultant appeal(s) arising thereupon
  • It is pending as on 30th June, 2019.

Relief

If the amount of duty is Rs 50 Lakhs or less, then it shall be 70% of the tax dues

If the amount of duty is more than Rs. 50 lakhs, then it will be 50% of the tax dues.

Important Deeming Provision

Where a SCN 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;

2. Arrears

  • Where the tax dues are relatable to an amount in arrears on finality of proceedings, or
  • Where the tax dues are relatable to an amount shown in a return under the indirect tax enactment but was never paid and resulted as an arrear.

Relief

If the amount of duty is Rs 50 Lakhs or less, then it shall be 60% of the tax dues.

If the amount of duty is more than Rs. 50 lakhs, then it will be 40% of the tax dues.

3. Enquiry, Investigation or Audit

  • Where there are tax dues due to an enquiry, investigation or audit against the declarant, and
  • the amount stands quantified on or before 30th June, 2019

Relief

If the amount of duty is Rs 50 Lakhs or less, then it shall be 70% of the tax dues.

If the amount of duty is more than Rs. 50 lakhs, then it will be 50% of the tax dues.

Exclusion - Where the tax dues are payable on account of a voluntary disclosure by the declarant, then no relief shall be available with respect to tax dues.

WHO ARE ELIGIBLE?

All persons shall be eligible to make a declaration under this Scheme except those who are enumerated below as not eligible persons.

WHO ARE NOT ELIGIBLE?

The following persons are not eligible for opting such a lifetime scheme:

  1. One who has filed an appeal before the appellate forum and such appeal has been heard finally on or before the 30th day of June, 2019.
  2. One who has been issued with a SCN under indirect tax enactment and its final hearing has already taken place on or before the 30th day of June, 2019.
  3. One who is convicted for any offence punishable under any provision of the indirect tax and for which one is intending to file a declaration.
  4. One who has an application before the Settlement Commission.
  5. Excisable goods falling under 4th Schedule of CEA, 1944.
  6. One who had made voluntary disclosure under specified circumstances.
  7. One who have been issued a show cause notice under indirect tax enactment for an erroneous refund or refund.
  8. One 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;
  9. One who has made a voluntary disclosure after being subjected to any enquiry or investigation or audit and after having filed a return under the indirect tax enactment, wherein he has indicated an amount of duty as payable, but has not paid it;

DESIGNATED COMMITTEE

The designated committee shall verify the declaration made by the declarant.

The designated committee shall verify the correctness of the declaration made by the declarant under section 124 in such manner as may be prescribed.

However, no such verification shall be made in case where a voluntary disclosure of an amount of duty has been made by the declarant.

The composition and functioning of the designated committee is yet to be prescribed.

ISSUE OF STATEMENT

The designated Committee will issue a statement in electronic form with the inceidental factors as below:

Amount In Declaration Matches

  1. Where the amount as per the declaration equals the amount estimated by the designated committee, then a statement will be issued by the designated committee in electronic form.
  2. The statement indicating the amount payable by the declarant will be issued within 60 days from the date of receipt of the said declaration.

Non Matching of Declared Amount

  1. Where the amount as per the declarant is found to be lower than the amount estimated by the designated committee, then an estimate will be issued by the designated committee in electronic form.
  2. The estimate indicating the amount payable by the declarant will be issued within 30 days from the date of receipt of the said declaration.
  3. An opportunity of personal hearing will be given to the declarant before the issuance of the statement by the designated committee.
  4. Only one adjournment will be allowed on sufficient reason is shown by the declarant.
  5. After hearing the declarant, a statement in electronic form indicating the amount payable by the declarant, shall be issued within a period of 60 days from the date of receipt of the declaration.
  6. The declarant shall pay such an amount electronically through internet banking alone.
  7. The said amount has to be paid within 30 days from the date of issue of such statement.

Deemed Withdrawal

  1. Any appeal or reference or a reply to the show cause notice against any order or notice giving rise to the tax dues, pending before the appellate forum, then, notwithstanding anything contained in any other provisions of any law for the time being in force, shall be deemed to have been withdrawn.
  2. It shall not be deemed when it is pending before the Supreme Court or the High Court.

Withdrawal of Writ or Appeal

  1. Where any writ petition or appeal or reference is pending before any High Court or the Supreme Court against any order in respect of the tax dues, the declarant shall file an application before such High Court or the Supreme Court for their withdrawal.
  2. The declarant should submit shall furnish proof of such withdrawal along with the proof of payment to the designated committee for issuing a discharge certificate.

OVERALL SCHEME

The benefits under the scheme is summarised as under:

  • The relief under the scheme varies from 40 percent to 70 percent of the tax dues for cases other than voluntary disclosure cases, depending on the amount of tax dues involved.
  • The scheme also provides relief from payment of interest and penalty.
  • The person discharged under the scheme shall also not be liable for prosecution.
  • Amount declared under the Scheme is to be only paid in cash.
  • No input tax credit can be utilised towards such a payment.
  • Amount thus paid shall not be refundable under any circumstance(s).
  • Amount paid under the Scheme shall also not be entitled as input tax credit.
  • Designated committee suo motu or being pointed out can modify its order only to correct an arithmetical error or clerical error apparent on record.
  • Every discharge certificate issued under section 126 with respect to the amount payable under this Scheme shall be conclusive as to the matter and time period stated therein.
  • No matter and time period covered by such declaration shall be reopened in any other proceeding under the indirect tax enactment.
  • The issue of the discharge certificate with respect to a matter for a time period shall not preclude the issue of a show cause notice for the same matter for a subsequent time period; or for a different matter for the same time period;
  • In a case of voluntary disclosure where any material particular furnished in the declaration is subsequently found to be false, within a period of one year of issue of the discharge certificate, it shall be presumed as if the declaration was never made and proceedings under the applicable indirect tax enactment shall be instituted.

AMLEGALS REMARKS

It's a really good offer where the Trade is in doubt as to they will win or lose and to clean their old baggage of past cases involving taxes which have got subsumed in GST, namely Central Excise, Service Tax and cesses besides demand under almost 26 enactments.

The moot question which arises is as to why this scheme and at this point of time when Modi 2.0 Government is in majority.

The answer lies in the following logical aspects:

  1. generate revenue at one go,
  2. history analysis of average winning chances of Revenue in cases up to the Supreme Court,
  3. dire need to create infrastructure including Judges, Courts, etc., to tackle GST cases and
  4. clearing entire backlog which has involvement of cost of Government towards various intrinsic and extrinsic factors.

Overall, it's a balancing and compelling offer wherein both the Governement & Trade lose something to win with one shot on the reasons stated herein above.

Anandaday Misshra, Founder, AMLEGALS

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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