Court says written communication under Section 87(b) to bank, fixing liability before cutoff date, is enough to qualify for legacy dispute resolution benefits
The Bombay High Court has set aside the rejection of RG Studios’ declaration under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, holding that the service tax liability had already been “quantified” before the statutory cutoff date through a written communication issued by the department to the petitioner’s bank.
A division bench of Justices M.S. Karnik and Sandesh D. Patil delivered the ruling while hearing a writ petition filed by RG Studios against an order of the designated authority that had denied it the benefit of the scheme. The dispute arose from a service tax investigation covering the period from April 1, 2014 to December 31, 2018.
According to the petitioner, the department had conducted searches, recorded statements, seized documents and issued summons during the investigation. On March 5, 2019, the department directed Kotak Mahindra Bank to create a lien on the petitioner’s account under Section 87(b) of the Finance Act, 1994, and specifically quantified the outstanding service tax liability at Rs. 44,28,311. A similar communication was also issued to a debtor of the petitioner, asking it to deposit the amount due with the government exchequer.
RG Studios later filed a declaration under the Sabka Vishwas Scheme on December 30, 2019, declaring tax dues of Rs. 44,28,311 for the relevant financial years. However, the declaration was rejected on the ground that the amount had not been quantified during the investigation and that the petitioner was therefore ineligible for the scheme.
The High Court disagreed with that reasoning. It noted that Section 121(r) of the Finance Act, 2019 defines “quantified” as a written communication of the amount of duty payable under the indirect tax enactment. The bench observed that the March 5, 2019 communication clearly quantified the service tax liability before June 30, 2019, the relevant cutoff date under the scheme.
The court also rejected the department’s argument that the absence of quantification of interest made the communication incomplete. It held that the scheme requires written communication of the amount of duty payable, and non-quantification of interest does not take the case outside the definition of “quantified.”
Another objection raised by the department was that the notice had been addressed to the bank and not directly to RG Studios. The court dismissed this contention as well, stating that the communication had a direct legal effect on the petitioner because it created a lien on the petitioner’s account under Section 87(b). Merely because the notice was addressed to a third party bank, the petitioner could not be denied the scheme’s benefit.
The bench relied on its earlier decision in Landmark Associates v. Union of India, which had held that a notice under Section 87(b) issued before June 30, 2019 amounts to quantification for the purpose of the Sabka Vishwas Scheme.
Allowing the petition, the High Court held that the petitioner’s declaration had been wrongly rejected and granted relief in terms of the prayer clauses sought.
Bottom Line :
Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - Written communication under Section 87(b) of the Finance Act, 1994 to the petitioner's bank creating lien on petitioner's account and quantifying outstanding service tax liability before 30-6-2019 amounts to "quantified" under Section 121(r) of the Finance Act, 2019 - Mere non-quantification of interest or the fact that communication was addressed to bank and not directly to petitioner does not disentitle petitioner from benefit of the Scheme.
Statutory provision(s): Section 87(b) of the Finance Act, 1994, Section 121(r) of the Finance Act, 2019, Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, Section 14 of the Central Excise Act, 1944, Section 83 of the Finance Act, 1994
RG Studios v. Union of India, (Bombay)(DB) : Law Finder Doc id # 2987147
