M/S Unitech Machines Limited And Another vs. Union Of INDIA And 5 Others

Held

The Court held that the petitioners' first submission regarding the computation under SVLDRS was not accepted. The Court found that the Scheme's provisions, particularly Section 124(1)(c), required "tax dues" to be outstanding on the date of filing the declaration for relief to be granted. Since the petitioners had paid their duty and tax liabilities, albeit belatedly, and no adjudication order for interest or penalty existed, they did not have "tax dues" in the context of an "amount in arrears" as contemplated by the Scheme. The Court also noted that administrative circulars cannot override statutory provisions. Therefore, the SVLDRS declarations were not maintainable for the relief sought. However, the Court found merit in the petitioners' second contention that recovery of interest and penalty requires prior adjudication. Citing Rule 8(4) of the Central Excise Rules, 2002, the Court held that adjudication is a prerequisite for enforcing recovery of interest and penalty. Consequently, the communications dated 17.03.2020 and 07.04.2020 seeking recovery were premature and lacked jurisdiction. The Court also held that Section 142(1)(d) of the Customs Act, 1962, was not applicable to the Central Excise Act, 1944, as it was neither incorporated nor borrowed. Therefore, the recovery proceedings based on this provision were without jurisdiction and the said communications were set aside. Any amounts recovered were to be refunded. The Court did not record any conclusion on the Business Transfer Agreement, leaving it open for examination in appropriate proceedings. The revenue was left at liberty to initiate valid adjudication proceedings for penalty and interest if the limitation period survived. The Court expressly left undecided the issue concerning the Business Transfer Agreement and the possibility of initiating valid adjudication proceedings.

Facts

The petitioners, M/s Unitech Machines Limited and M/s UM Autocomp Pvt. Ltd., challenged the computation of liability under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS), for periods September 2016 to February 2017 and April 2017 to June 2017. They also challenged the rejection of their SVLDRS-1 declarations and subsequent recovery notices for interest and penalty amounting to Rs. 74,36,934/-. Petitioner No. 1 had admitted Central Excise duty and Service Tax liabilities, discharging them belatedly due to financial distress. The auto division of Petitioner No. 1 was transferred to Petitioner No. 2 via a Business Transfer Agreement dated 14.03.2017. No adjudication proceedings for interest or penalty had been initiated prior to the SVLDRS declaration.

Key Issues

1. Whether the Designated Committee erred in computing the amount payable under the SVLDRS by not treating the Estimated Amount Payable as 'zero' or entertaining the second SVLDRS-1 declaration, given that the petitioner had paid the duty and tax amounts, albeit belatedly, and was not ineligible under Section 125(1) of the Scheme? (Relates to Section 121(c), 123(e), 124(1)(c), 124(2), 128, 133 of the Scheme, Rule 3(b), 6(6) of the Rules, Circular No. 1073/06/2019-CX, Circular No. 1072/05/2019-CX). 2. Whether recovery of interest and penalty was permissible without prior adjudication proceedings under Section 11 of the Central Excise Act, 1944? (Relates to Section 11 of the Central Excise Act, 1944). 3. Whether Section 142(1)(d) of the Customs Act, 1962, is applicable to demands under the Central Excise Act, 1944? (Relates to Section 142(1)(d) of the Customs Act, 1962). 4. Whether the Business Transfer Agreement dated 14.03.2017 necessitated splitting of liabilities between the two petitioners before any recovery could be sought? (Relates to Business Transfer Agreement dated 14.03.2017). Petitioner's Arguments: The petitioners argued that they were eligible for the Scheme as they had paid the duty/tax and were not ineligible under Section 125(1). They contended that the Estimated Amount Payable should have been zero and the second declaration should have been entertained. They further argued that interest and penalty could not be recovered without prior adjudication, and Section 142(1)(d) of the Customs Act was not applicable. They also submitted that the Business Transfer Agreement required a split of liabilities. Revenue's Arguments: The revenue argued that the petitioners had no "tax dues" outstanding on the date of filing the declarations, making them ineligible for settlement. They relied on Rule 8(3A) of the Central Excise Rules, 2002, and Notification No. 68/63-CE to argue that no adjudication was required for admitted defaults, and Section 142(1)(d) of the Customs Act applied. They also stated that the Business Transfer Agreement was an inter se dispute.