Solamalai Automobiles PVT LTD vs. The Designated Committee

Facts

The petitioner, M/s. Solamalai Automobiles Private Limited, was issued a show cause notice in 2015 for service tax liability amounting to Rs. 5,10,91,364/-, along with penalty and interest. An order confirming the demand was passed in 2018, and a subsequent rectification petition was rejected in 2019. The petitioner did not file an appeal. Subsequently, the petitioner availed the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The Designated Committee determined that the petitioner had to pay a further sum of Rs. 90,70,581/-. The petitioner had already deposited Rs. 3,59,73,729/- against the total liability. The petitioner challenged the order of the Designated Committee through a writ petition.

Held

The Court held that the petitioner's contention regarding the mode of calculation of relief was correct in principle, stating that Board circulars cannot dilute scheme provisions and that the proviso to Section 124(2) implies that relief is calculated on tax dues first, and then deposits are deducted. The Court agreed that the deduction of pre-deposit or deposit should be made only after the calculation of relief. However, the Court found that in the present case, the amount in arrears due from the petitioner was Rs. 1,51,17,635/-, which was the balance after voluntary payment of tax. The Court reasoned that the payment of Rs. 3,59,73,729/- was not a 'deposit' or 'pre-deposit' in the context of the scheme, as it was voluntarily paid towards the tax liability without demur, and appropriation had already taken place. Therefore, the relief of 40% was correctly calculated on the amount in arrears of Rs. 1,51,17,635/-, resulting in a relief of Rs. 60,47,054/-. The Designated Committee had rightly applied the scheme provisions. The Court dismissed the writ petition.

Key Issues

1. Whether, as per Section 124(2) of the Finance (No.2) Act, 2019, the relief under the Sabka Vishwas Scheme should be calculated before or after adjusting the tax amount already deposited by the declarant? The petitioner argued that Section 124(2) mandates that the adjustment of any amount paid as a deposit must be made only at the stage of calculating the amount payable, which is quantified after deducting the tax relief from the tax due. They contended that sustaining the respondents' stand would defeat the object of the scheme and that a subsequent circular cannot override statutory provisions. The petitioner also argued that the amount already paid should be considered a deposit and deducted only after relief is calculated on the entire tax liability. The respondents argued that the scheme provisions were correctly applied, relying on Board Circular No. 867/78/2019-CX-8 dated 25.09.2019. This circular clarified that 'tax dues' is the net amount after deducting amounts already paid, and relief is applied to this net outstanding amount. They contended that the petitioner's liability was Rs. 5,10,91,364/-, of which Rs. 3,59,73,729/- was paid, leaving a balance of Rs. 1,51,17,635/-. With a 40% tax relief on this balance, the payable amount was Rs. 90,70,581/-. They argued that the payments made were not 'deposits' or 'pre-deposits' in the context of the scheme.