Application to SVLDR Scheme under Arrears Category allowable even if Tax Paid since it Covers Interest and Penalty: Bombay HC [Read Order]      

In a recent judgement, the Bombay High Court (HC) has held that an application to Sabka Vishwas (Legacy Dispute Resolution) SVLDR Scheme under the arrears category is allowable even if tax is paid since it covers interest and penalty

 Deelight Fortune Private Limited, the Petitioner is a company incorporated under the Companies Act, 1956 had given its commercial premises on leave and license basis to tenants from time to time.  Vide Finance Act, 2010, Section 65(105)(zzzz) of the Finance Act, 1994, was amended wherein renting of property was made taxable with effect from 1 June 2007.

Petitioner had applied and obtained Service Tax Registration from 16 June 2011 under the category of ‘Renting of Immovable Property Service’.  It is Petitioner’s case that it did not pay service tax to Service Tax Authority under the belief that mere letting out was not a service. 

Service Tax Voluntary Compliance Encouragement Scheme, 2013 (“VCES”) was introduced by Chapter VI of the Finance Act, 2013.  Under Section 106(1) of the VCES, a person could declare his tax dues for the period 1 October 2007 to 31 December 2012 and upon payment of service tax, there would be immunity from interest and penalty. 

The Designated Authority, (VCES-Cell), Service Tax, Mumbai issued Form VCES-2 dated 8 July 2013 acknowledging the receipt of the declaration filed by Petitioner under Form VCES-1 under which Petitioner was required to deposit 50% of the tax dues by 31 December 2013. 

As Petitioner failed to deposit 50% of the tax dues by 31 December 2013, the benefit of the VCES was denied. The Deputy Commissioner (Anti Evasion) directed the Petitioner to pay the entire amount declared under the VCES.

It was submitted that Petitioner paid the amount of service tax of Rs.3,10,57,111/- except the amount of Rs.31,25,815/- declared under the scheme and the payment was made by the Petitioner on various dates during the period from 4 February 2014 to 27 March 2014.  Further, the bank accounts of the Petitioner were attached for recovery of the dues declared under the VCES and to have the recovery/attachment lifted, the Petitioner paid the amount of Rs.31,25,815/- under protest

It was viewed by the Court that VCES is part and parcel of the Finance Act, 1994, a statute which finds mention in Section 122 of the said Act since the show cause notice dated 17 April 2017 demanding the interest amount of Rs.2,78,90,766/- was issued to Petitioner under Section 75 of the Finance Act, 1994.

It was observed that in the facts of the case, the show cause notice demanding the interest amount was issued to Petitioner under Section 75 of the Finance Act, 1994 and which related to the service tax dues, which have admittedly been paid by Petitioner. Just because the Petitioner has paid the principal amount, it cannot be said that when a show cause notice has been issued for interest on the said amount, the Petitioner is not entitled to make a declaration under SVLDRS. The interest relates to the service tax amount and the SVLDR Scheme covers not only tax but also interest, and penalty.  Section 129 of the SVLDR Scheme provides for

The Coram comprising of Justice Nitin Jamdar and Justice Abhay Ahuja set aside the order of the Designated Authority dated 6 February 2020 under the SVLDR Scheme rejecting Petitioner’s SVLDRS.

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