Once SVLDRS Discharge Certificate Issued, No further Interest Payable on Belated Service Tax: Bombay HC rules against Revenue [Read Order]

In a recent ruling, the Bombay High Court has clearly clarified that no interest is payable for belated payment of service tax once discharge certificate under SVLDR scheme is issued. Through the decision, the court protected the assessee by ruling against the revenue.

Justice Advait M. Sethna and Justice M.S. Sonak, in this judgment observed the decision in the case Bhawna Malhotra vs. Union of India and Ors, 2020, where it was held that “even if there is an error or mistake apparent on record made by the declarant in filing the SVLDRS Application, it would still fall within the scope and ambit of Section 128 of the Finance Act, 2019 and consequently the benefit ought to be granted to the Assessee/Petitioner.”

The Petitioner, Astute Valuers and Consultants Pvt. Ltd., through this writ petition challenged the demand of the department to pay interest for the belated payment of service tax. However, before the court the petitioner submitted that they opted to settle through the SVLDR scheme.

The petitioner’s counsel submitted that there was an inadvertent error while filing the SVLDRS application. It filed an application Form SVLDRS-3 under Section 128 of the Finance Act, 2019 allowing the third Respondent - Designated Committee to rectify the clerical errors. The Petitioner made payment of Rs.8,41,577.20/- as the amount quantified under the SVLDRS. The Designated Committee issued the discharge certificate.

Later, 16 March 2021 the Assistant Commissioner, CGST (Audit-II), Mumbai - the fifth respondent of this case issued a notice (Rs.25,294/- and Rs.24,738) for the financial year 2014-2015 to 2015-2016. To this, the petitioner replied that the issue was already settled.

The counsel for the petitioner submitted that the Petitioner disclosed the tax dues i.e. Rs.21,03,943/- and paid 40% on the same to avail the benefit under the Scheme. It was added once Discharge Certificate has been issued by third Respondent towards full and final settlement of the tax dues as determined in Form SVLDRS-3 there could have been no further proceedings initiated by the Respondents.

With regards to the error in the application, the petitioner’s representative asserted that Section 128 of the Finance Act, 2019 allows the designated committee to suo moto rectify such clerical error which was evident on the face of the record which ordinarily should have been done by the committee.

Therefore, the declaration made by the Petitioner ought to have been considered as declaration under the audit category for availing the benefit under the SVLDRS and demand of Rs.8,41,577.20 ought to have been refunded to the Petitioner, said the counsel.

The court noted that the petitioner had filed Form SVLDRS-1 on 14 December 2019, declaring tax dues of ₹21,03,943 arising from an audit objection dated 22 March 2019 issued by the Superintendent, CGST (Audit-II), Mumbai.

The audit had already quantified the total tax liability at ₹41,91,121 prior to the cut-off date of 30 June 2019 prescribed under Section 125(1)(e) of the Finance Act, 2019. Since the tax dues were determined before the statutory cut-off, the Court held that the petitioner was eligible to avail the benefits under the Sabka Vishwas (Legacy Dispute Resolution) Scheme (SVLDRS).

“Merely because the Petitioner had incorrectly filed its declaration under arrears category and not under audit, enquiry, investigation category would not deprive the Petitioner to claim relief which is available to the Petitioner eligible under the statutory framework of the Finance Act, 2019. So also, under the said Scheme the benefit available to the Petitioner was only to the extent as prescribed under Section 124 of the said Act” said the court.

The bench hearing the submissions, concurring with the petitioner counsel’s submissions, ruled that the demand of interest and penalty by issuance of show-cause notices dated 16 March 2021, June 2022 are ex-facie contrary to the Finance Act, 2019, and without authority in law.

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