SVLDR Benefit Not Available For Service Tax SCN Issued After 30 June 2019: Delhi HC [Read Order]

In a recent ruling, the Delhi High Court held that the benefit of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDR) cannot be extended to a show cause notice for service tax demand, issued after the cut-off date of 30 June 2019, even if it relates to an earlier dispute.

Varner Retail Services South Asia Pvt. Ltd., the petitioner, filed a writ petition challenging two orders passed by the tax authorities. The first was an order dated 2 March 2020 passed by the Designated Committee under the SVLDR Scheme rejecting its declaration, and the second was an adjudication order dated 30 June 2023 confirming a service tax demand of Rs. 46,86,276 along with interest and penalties.

The dispute arose from refund claims filed by the petitioner during 2017 under the CENVAT Credit Rules, 2004, for accumulated and unutilised CENVAT credit. These refund claims were rejected by the department in September 2018.

Following this, a show cause notice dated 18 October 2018 was issued for the period from October 2015 to September 2016, alleging that the petitioner’s services did not qualify as export of services. The petitioner challenged this notice and the related orders before appellate authorities.

After the SVLDR Scheme was introduced on 1 September 2019, the petitioner applied under the Scheme in respect of the first show cause notice. This declaration was accepted, and the petitioner was granted relief on 31 December 2019. Subsequently, a second show cause notice dated 19 December 2019 was issued for later periods, namely October 2016 to March 2017 and April 2017 to June 2017.

The petitioner again applied under the SVLDR Scheme for this second show cause notice. However, the declaration was rejected on the ground that the notice was issued after the cut-off date prescribed under the Scheme. The second show cause notice was later adjudicated, leading to confirmation of the tax demand by the order dated 30 June 2023.

The petitioner argued that the second show cause notice was only a continuation of the first notice, as both arose from the same refund claims and investigation. They argued that the department had split one dispute into two notices and that this should not deprive the petitioner of the benefit of the Scheme. Reliance was also placed on a CBIC circular dated 12 December 2019 to argue that declarations filed after 1 July 2019 could still be considered in certain cases.

The tax department argued that the SVLDR Scheme clearly fixed 30 June 2019 as the cut-off date and that any show cause notice issued after that date was not eligible for Scheme benefits.

They argued that the second show cause notice was issued on 19 December 2019 and that the demand under this notice was quantified only after the cut-off date. According to the department, the second notice stood independently and could not be treated as a continuation of the earlier one.

The Division Bench of Justice Prathiba M. Singh and Justice Shail Jain observed that under the SVLDR Scheme, eligibility is linked to show cause notices issued on or before 30 June 2019. The Court observed that in the present case, the second show cause notice was issued after the cut-off date and that the tax amount covered by it was not quantified as of 30 June 2019.

The court explained that merely because the second show cause notice referred to the earlier notice did not make it a continuation of the earlier proceedings. It pointed out that the second notice contained a separately quantified demand and resulted in an independent adjudication order. The Court also observed that the CBIC circular and the FAQs under the Scheme did not permit extension of Scheme benefits to notices issued after the prescribed deadline.

In view of these findings, the Delhi High Court upheld the rejection of the petitioner’s declaration under the SVLDR Scheme in respect of the second show cause notice. However, considering that the writ petition had remained pending for a considerable period, the Court permitted the petitioner to file a statutory appeal against the adjudication order dated 30 June 2023 by 31 January 2026.

It directed that if the appeal was filed within this time, it should not be dismissed on the ground of limitation and should be decided on merits. The writ petition was disposed of in these terms.