SVLDRS-3 Cannot Ignore Pre-Deposits and Recoveries: Bombay HC Quashes ₹1.12 Crore Demand [Read Order]

The Bombay High Court has held that an order issued under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 cannot be sustained if amounts already paid as pre-deposit or recovered during investigation are ignored while determining the payable amount, and has set aside the impugned demand for fresh verification in accordance with law.

The petitioner, Evershine Enterprises, was subjected to service tax proceedings arising out of two show cause notice-cum-demand notices issued for different periods. The first notice dated 13.06.2013 proposed a demand of service tax amounting to ₹2.25 crore for the period from 2008-09 to 2011-12, while a subsequent notice dated 28.03.2014 sought to demand service tax of ₹17.04 lakh for the period from 01.04.2012 to 31.03.2013, along with interest and penalty.

The cause behind the dispute was the allegation of non-payment or short payment of service tax. Evershine Enterprises contended that substantial portions of the demanded tax had already been paid even before issuance of the show cause notice and that further amounts were recovered from it during the course of investigation. Despite these submissions, an Order-in-Original was passed confirming the demands raised in both notices.

Aggrieved, the petitioner filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal. While the appeal was pending, the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, introduced under Chapter V of the Finance Act, 2019, came into force. The petitioner opted for settlement under the scheme and filed its declaration, pointing out that its appeal was pending and that large sums had already been paid or recovered. However, the designated committee issued Form SVLDRS-3, determining an amount of ₹1.12 crore as payable without adjusting the claimed pre-deposits and recoveries. This led to the filing of the writ petition before the Bombay High Court.

On behalf of the petitioners, Bharat Raichandani argued that the impugned Form SVLDRS-3 was contrary to the mandatory requirement of deduction contained under Section 124(2) of the Finance Act, 2019. He contended that any amount paid as pre-deposit at any stage of appellate proceedings or recovered during inquiry or investigation must be deducted while issuing the statement indicating the amount payable under the scheme.

The petitioner submitted that challans evidencing payment of service tax and recoveries were furnished to the authorities, within the time granted by the department itself. It was further argued that even the show cause notice acknowledged recovery of approximately ₹80 lakh during investigation, which was required to be adjusted. Accordingly, the designated committee failed to verify or even examine these materials and mechanically issued the SVLDRS-3 demand, rendering it arbitrary and unsustainable.

For the respondents, P. C. Cardozo contended that the petitioner had repeatedly admitted to the total service tax liability of ₹2.25 crore through correspondence and documents. Subsequently, the petitioner failed to correlate the claimed payments with departmental records. Further, submitted that the Sabka Vishwas scheme was time-bound and that belated or piecemeal production of documents did not cast an obligation on the authorities to revisit the determination. On this basis, it was asserted that the petitioner was not entitled to any interference under writ jurisdiction.

The Division Bench comprising Justice M. S. Sonak and Justice Advait M. Sethna allowed the writ petition, ruling that the designated committee was duty-bound to verify the challans and documents produced by the petitioner before issuing Form SVLDRS-3. The Bench noted that the impugned statement was issued on 26.12.2019, even though the petitioner had furnished relevant challans well within the period permitted by the department.

The Court emphasised that Section 124(2) of the Finance Act, 2019 mandates deduction of amounts paid as pre-deposit or recovered during investigation while determining the payable amount under the scheme. It observed that ignoring such material, especially when the department’s own show cause notice recorded recovery of service tax during investigation, amounted to failure of the statutory verification exercise.

The Bench clarified that verification under the Sabka Vishwas scheme is not an adjudicatory or appellate exercise but still requires examination of records and documents to ascertain correctness. The Court rejected the argument that an admission of liability automatically disentitles an assessee from claiming adjustment of pre-deposits or recoveries.

Accordingly, the Bombay High Court quashed the SVLDRS-3 demand to the extent it determined the payable amount at ₹1.12 crore and directed the designated committee to re-verify the petitioner’s claims of pre-deposit and recovery, after granting a hearing, and pass a fresh determination within a stipulated time.

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