Magnum Management And Services ... vs Union Of India Through The ...
2021 Latest Caselaw 3757 Bom

                                                                            5. civil wp 2421-20.doc

R.M. AMBERKAR
(Private Secretary)

                       IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                         CIVIL APPELLATE JURISDICTION

                                   WRIT PETITION NO. 2421 OF 2020


                      Magnum Management and Services P Ltd .. Petitioner
                                  Versus
                      Union of India & Ors.                             .. Respondents

                                               ...................
                       Mr. Ishaan Patkar a/w Ms. Riya Jain i/by Mr. Jindagi Shah for the
                        Petitioner
                       Mr. Devesh Tripathi for Respondent No.1
                       Mr. Pradeep S. Jetly, Senior Counsel a/w Mr. J.B. Mishra and Ms.
                        Maya Mazumdar for Respondent Nos. 2 and 3
                       Ms. Shruti D. Vyas - 'B' Panel counsel for the State
                                                  ...................

                                           CORAM       : UJJAL BHUYAN &
                                                         MILIND N. JADHAV, JJ.

DATE : MARCH 1, 2021.

ORAL JUDGMENT [ PER UJJAL BHUYAN ]:

Heard Mr. Ishaan Patkar, learned counsel for the

petitioner; Mr. Tripathi, learned counsel for respondent No. 1;

and Mr. Jetly, learned senior counsel for respondent Nos. 2

and 3.

2. By filing this petition under Article 226 of the

Constitution of India, petitioner seeks quashing of order

dated 21.01.2020 passed by the designated committee

rejecting the declaration of the petitioner dated 25.12.2019

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filed under the Sabka Vishwas (Legacy Dispute Resolution)

Scheme, 2019 and further seeks a direction to the

respondents to reconsider the declaration of the petitioner

dated 25.12.2019 and grant the relief(s) under the aforesaid

scheme. Additional prayer made by the petitioner is for

quashing of show cause cum demand notice dated

24.12.2020 issued by Joint Commissioner, CGST & CX,

Belapur Commissionerate.

3. Petitioner is a private limited company engaged in

the business of supplying unskilled, semi-skilled and skilled

manpower for security services, management services etc.

Being a service provider, it was registered as such under

Chapter V of the Finance Act, 1994.

4. Central Government introduced the Sabka

Vishwas (Legacy Dispute Resolution) Scheme, 2019 (briefly

"the scheme" hereinafter) vide the Finance (No. 2) Act,

2019 for settlement of legacy disputes pertaining to service

tax and central excise providing for substantial reliefs to the

declarants subject to eligibility.

5. In terms of the scheme, petitioner submitted

declaration dated 25.12.2019 under the category of

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'voluntary disclosure' covering the period from 01.04.2016 to

31.03.2017 declaring service tax dues for the said period at

Rs. 39,26,235.00

6. However, vide email dated 21.01.2020, the

aforesaid declaration of the petitioner was rejected on the

ground of ineligibility. Reason for rejection was mentioned

as being ineligible under section 125(1)(f)(i) read with

section 121(m) of the Finance (No. 2) Act , 2019.

7. When the petitioner inquired with the authorities

the justification for such rejection, it was informed that

because of letter dated 24.07.2019 which was issued to the

petitioner by the Assistant Commissioner, Division-I, CGST &

CX, Belapur Commissionerate for the period 2015-16

declaration of the petitioner was rejected on the ground of

ineligibility.

7.1. In so far letter dated 24.07.2019 is concerned, it is

stated that upon comparison of the service tax return of the

petitioner with its income tax return for the financial year

2015-16 certain differences were noticed in the figures for

which petitioner was required to explain and also to submit

the documents mentioned therein.

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8. Petitioner submitted representation on

03.02.2020 before the Assistant Commissioner, CGST & CX,

Belapur Commissionerate explaining and contending that it

cannot be treated as ineligible and requested the said

authority to withdraw the rejection order and thereafter to

accept the declaration filed by the petitioner. However, no

decision was taken on the said representation.

9. Aggrieved, present writ petition came to be filed

assailing rejection of declaration.

10. During pendency of the writ petition, Joint

Commissioner of CGST & CX, Belapur Commissionerate

issued show cause cum demand notice dated 24.12.2020

calling upon the petitioner to show cause as to why service

tax amounting to Rs. 54,40,259.00 for the period 2015-16,

2016-17 and 2017-18 (upto June 2017) should not be paid

along with interest and penalty.

10.1. By way of amendment, the above show

cause cum demand notice has been brought on record and

has also been impugned.

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11. Responding to the notice issued by the court,

respondents have filed their reply affidavit. Stand taken in

the reply affidavit is that petitioner had filed declaration

under the scheme on 25.12.2019 under the category of

'voluntary disclosure' declaring amount of service tax

payable at Rs. 39,25,235.00. The declaration was rejected

on 21.01.2020 as the petitioner was not eligible to file

declaration under the category of 'voluntary disclosure'. In

this connection, reference has been made to section 121(m)

of the Finance (No. 2) Act, 2019 and section 125(1)(e)

thereof to contend that petitioner was not eligible to file

declaration under the category of 'voluntary disclosure'. It is

further stated that under the scheme, there is no

requirement or provision for giving opportunity of personal

hearing to a declarant before rejection.

11.1. Record of the petitioner for the last five

years i.e from 2015-16 may be examined by the respondents

under section 73(1) of the Finance Act, 1994. This period

includes the financial year 2016-17 in respect of which

petitioner had filed the declaration. The proceedings which

are underway may incorporate the period 2016-17 thus

rendering the petitioner ineligible.

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12. Learned counsel for the petitioner submits that

impugned rejection of the declaration of the petitioner is in

violation of the principles of natural justice as no opportunity

of hearing was granted to the petitioner before such

rejection. That apart, no reasons have been assigned except

the bald statement about ineligibility of the petitioner. An

unreasoned order being in violation of the principles of

natural justice is certainly arbitrary and unreasonable and is

therefore liable to be appropriately interfered with by this

Court. Learned counsel has referred to various provisions of

the scheme where from he contends that the declaration of

the petitioner for the period 2016-17 could not have been

rejected by the respondents on the ground that the

investigation presently underway may incorporate the period

2016-17 in future. Such a ground is no ground at all in the

eye of law for rejection. In support of his contentions,

learned counsel for the petitioner has filed a compilation of

documents and judgments as well as written submissions.

13. On the other hand, Mr. Jetly, learned senior

counsel for the respondents has placed reliance on the

averments made in the reply affidavit and submits that the

designated committee was justified in rejecting the

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declaration of the petitioner as being ineligible. Therefore,

no interference is called for.

14. Submissions made by learned counsel for the

parties have received the due consideration of the court.

15. At the outset, we may advert to certain provisions

of the scheme as contained in the Finance (No. 2) Act, 2019

relating to making of declaration under the category of

'voluntary disclosure'.

16. Section 121(m) defines the expression "enquiry or

investigation" under any of the indirect tax enactments to

mean search of premises; issuance of summons; requiring

the production of accounts, documents or other evidence

and recording of statements.

16.1. Section 123 deals with tax dues as understood

under the scheme. As per section 123(d), where the amount

has been voluntarily disclosed by the declarant, then tax

dues would mean the total amount of duty stated in the

declaration.

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16.2. Reliefs available under the scheme are dealt

with in section 124. As per section 124(1)(e), subject to the

conditions specified in sub-clause (2), where the tax dues

are payable on account of a voluntarily disclosure by the

declarant, then, no relief shall be available with respect to

tax dues. Sub-section (2) says that relief calculated under

sub-section (1) shall be subject to the condition that any

amount paid as pre-deposit at any stage of appellate

proceedings under the indirect tax enactment or as deposit

during enquiry, investigation or audit shall be deducted when

issuing the statement indicating the amount payable by the

declarant. However, as per the proviso, if the amount of pre-

deposit or deposit exceeds the amount payable by the

declarant, the declarant would not be entitled to any refund.

16.3. Section 125 deals with eligibility to make

declaration under the scheme. As per sub-section (1) of

section 125, all persons shall be eligible to make a

declaration under the scheme except those who are

specifically excluded under clauses (a) to (h). From the

wordings of sub-section (1) of section 125, it is evident that

under the scheme, eligibility is the norm and ineligibility is

the exception. In so far voluntary disclosure is concerned,

ineligibility is dealt with in clause (f)(i) which says that a

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person after being subjected to any enquiry or investigation

or audit would be ineligible to make a voluntary disclosure.

16.4. Section 126 deals with verification of declaration

by designated committee. Proviso to sub-section (1) clarifies

that no such verification shall be made in a case where

voluntary disclosure of an amount of duty has been made by

the declarant.

16.5. Section 129 provides that every discharge

certificate issued under section 126 with respect to the

amount payable under the scheme shall be conclusive as to

the matter and time period stated therein. Section 129(2)(c)

says that notwithstanding anything contained in sub-section

(1), in a case of voluntary disclosure where any material

particular furnished in the declaration is subsequently found

to be false within a period of one year of issue of the

discharge certificate, it shall be presumed as if the

declaration was never made and proceedings under the

applicable indirect tax enactment shall be instituted.

16.6. Under section 131, for removal of doubts, it has

been clarified that nothing contained in the scheme shall be

construed as conferring any benefit, concession or immunity

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on the declarant in any proceedings other than those in

relation to the matter and time period in which the

declaration has been made.

17. We may also refer to circular dated 25.09.2019

issued by the Central Board of Direct Taxes and Customs

(briefly "the Board" hereinafter). In clause (vi) of paragraph

2, it is stated that in a case of filing declaration under the

category of 'voluntary disclosure', whether benefit of the

scheme would be available to a declarant in a case where

documents like balance sheet, profit and loss account etc are

called for by the department, Board has clarified that in such

a case, the designated committee may take a view on merit,

taking into account the facts and circumstances of the case

as to whether provisions of section 125(1)(f) would be

attracted or not.

18. Board has also prepared a set of Frequently Asked

Questions (FAQs). Question No. 59 and the answer given

thereon are as under:-

"Q. 59 Although I have not been subjected to any search of my premises or investigation of any kind as per my knowledge I have recently received a letter from the department asking for some documents like balance sheets and Profit and loss accounts of certain years. I want to make a voluntary declaration with regard to the same period. Am I eligible?

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Ans. The letter may have been sent to you by the department as a result of a specific intelligence input as pert of an enquiry or investigation or it may be with the aim of making a preliminary assessment as to whether or not an enquiry or investigation is warranted. This would depend on the facts and circumstances of each case. You can make a declaration. However the eligibility will be decided on a case to case basis by the designated committee."

19. Thus, we find that for determining eligibility under

the category of 'voluntary disclosure', a great deal of

discretion is vested on the designated committee, who has

to decide eligibility on a case to case basis. Needless to say,

when a discretion is conferred upon an authority to decide an

issue which has civil consequences upon the party

concerned, such discretion has to be exercised in a just, fair

and reasonable manner complying with the principles of

natural justice. Thus, while deciding eligibility, the

designated committee is required to consider all relevant

materials and also hear the concerned declarant.

20. Having held so, let us deal with the contention of the

petitioner that before a declaration is rejected, an opportunity

of hearing should be granted to the declarant. Though we do

not find any such express provision in the scheme laying down

requirement of hearing before rejection of the declaration, we

find from section 127 more particularly under sub-sections (3)

and (4) thereof that if the designated committee

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upon verification, determines the amount payable by the

declarant to be higher than what is declared by the

declarant, then an opportunity of hearing should be granted

to a declarant. This coupled with what we have discussed in

paragraph 19 above, makes hearing before rejection

obligatory.

21. This aspect of the matter was gone into by this

Court in Thought Blurb Vs. Union of India1 . It has been

held that in a situation where the amount estimated by the

designated committee is in excess of the amount declared

by the declarant, an opportunity of hearing is required to be

given by the designated committee to the declarant, then it

would be in complete defiance of logic and contrary to the

very object of the scheme to outrightly reject a declaration

on the ground of being ineligible. Summary rejection of a

declaration without affording any opportunity of hearing to

the declarant would be in violation of the principles of natural

justice impeaching the decision making process thus

rendering the decision invalid in law. It has been held in

paragraph Nos. 51 and 52 as under:-

"51. We have already discussed that under sub sections (2) and (3) of section 127 in a case where the amount estimated by the Designated Committee exceeds the amount declared by the declarant, then an intimation has to 1 2020 SCC OnLine Bom 1909

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be given to the declarant in the specified form about the estimate determined by the Designated Committee which is required to be paid by the declarant. However, before insisting on payment of the excess amount or the higher amount the Designated Committee is required to give an opportunity of hearing to the declarant. In a situation when the amount estimated by the Designated Committee is in excess of the amount declared by the declarant an opportunity of hearing is required to be given by the Designated Committee to the declarant, then it would be in complete defiance of logic and contrary to the very object of the scheme to outrightly reject an application (declaration) on the ground of being ineligible without giving a chance to the declarant to explain as to why his application (declaration) should be accepted and relief under the scheme should be extended to him. Summary rejection of an application without affording any opportunity of hearing to the declarant would be in violation of the principles of natural justice. Rejection of application (declaration) will lead to adverse civil consequences for the declarant as he would have to face the consequences of enquiry or investigation or audit. As has been held by us in Capgemini Technology Services India Limited (supra) it is axiomatic that when a person is visited by adverse civil consequences, principles of natural justice like notice and hearing would have to be complied with. Non-compliance to the principles of natural justice would impeach the decision making process rendering the decision invalid in law.

52. We have one more reason to take such a view. As has rightly been declared by the Hon'ble Finance Minister and what is clearly deducible from the statement of object and reasons, the scheme is a one time measure for liquidation of past disputes of central excise and service tax as well as to ensure disclosure of unpaid taxes by a person eligible to make a declaration. The basic thrust of the scheme is to unload the baggage of pending litigations centering around service tax and excise duty. Therefore the focus is to unload this baggage of pre-GST regime and allow business to move ahead. We are thus in complete agreement with the views expressed by the Delhi High Court in Vaishali Sharma Vs. Union of India, WP(C) No. 4763 of 2020 decided on 05.08.2020 that a liberal interpretation has to be given to the scheme as its intent is to unload the baggage relating to legacy disputes under central excise and service tax and to allow the business to make a fresh beginning. "

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22. Since we find that impugned rejection of the

declaration of the petitioner is in violation of the principles of

natural justice which has impacted the decision making

process thus rendering the decision invalid, it may not be

necessary for us to enter into the merits of the challenge as

to whether the declaration of the petitioner was in fact valid

or not under the category of 'voluntary disclosure'. This is a

matter which should be best left to the designated

committee to decide after granting opportunity of hearing to

the petitioner.

23. Consequently we set aside the order dated

21.01.2020 and direct the designated committee to decide

afresh the declaration of the petitioner dated 25.12.2019 in

terms of the scheme under the category of 'voluntary

disclosure' after giving due opportunity of hearing. The date,

time and place of hearing shall be intimated to the

petitioner. The entire exercise shall be carried out within a

period of eight weeks from the date of receipt of a copy of

this order.

24. All contentions of the parties are kept open.

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25. Till such decision is taken by the designated

committee, respondents shall not proceed further with the

show cause cum demand notice dated 24.12.2020.

26. With the above directions, writ petition is disposed

of. However, there shall be no order as to costs.

[ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ]

Digitally signed Ravindra by Ravindra M.

M.         Amberkar
           Date: 2021.03.02
Amberkar   17:07:54 +0530




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