Court’s Decision
The Himachal Pradesh High Court allowed the writ petition, holding that the petitioner is entitled to extension of time to make payment under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, in view of COVID-19 pandemic-related hardships and the Supreme Court’s suo motu limitation extensions. The court quashed the recovery notices and directed the respondents to permit payment with interest, enabling issuance of Form SVLDRS-4 discharge certificate.
Facts
The petitioner, operating a hotel in Shimla, faced service tax liabilities for 2011–16. An instalment scheme was allowed, but due to financial difficulties, including closure during COVID-19 lockdown from March 2020, it could not pay dues under the Sabka Vishwas Scheme by the 30 June 2020 deadline. Though the petitioner filed declarations under the scheme, the department changed the category from “investigation” to “arrears,” increasing the liability, and subsequently issued demand notices. The petitioner sought a declaration that Section 127(5) of the Finance Act, 2019, was directory and prayed for time extension for payment.
Issues
- Whether the time limit under Section 127(5) of the Finance Act, 2019, is directory, permitting extension due to COVID-19.
- Whether the department correctly reclassified the petitioner’s liability from “investigation” to “arrears,” increasing dues.
- Whether the petitioner is entitled to relief under the Sabka Vishwas Scheme despite missing the payment deadline due to the pandemic.
Petitioner’s Arguments
The petitioner argued that the reclassification from “investigation” to “arrears” was incorrect, leading to an inflated liability. Due to the pandemic and hotel closures, it could not deposit dues by 30 June 2020. It was a bona fide taxpayer wishing to settle liabilities but sought additional time to pay under the scheme, asserting that Section 127(5) should be treated as directory in view of the unprecedented COVID-19 circumstances and in line with the Supreme Court’s limitation extensions.
Respondent’s Arguments
The respondents contended that the time period under the scheme was mandatory and had expired, disqualifying the petitioner from relief. They maintained the reclassification of the petitioner’s dues and argued that since the payment deadline had lapsed, the petitioner was liable for the full outstanding tax, interest, and penalty, rejecting the petitioner’s request for an extension.
Analysis of the Law
The court examined:
- Section 127(5) of the Finance Act, 2019 regarding payment deadlines.
- The Supreme Court’s suo motu orders extending limitation periods due to COVID-19 (In Re: Cognizance for Extension of Limitation).
- Provisions and objectives of the Sabka Vishwas Scheme, designed to reduce litigation and provide amnesty for indirect tax disputes.
- The principle that procedural requirements should not defeat substantive rights during extraordinary situations like the pandemic.
Precedent Analysis
- SC Extension Orders (23 March 2020, 10 January 2022): Limitation periods extended due to COVID-19.
- Apnaa Projects (Madras HC), R.R. Housing, Sky Industries, Sunflower Developers: Held that timelines under the Sabka Vishwas Scheme can be treated flexibly during COVID-19 if the taxpayer is bona fide.
- N. Sundaranjan (Madras HC): Allowed extension of payment deadline under the Sabka Vishwas Scheme considering pandemic hardships.
Court’s Reasoning
The court noted:
- The pandemic created circumstances beyond the petitioner’s control, with the hospitality business being severely affected.
- The Supreme Court’s extension of limitation periods and multiple High Court judgments recognized the need to allow additional time under amnesty schemes during COVID-19.
- The petitioner had acted in good faith to avail of the Sabka Vishwas Scheme and was entitled to complete the process without being penalized due to circumstances caused by the pandemic.
Conclusion
The High Court:
- Allowed the petition and quashed the impugned demand and recovery notices.
- Directed the respondents to permit the petitioner to pay the dues under the Sabka Vishwas Scheme with applicable interest and, upon payment, issue Form SVLDRS-4 discharge certificate.
- Held that the time limit under Section 127(5) is directory under pandemic-related circumstances, protecting the petitioner’s substantive right to settle under the amnesty scheme.
Implications
- Strengthens taxpayer protection during unforeseen crises like the pandemic.
- Establishes that procedural deadlines under amnesty schemes can be relaxed in exceptional circumstances.
- Provides clarity on the interpretation of Section 127(5) as directory when supported by Supreme Court limitation extensions.
Short Note on Cases Referred
- Apnaa Projects, N. Sundaranjan, R.R. Housing: Permitted payment deadline extensions under the Sabka Vishwas Scheme during COVID-19.
- Sky Industries, Sunflower Developers: Upheld the relaxation of compliance deadlines under indirect tax amnesty schemes in pandemic circumstances.
- Supreme Court suo motu extension orders: Extended limitation periods across all judicial and quasi-judicial proceedings due to COVID-19.
FAQs
1. Can time limits under the Sabka Vishwas Scheme be extended due to COVID-19?
Yes, the High Court held that Section 127(5) is directory, allowing extensions during the pandemic.
2. Does reclassification under the scheme affect a taxpayer’s eligibility for relief?
Reclassification cannot defeat substantive relief if the taxpayer has acted bona fide and procedural errors occurred.
3. Is the Sabka Vishwas Scheme’s payment timeline mandatory?
In normal circumstances, it is mandatory, but courts may relax it during exceptional situations like COVID-19.