Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019

An opportunity to end protracted litigations

The Finance Minister vide Union Budget 2019 has proposed a dispute resolution cum amnesty scheme called the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (‘the Scheme’) for resolution and settlement of legacy cases of Central Excise, Service Tax and other indirect taxes subsumed under GST. The Scheme is a significant step by the Government to put an end to protracted litigation under the erstwhile indirect tax laws, which may otherwise take substantial time for closure.

The relief under the Scheme varies from 40% to 70% of tax dues, plus waiver from interest and penalty, providing taxpayers a lucrative alternative for quick closure of litigation. The Scheme will become applicable from a date to be notified by the government. The procedural details and rules regarding the Scheme will be notified in due course.

Nirmala Sitharaman
Finance Minister

GST has just completed two years. An area that concerns me is that we have huge pending litigations from the pre-GST regime. More than 3.75 lakh crore is blocked in litigations in service tax and excise. There is a need to unload this baggage and allow a business to move on. I, therefore, propose a Legacy Dispute Resolution Scheme that will allow quick closure of these litigations. I would urge the trade and business to avail this opportunity and be free from legacy litigations.

Relief available under the Scheme

The relief under the Scheme varies from 40% to 70% of tax dues based on the varied circumstances:

Scenario Up to INR 5 million More than INR 5 million
Tax dispute at Show Cause Notice (SCN) stage or appellate stage
Waiver of 70% dues
Waiver of 50% dues
Only late fee and/or penalty disputed
100% waiver of dues
100% waiver of dues
Tax arrears declared as payable in returns
Waiver of 60% dues
Waiver of 40% of dues
Tax dues are related to inquiry, investigation, audit against the assessee
Waiver of 70% dues
Waiver of 50% dues
Voluntary disclosure of tax dues
*100% waiver of interest and penalty (No waiver of tax amount)

*Clarity is awaited whether full interest and penalty waiver would be available.

Eligibility under the Scheme

All persons are eligible to opt for the Scheme, except:

Sr.No. Exceptions
1
Who have filed an appeal and final hearing of such an appeal is completed on or before 30 June 2019.
2
Who have been convicted for any offense punishable under the enactments to which this scheme is applicable.
3
Who have been issued a Show Cause Notice (SCN) and the final hearing has taken place on or before 30 June 2019.
4
Who have been issued SCN for an erroneous refund or refund
5
Who have been subjected to an enquiry or investigation or audit and the amount of duty involved has not been quantified on or before 30 June 2019.
6

A person making voluntary disclosure:

  • After being subjected to any inquiry or investigation or audit;
  • Having filed a return under the enactment wherein he has indicated an amount of duty payable but has not paid it.
7
Who have filed an application in the settlement commission for the settlement of the case
8
Person making a declaration with respect to excisable goods in the Fourth Schedule to the Central Excise Act, 1944.

Steps to claim relief under the Scheme

The steps for availing benefit under the Scheme are as follows:

  • File a declaration of disputed tax online.
  • Designated committee verifies the correctness of the declaration made.
  • If satisfied, the designated committee issues a statement in an electronic form indicating the amount payable by the declarant, within a period of sixty days.
  • If the amount estimated by the committee exceeds the amount declared by the declarant, it shall issue a statement indicating the amount payable within thirty days of the date of receipt of the declaration.
  • An opportunity of being heard may be provided, and after that, an online statement indicating the amount payable shall be issued within a period of sixty days from the date of receipt of the declaration.
  • Taxpayer shall pay the amount online within a period of thirty days from the date of issue of such a statement.

Restrictions under the Scheme

  • The amount payable under the Scheme cannot be paid through the utilization of input tax credit and cannot be claimed as an input tax credit.
  • The declaration under the Scheme has to be made to a ‘designated committee’ that will verify the correctness of the declaration and estimate the amount to be paid by the declarant. In case any pre-deposit or other deposit already paid by the declarant exceeds the amount payable as determined by the designated committee, the difference will not be refunded to the declarant.

Open Points

Waiver of interest and penalty

The Scheme in its present form is silent on whether the tax dues to be waived would include the amount of interest and penalty. However, in the annexure to the budget speech of the Union Finance Minister, it has been specifically stated that the Scheme will provide relief from interest and penalty as well. Therefore, it is expected that further clarity would be provided after the enactment of the Scheme, or through the Rules issued under the Scheme.

Refund of tax deposited under protest

The Scheme states that the declarant can claim a deduction of the pre-deposit paid at any stage of appeal proceedings, or any deposit paid during inquiry, investigation or audit. Further, in case such pre-deposit or any other deposit exceeds the amount payable under the Scheme, then the declarant is not entitled to the refund of such an excess deposit paid. However, the Scheme is silent on whether any amount deposited ‘under protest’ by the declarant will be refunded if such an amount exceeds the tax payable under the Scheme.

Key Question

Should the taxpayer avail this scheme?

In order to assess whether this scheme should be availed by the taxpayers, it is recommended to do the following:

  • Take stock of all the pending litigations under the Excise and Service Tax.
  • Review the strength of the position and do an exercise to evaluate the likely outcome of the case.
  • In case the grounds are strong, and the likelihood of the final decree being in the taxpayers’ favour is high, then availing the scheme would not be recommended.
  • In case the grounds of appeal appear weak and litigation costs are high, then availing the scheme would be recommended to eliminate the uncertainty.

Conclusion

The introduction of the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 is a major step taken by the Government to reduce pending litigations under the erstwhile indirect tax enactments. This scheme is on similar lines to the recently introduced amnesty schemes under VAT laws in the states of Maharashtra, Karnataka, West Bengal, and Gujarat.

The Scheme should also contribute to the Government’s “Ease of Doing Business in India” initiative by reducing litigations and allowing taxpayers to focus on their businesses and migrate to GST in the true sense without worrying about protracted litigations under legacy laws.

Tax Street July 2019