Indira Banerjee, J.@mdashThe main issue in this writ petition is whether the Designated Authority under the Kar Vivad Samadhan Scheme, 1998, as contained in the Finance Act, 1998, can include contingent sales tax liability to the State Government, in computing tax arrears in relation to an indirect tax enactment, as defined in section 87(j) of the Finance Act, 1998.
2. The petitioner, a company incorporated under the Indian Companies Act, 1913, and an existing company within the meaning of the Companies Act, 1956 carries on business inter alia of manufacture of electrical goods including electric lamps.
3. The goods manufactured by the petitioner being excisable goods under the Central Excise Act 1944, an L-4 licence was issued to the petitioner under the Central Excise and Salt Act, 1944.
4. With the amendment of Central Excise Rules, 1944 with effect from 14th May, 1992, the petitioner was duly registered under Rule 174 of the said Central Excise Rules.
5. According to the petitioner, the petitioner has, at all material times maintained, and still maintains the requisite books of accounts and documents, in terms of the provisions of the Central Excise Act, 1944.
6. The petitioner is a subsidiary of Philips India Ltd., a company incorporated under the Indian Companies Act, 1913 and an existing company within the meaning of the Companies Act, 1956.
7. The electrical goods manufactured by the petitioner are sold to Philips India Ltd. and Philips India Ltd. sells the said electrical goods in the market.
8. A dispute arose between the Central Excise authorities and the petitioner with regard to the mode of assessment of the assessable value of the goods manufactured by the petitioner at its factory.
9. While the petitioner contended that the goods should be assessed, taking into account the price at which the petitioner sold the goods to Philips India Ltd., the Central Excise authorities contended that the assessable value was to be determined taking into account the price at which Philips India Ltd. sold the said goods to its customers.
10. Being purportedly aggrieved by the determination of the assessable value of the goods, on the basis of the price at which Philips India Ltd. sold the goods to its customers, the petitioner filed a writ petition, which was dismissed by Khastagir, J. by an order dated 26th May, 1992.
11. Khastagir, J. held, and perhaps rightly, that the petitioner being a subsidiary of Philips India Ltd., the two companies were related persons and Central Excise duty was assessable under proviso (iii) of section 4(1)(a) of the Central Excise Act, at the price at which Philips India Ltd. were selling the goods to its customers.
12. The petitioner preferred an appeal against the aforesaid order of Khastagir, J. The Division Bench passed an interim order in the appeal, whereby the petitioner was permitted to furnish a bank guarantee in respect of the disputed duty.
13. It is submitted that while the appeal was pending, the Finance Act, 1998 was enacted introducing a scheme which is called the Kar Vivad Samadhan Scheme, 1998. The object of the scheme, as explained by the Finance Minister in his speech, is extracted hereinbelow for convenience:
Litigation has been the bane of both direct and indirect taxes. A lot to energy of the Revenue Department is being frittered in pursuing large number of litigations pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentivise honest taxpayers, enable Government to realize its reasonable dues much earlier but coupled with administrative measures, would also make the system more user-friendly. I, therefore, propose to introduce a new Scheme called Samadhan.
14. The scheme gave assessees locked in litigation the opportunity of settling disputes at a discount. The scheme provided that any tax arrear, whether under a direct or an indirect tax enactment, specified in the scheme, could be settled by declaring the arrears and paying the amount prescribed in the scheme.
15. Some of the relevant provisions of the Kar Vivad Samadhan Scheme, 1998 as contained in Chapter IV of Finance Act; 1998 (Sections 86 to 98) are set out hereinbelow for convenience:
"87. In this Scheme, unless the context otherwise requires,-�
(a) "declarant" means a person making a declaration u/s 88;
(b) ......................
(c) "disputed chargeable expenditure", in relation to an assessment year, means the whole or so much of the chargeable expenditure as is relatable to the disputed tax;
(d) "disputed chargeable interest", in relation to an assessment year, means the whole or so much of the chargeable interest as is relatable to the disputed tax;
(f) "disputed tax" means the total tax determined and payable, in respect of an assessment year under any direct tax enactment but which remains unpaid as on the date of making the declaration u/s 88;
(j) "indirect tax enactment" means the Customs Act, 1962 (52 of 1962) or the Central Excise Act, 1944 (91 of 1944) or the Customs Tariff Act, 1975 (51 of 1975) or the Central Excise Tariff Act, 1985 (5 of 1986) or the relevant Act and includes the rules or regulations made under such enactment;
(k) ................
(l) "relevant Act" means an Act specified in the Schedule to this Scheme;
(m) "tax arrear" means, �
(i)..............
(ii) in relation to indirect tax enactment, -
(a) the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty determined as due or payable under that enactment as on the 31st day of March, 1998 but remaining unpaid as on the date of making a declaration tinder section 88; or
(b) the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty which constitutes the subject matter of a demand notice or a show-cause notice issued on or before the 31st day of March, 1998 under that enactment but remaining unpaid on the date of making a declaration u/s 88, but does not include any demand relating to erroneous refund and where a show-cause notice is issued to the declarant in respect of seizure of goods and demand of duties, the tax arrear shall not include the duties on such seized goods where such duties on the seized goods have not been quantified.
Explanation.-Where a declarant has already paid either voluntarily or under protest, any amount of duties, cesses, interest, fine or penalty specified in this sub-clause, on or before the date of making a declaration by him u/s 88 which includes any deposit made by him pending any appeal or in pursuance of a Court order in relation to such duties, cesses, interest, fine or penalty, such payment shall not be deemed to be the amount unpaid for the purposes of determining tax arrear under this sub-clause;
88. Subject to the provisions of this Scheme, where any person makes, on or after 1st day of September, 1998 but on or before the 31st day of December, 1998, a declaration to the designated authority in accordance with the provisions of section 89 in respect of tax arrear, then, notwithstanding anything contained in any direct tax enactment or indirect tax enactment or any other provision of any law for the time being in force, the amount payable under this Scheme by the declarant shall be determined at the rates specified hereunder, namely:�
(a).........
(b).........
(c).........
(d)........
(e)........
(f) where the tax arrear is payable under the indirect tax enactment� -
(i) in a case where the tax arrear comprises fine, penalty or interest but does not include duties (including drawback of duty, credit of duty or any amount representing duty) or cesses, at the rate of fifty per cent, of the amount of such fine, penalty or interest, due or interest, due or payable as on the date of making a declaration u/s 88,
(ii) in any other case, at the rate of fifty per cent, of the amount of duties (including drawback of duty, credit of duty or any amount representing duty) or cess due or payable on the date of making a declaration u/s 88.
89. A declaration u/s 88 shall be made to the designated authority and shall be in such form and shall be verified in such manner as may be prescribed.
90. (1) Within sixty days from the date of receipt of the declaration u/s 91, the designated authority shall, by order, determine the amount payable by the declarant in accordance with the provisions of this Scheme and grant a certificate in such form as may be prescribed to the declarant setting forth therein the particulars of the tax arrear and the sum payable after such determination towards full and final settlement of tax arrears:
Provided that ''where any material particular furnished in the declaration is found to be false, by the designated authority at any stage, it shall be presumed as if the declaration was never made and all the consequences under the direct tax enactment or indirect tax enactment under which the proceedings against the declarant: are or were pending shall be deemed to have been revived:
Provided further that the designated authority may amend the certificate for reasons to be recorded in writing.
(2) The declarant shall pay, the sum determined by the designated authority within thirty days of the passing of an order by the designated authority and intimate the fact of such payment to the designated authority along with proof thereof and the designated authority shall thereupon issue the certificate to the declarant.
(3) Every order passed under sub-section (1), determining the sum payable under this Scheme, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceeding under the direct tax enactment or indirect tax enactment or under any other law for the time being in force.
(4) Where the declarant has filed an appeal or reference or a reply to the show-cause notice against any order or notice giving rise to the tax arrear before any authority or Tribunal or Court, then, notwithstanding anything contained in any other provisions of any law for the time being in force, such appeal or reference or reply shall be deemed to have been withdrawn on the day on which the order referred to in sub-section (2) is passed:
Provided that where the declarant has filed a writ petition or appeal or reference before any High Court or the Supreme Court against any order in respect of the tax arrear, the declarant shall file an application before such High Court or the Supreme Court for withdrawing such writ petition, appeal or reference and after withdrawal of such writ petition, appeal or reference with the leave of the Court, furnish proof of such withdrawal along with the intimation referred to in sub-section (2).
91. The designated authority shall, subject to the conditions provided in section 90, grant immunity from instituting any proceeding for prosecution for any offence under any direct tax enactment or indirect tax enactment, or from the imposition of penalty under any of such enactments, in respect of matters covered in the declaration u/s 88.
93. Any amount paid in pursuance of a declaration made u/s 88 shall not be refundable under any circumstances.
94. For the removal of doubts, it is hereby declared that, save as otherwise expressly provided in sub-section (3) of section 90, nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any assessment or proceedings other than those in relation to which the declaration has been made."
16. With the enforcement of the Kar Vivad Samadhan Scheme with effect from lst September, 1998, the petitioner became eligible to file a declaration before the designated authority declaring the disputed tax arrears and the disputed interest and disputed penalty, if any.
17. Indirect tax enactment has been defined in section 87(i) of the Finance Act to mean the Customs Act, 1962, or the Central Excise Act, 1944 or the Customs Tariff Act, 1975, or the Central Excise Tariff Act, 1985 or the Relevant Act, and includes the rules and regulations under the enactment. Relevant Act has been defined in section 87(1) to mean an Act specified in the schedule to the Kar Vivad Samadhan Scheme.
18. u/s 88(f)(i) and 88(f)(ii) of the Finance Act, tax arrear under an indirect tax enactment could be settled at 50% of the fine, penalty or interest and 50% of the disputed arrears of tax. In this case, there is admittedly no disputed fine, penalty or interest.
19. The petitioner duly filed a declaration in terms of the Kar Vivad Samadhan Scheme with the designated authority, that is, the Commissioner of Central Excise, declaring tax arrears of Rs.18,64,40,549/-. In the declaration the settlement amount was shown at 50% of the aforesaid amount, that is, Rs.9,32,20,275/-.
20. At the request of the Revenue authorities, the petitioners furnished diverse books and documents including a copy of the latest Balance Sheet. In the Balance Sheet provision for Rs.1,46,15,000/- had been made towards contingent tax liability as on 31st March, 1998.
21. The aforesaid amount shown in the Balance Sheet was apparently towards contingent sales tax liability to meet any claim that might be raised by the Sales Tax authorities, on the parity of reasoning that gave rise to the claims on account of Central Excise duty.
22. The Commissioner of Central Excise, however, issued a certificate, adding the aforesaid contingent tax liability to the disputed tax arrears disclosed by the petitioner and claimed 50% of the enhanced amount. The amount claimed was Rs.9,82,40,482/-.
23. The Kar Vivad Samadhan Scheme provides for settlement of disputes, with regard to taxes, duties and/or levies under the enactments specified in section 88 read with sections 87(j) and 87(1) of the Finance Act, 1998 and the Schedule to the Scheme. The Scheme does not cover any sales tax enactments, as argued by Dr. Pal appearing on behalf of the petitioner.
24. Under the Kar Vivad Samadhan Scheme, the petitioner was entitled to settle tax arrears, that is, the amount of all duties, cesses, interest, fine or penalty determined as due and payable on 31st March, 1998 under any indirect tax enactment covered by the said Scheme, but remaining unpaid as on the date of making the declaration u/s 88 of the Finance Act, or the amount of all duties, cesses, interest, fine or penalty which constituted the subject matter of a demand notice or a show cause notice issued before 31st March, 1998 under any indirect tax enactment covered by the said Scheme, but remaining unpaid on the date of the declaration u/s 88 of the Finance Act. Such tax arrears could finally be settled by payment of 50% thereof.
25. Immediately on receipt of the certificate, the petitioner protested against inclusion therein of Rs.1,40,00,450/�representing contingent sales tax liability. The petitioner, however, paid the entire amount demanded, to avoid losing the benefit offered under the scheme.
26. After payment, the petitioner made an application for amendment of the certificate and prayed for refund of the excess amount of Rs.50,20,297 being the 50% of the contingent sales tax liability of Rs.1,40,00,450.
27. Several reminders were also given by the petitioner but to no effect. In the aforesaid circumstances, the petitioner filed a writ petition in this Court being W.P.1185 of 2000. The said writ petition was disposed of by an order dated 18th August, 2001, the relevant part whereof is extracted hereinbelow:
"Accordingly, the petitioner duty filed Form No.1B being a declaration u/s 89 of the Finance (No.2) Act, 1998 in respect of such Kar Vivad Samadhan Scheme, 1998 declaring an amount of Rs.18,64,40,549/- and thereafter paid 50% of the said amount to avail the said Scheme. Thereafter the petitioner was informed by the authorities that the petitioner has no pay further a sum of Rs.1 lakhs crore being the sum due under the head "Sales-Tax" and the petitioner was directed to pay 50% of the amount of the certificate issued by the said authorities being a sum of Rs.19.64,91,000/-. Since the last date for availing of the said Scheme of 1998 was 31.3.1999 the petitioner duly paid the said sum as directed by the said authorities although the said authorities are not entitled to ask for the said amount, on account of sales-tax from the petitioner or to include the same to bring the petitioner under the said scheme. It further appears that although the said amount was paid by the petitioner, the said authorities came to such a conclusion without any reason, whatsoever and accordingly, the petitioner has prayed before this Court that the amount as deposited in excess by the petitioner to be refunded by any said authorities to the petitioner.
Accordingly, it would be proper for me to direct the said authorities to give a hearing to the petitioner in respect of such amount as claimed by them, which is to be refunded to the petitioner, since the said amount does not come within the purview of the said Kar Vivad Samadhan Scheme, 1998. Since there is no designated authority as submitted by Mr. Roychowdhury appearing for the respondent, if would be proper for me to direct the Commissioner of Central Excise, Calcutta-1; who at that point of time acted as the designated authority to give a hearing to the petitioner and to pass a reasoned order within six weeks from the date of communication of this order and shall communicate his order to the petitioner within fortnight thereafter."
28. Pursuant to the aforesaid order, the petitioner made a representation dated 17th August, 2001, to the Commissioner of Central Excise. The aforesaid representation was followed by another representation dated 3rd October, 2001.
29. By an order No.cc/Kol-1/No-40/2001 dated 10th October, 2001, which is impugned in this writ application, the Commissioner of Central Excise rejected the claim of the petitioner for refund of Rs.50,20,207. The reasoning as contained in the order impugned is extracted hereinbelow:
"Further when the sale price of related person is basis, the excise duty and sales tax, as per section 4(4)(d)(ii) are to be excluded from the gross sale price, this is with reference to the judgment of Hon''ble Tribunal in the case of
In view of the above I would like to mention that in the instant case, the sale tax paid or payable by the assessee on account of selling of their goods to the brand name owners is not the sale in terms of section 4(1) 1(a), rather in the instant case:
Sale is made in terms of section 4(1)(a)(iii), hence the abatement on account of sales tax would be from the wholesale price i.e. the price received by the assessee''s buyers (Brand name owners) on re-sale of the goods, therefore the assessee''s claim for abatement of sales tax paid from the price of the goods being sold by them to their customers i.e. the brand name owners of the goods, is not sustainable in law therefore abatement is not permissible.
Coming to the point no.(ii) I would like to mention that in the instant case the Designated Authority issued the certificate of intimation u/s 90(1) of the Finance (No.2) Act 1998 (Kar Vivad Samadhan Scheme 1998) intimating the said assessee that on verification the total tax arrear came to Rs.19,64,80,964.00 and the amount determined as payable by them u/s 88(f) of the Finance (No.2) Act 1998 is Rs.9,82,40,482.00 and directed the assessee (declarant) to make payment of the sum payable within thirty days from the date of the certificate.
Though the assessee disputed the amount so determined as tax arrear but they deposited the amount of Rs.9,82,40,482.00 under TR-6 challan No.560 dated 17.3.99 and received the final certificate from the Designated Authority u/s 90(2) of the Finance (No.2) Act 1998 (KVSS 1998).
In the above context I would like to mention that though the Designated Authority determined the tax arrear u/s 90(1) of the said Act, it was not mandatory for the assessee to deposit the amount so determined, if there had been any dispute about the determination of tax arrear rather they could have kept the issue alive before the proper forum. But as it was known to the assessee that they were going to get a great relief of burden of tax liability as well immunity from the imposition of penalty and interest, they took the full advantage of the scheme i.e. KVSS 1998 and keeping a dispute over the matter wisely, so that they could get the benefit even after getting greater benefit.
I would further like to mention that the benefit of sales tax which is claimed by the said assessee is not permissible under law as discussed supra and at the same time the amount Rs.50,20,207/- on the sales tax account neither paid by them nor at the time of hearing they could produce any documentary evidence for such payment towards Sales Tax.
Moreover, u/s 90(3) of the Finance (No.2) Act 1998 (KVSS 1998) provides that "Every Order passed under sub-section (1) determining the sum payable under the scheme shall be conclusive as to the matters stated therein and no matter covered by such order shall be re-opened in any other proceedings."
Further, I would like to mention that in the Finance (No.2) Act 1998 (KVSS 1998) there is no provision to refund any amount which has been settled under the said Act. Every particular case should be dealt under the provisions of the said particular Act only, as there is no provisions in the said Act for refunding any amount, being the creature of statute, the Commissioner of Central Excise can not act beyond the provision of statute."
30. It is a matter of record that the Central Excise authorities had claimed additional excise duty of Rs.18,64,40,549/- from the petitioner. The petitioner was thus, in terms of the Kar Vivad Samadhan Scheme entitled to settle the dispute at 50% of the aforesaid amount of Rs.18,64,40,549/- that is, at Rs.9,32,20,275/-.
31. Admittedly, the designated authority had added contingent liability of Rs.1,40,00,450/- to the claim on account of excise duty and the petitioner had been required to pay 50% of the total amount. In other words, the petitioner has had to pay about Rs.50,20,207/- in excess.
32. Mr. Swapan Datta appearing on behalf of the Central Excise authorities submitted that a certificate was final and binding and not liable to be questioned.
33. In support of his aforesaid submission, Mr. Datta referred to section 90(3) of the Finance Act, 1998 which provides that every order u/s 90(1) determining the sum payable under the Scheme is to be conclusive as to the matters stated therein and no matter covered by such order might be re-opened in any other proceeding under the direct tax enactment or indirect tax enactment or under any law, for the time being in force.
34. Mr. Datta next argued that the amount paid by the petitioner was in any case not refundable in view of section 93 of the Finance Act, 1998. Mr. Datta further argued that it was open to the petitioner not to settle the dispute at the enhanced amount demanded by the Commissioner of Central Excise. The petitioner could have chosen to pursue its case in Court instead. Having opted to pay 50% of the amount claimed in the Certificate, the petitioner could not demand refund of the alleged excess payment.
35. The arguments of Mr. Datta are, with respect, not sustainable in law. Once a scheme for settlement of disputes is announced, the Revenue authorities are bound to settle the disputes in terms of the scheme so announced. The scheme cannot be diluted, defeated or frustrated by any illegal demands.
36. Disputed tax arrears have to be computed in the manner provided in the Scheme. In case of an indirect tax enactment like the Central Excise Act, 1944, tax arrear would mean any duty, cess, interest, fine or penalty determined as due and payable under the enactment as on 31st March, 1998, but remaining unpaid on the date of the declaration u/s 88 or duty, cess, interest, fine or penalty which constitutes the subject matter of a demand notice or a show cause notice issued on or before 31st March, 1998 and remaining unpaid on the date of declaration u/s 88.
37. The Kar Vivad Samadhan Scheme might be open to criticism, for giving an advantage to those who had withheld payment of taxes, over those who had cleared taxes under protest, subject to the outcome of their litigation. The Scheme has perhaps enabled numerous, dishonest assessees to avoid arrears of taxes running into lakhs and crores.
38. Be that as it may, the Kar Vivad Samadhan Scheme had been framed by legislative enactment. The designated authority had no power or authority or jurisdiction to modify the Kar Vivad Samadhan Scheme.
39. As on 31st March, 1998, there was no determination of liability, demand or show cause in respect of Rs.1,40,00,450/- added to the Certificate in addition to the amount declared by the petitioner. Furthermore, under the Kar Vivad Samadhan Scheme, there could be no question of settlement of any sales tax arrears.
40. Section 90(3) of the Finance Act, 1998, provides that every order of the designated authority under sub-section (1), determining the sum payable under the scheme shall be conclusive as to the matters stated therein, and no matter covered by such order shall be re-opened in any other proceeding under the direct tax enactment or indirect tax enactment or any other law for the time being in force.
41. The argument of Mr. Datta that issuance of a certificate determining the sum payable under the Scheme in itself puts a stamp of finality to the matters stated therein and no matter covered by the certificate can even be reopened, is not legally sustainable.
42. The section has to be read as a whole. As rightly argued by Dr. Pal the second proviso to section 90(1), empowers the designated authority to amend the certificate for reasons to be recorded in writing.
43. There can be no question of the certificate u/s 90(1) assuming conclusiveness, until it is accepted and payment in terms thereof has been made. In this case, the petitioner protested against the inclusion of the amount of contingent sales tax liability, but made payment without prejudice, to avoid losing the benefit of the Scheme. The certificate is apparently amendable in view of the second proviso referred to above.
44. An order u/s 90(1) may not, in view of section 90(3) be reopened in any other proceedings section 90(3) does not, however, bar the review and/or amendment of an erroneous order in the same proceedings.
45. In any case, section 90(3) cannot and does not make an order u/s 90(1), that is not in accordance with the Scheme, immune from judicial review. The right of judicial review can never be curtailed and/or taken away.
46. A certificate u/s 90(1) is conclusive in the sense, that a settlement in terms thereof is binding on the department as well as the assessee. The department may not claim the amount that has been waived under the scheme, by initiation of fresh proceedings. Similarly, an assessee who settles a dispute under the Kar Vivad Samadhan Scheme cannot later resile from the settlement and reopen his proceedings, to take advantage of subsequent favourable departmental orders and/or judicial pronouncements in similar cases.
47. Section 90(3) can have no application to a patently wrongful claim, a claim which is without jurisdiction. The Central Excise authorities, in the instant case, have no jurisdiction to enforce payment of or to settle any sales tax dues.
48. The Kar Vivad Samadhan Scheme does not cover any sales tax dues payable to the State Government. If the certificate which included contingent tax liability were to be treated as sacrosanct and left untouched, the assessee might contest claims towards sales tax by reference to the certificate and thereby avoid sales tax liabilities not covered by the Kar Vivad Samadhan Scheme. This cannot be permitted.
49. The writ petition thus succeeds.
50. The impugned order is set aside and quashed.
51. The designated authority is directed to amend the certificate by excluding the amount which represents contingent sales tax liability in respect of the goods in question. Such amendment shall be carried out within six weeks from the date of communication of this order.
52. The petitioner shall be entitled to refund of 50% of the sales tax amount. The refundable amount may, however, be treated as advance tax and adjusted against future dues of the petitioner to the Excise Authorities.
