The Bombay High Court has held the RG Studios entitled to settle legacy service tax dispute, as lien-cum-quantification letter dated 5th March 2019 addressed to Kotak Mahindra Bank satisfied the definition of ‘quantified’ under Section 121(r) of the Finance Act, 2019. The Court clarified that a written communication under Section 87(b) of the Finance Act, 1994 creating a lien on the assessee’s bank account and quantifying the duty liability prior to 30th June 2019 constitutes a valid ‘quantification’ under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019.
The fact that the quantification letter is addressed to a third party such as a bank, rather than directly to the assessee, is immaterial where the legal effect of the communication operates on the assessee’s account, added the Court, while emphasising that non-quantification of interest does not invalidate a communication as a ‘quantification’ under Section 121(r) of the Finance Act, 2019, since the statutory requirement is only a written communication of the amount of duty payable under the indirect tax enactment.
The High Court also said that CBIC Circular dated 27th August 2019 clarifies that ‘written communication’ includes letters intimating duty demand, duty liability admitted during enquiry/investigation/audit, or audit reports, all of which satisfy the definition of ‘quantified’. Moreover, the Designated Committee’s rejection of the declaration on the ground of ineligibility was unjustified, and the assessee was entitled to the benefit of the Scheme upon fulfilling the prescribed payment conditions.
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The Division Bench comprising Justice M. S. Karnik and Justice Sandesh D. Patil noted that Section 121(r) of the Finance Act, 1994 defines ‘quantified’ as ‘a written communication of the amount of duty payable under the indirect tax enactment,” and that CBIC Circular No. 1071/4/2019-CX.8 dated 27th August 2019 clarified that such written communication would include a letter intimating duty demand, duty liability admitted during enquiry/ investigation/ audit, or an audit report.
The Court observed that the fact that the investigation was initiated against the petitioner before 30th June 2019 was not in dispute, and that the notice dated 5th March 2019 directed the Bank to create a lien under Section 87(b) of the Finance Act, 1994 on the petitioner’s account, quantifying the outstanding service tax liability at Rs. 44.28 lakhs. The Court held that from a perusal of the notice dated 5th March 2019, the amount of liability stood quantified before 30th June 2019 beyond doubt.
The contention that non-quantification of interest invalidated the quantification was rejected, holding that what is material under Section 121(r) is a written communication of the amount of duty payable under the indirect tax enactment. The Court further observed that merely because the quantification was addressed to the Bank was no ground to deprive the petitioner of the benefit of the Scheme, since the effect of the communication dated 5th March 2019, though addressed to the Bank, was ultimately on the petitioner as it created a lien under Section 87(b) on the petitioner’s account.
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Briefly, RG Studios, a partnership firm based in Mumbai, approached the Bombay High Court challenging the order passed by the Designated Committee under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, which rejected its declaration seeking settlement of pre-GST service tax disputes. For the period 1st April 2014 to 31st December 2018, the Department initiated an investigation against the petitioner under the service tax regime, recorded statements, seized documents, and issued summons for FY 2013-2014 to FY 2017-2018. On 5th March 2019, the Additional Commissioner directed Kotak Mahindra Bank, Kalbadevi to create a lien under Section 87(b) of the Finance Act, 1994 on the petitioner’s account, quantifying the outstanding service tax liability at Rs. 44.28 lakhs.
A parallel communication of the same date was also issued to M/s. Great Indian Nautanki Company Private Limited, a debtor of the petitioner, directing deposit of the amount due with the Government exchequer. The petitioner filed an electronic declaration under the Scheme declaring Rs. 44.28 lakhs as tax dues, with the amount payable under the application being Rs. 13.28 lakhs. The declaration was rejected on the ground that the amount had not been quantified during the stage of investigation. After the petitioner moved an earlier writ petition, the matter was remanded by the High Court with a direction to grant a personal hearing. The Designated Committee thereafter passed the impugned order, again rejecting the declaration on the ground of ineligibility.
