The Bombay High Court has held a written recovery notice stating a service tax demand of ₹44.28 lakh can establish quantification under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, even when the notice is addressed to the taxpayer’s bank rather than the taxpayer.
The Bench of Justice M. S. Karnik and Justice Sandesh D. Patil found that the tax department’s notice directing the firm’s bank to create a lien on its account, expressly stated an outstanding service tax liability of ₹44,28,311. The amount had therefore been quantified before the Scheme’s June 30, 2019 cut-off date.
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The dispute arose from a service tax investigation concerning the petitioner/assessee. During the investigation, officers visited its premises, recorded statements, sought records and seized documents.
The department directed Kotak Mahindra Bank to create a lien on the firm’s account under Section 87(b) of the Finance Act, 1994. In that communication, it stated that ₹44,28,311 was outstanding as service tax. The department also directed a debtor of the firm to deposit money due to petitioner with the government, stating the same liability.
After the Sabka Vishwas Scheme was introduced, the petitioner filed an electronic declaration on December 30, 2019, showing ₹44,28,311 as its tax dues. The amount payable under its declaration was ₹13,28,493.30. The designated committee rejected the declaration in February 2020 on the ground that the liability had not been quantified during the investigation.
The petitioner challenged that rejection. In an earlier round of litigation, the High Court sent the matter back for a fresh decision on eligibility. Following a personal hearing, the committee again rejected the declaration by an order dated May 4, 2022. The firm challenged that order in the present petition.
The department argued that the March 2019 communication could not establish quantification because it was addressed to a bank, not petitioner. It also contended that the firm had not admitted the amount and that interest remained to be calculated.
The High Court examined Section 121(r) of the Finance Act, 2019, which defines “quantified” by reference to a written communication of the amount of duty payable under an indirect tax enactment. It also referred to CBIC Circular No. 1071/4/2019-CX.8, which explained the types of written communications that could show quantification during an enquiry, investigation or audit.
The Bench held that the March 5, 2019 notice clearly specified the outstanding service tax of ₹44,28,311. Since the notice preceded June 30, 2019, the liability had been quantified within the required time.
The Court rejected the argument concerning unquantified interest. For the purpose of Section 121(r), the material point was that the department had communicated the amount of duty payable in writing. The fact that the communication went to the bank also made no difference: its effect fell on the petitioner because it created a lien on the firm’s account.
The Bench relied on its earlier decision in Landmark Associates v. Union of India, which treated a recovery notice issued under Section 87(b) before the cut-off date as evidence of quantification under the Scheme.
The High Court granted the relief sought in the specified prayer clauses. It made no order as to costs. The ruling confirms that a department-issued recovery communication can establish quantification for the Scheme when it states the service tax amount before the cut-off date, even if sent to a third party for recovery.
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