06 January 2023

Sabka Vishwas (LDR) Scheme – Non-payment of settlement amount before stipulated date when not fatal

In an interesting case involving intersection of insolvency laws with a tax settlement scheme, the Supreme Court of India has on 5 January 2023 allowed assessee’s appeal against the High Court decision dismissing assessee’s writ petition which had sought direction to the Revenue department for consideration of the case of the assessee under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (‘Scheme’).

The High Court had declined to interfere in the dispute where the settlement amount under the Scheme could not be paid by the assessee before 30 June 2020 (last date for such payment) due to the legal moratorium imposed upon the company under the provisions of the Insolvency and Bankruptcy Code, 2016 (‘IBC’).

Allowing the appeal in Shekhar Resorts Limited v. Union of India, the Apex Court observed that it was not disputed that the assessee was entitled to the benefit of the settlement under the Scheme and that there was statutory disability on the part of the appellant in making the payment during the moratorium. The Court also observed that if the assessee had made any payment during the period of moratorium, it would have committed breach of the provisions of the IBC.

The Supreme Court in this regard noted that according to various precedents, no party shall be left remediless, and no law would compel a person to do the impossible. It was hence of the view that the assessee could not be punished for not doing something which was impossible for it to do.

The Apex Court though concurred with the views of the High Court that a High Court cannot, in exercise of powers under Article 226 of the Constitution of India, extend the period under the Scheme, 2019, it was of the view that it is not a case of extension of the Scheme but a case of taking remedial measures.

Another ground as taken by the High Court while dismissing the petition, that the Designated Committees are not in existence after the stipulated date, was also rejected by the Supreme Court. The Court in this regard noted that CBIC has issued a circular that in a case where the High Court have passed an order setting aside the rejection of the claim under the Scheme after 30 June 2020, the applications can be processed manually. It also noted that in many cases the High Courts have remanded the matter to the Designated Committees which consist of the officers of the Department and the applications thereafter are processed manually.

The Revenue department was thus directed to appropriate the amount towards settlement dues under the Scheme and issue a discharge certificate to the assessee.

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