S. 124 of Finance Act, 2019 Not Violative of Article 14: Punjab & Haryana High Court

The Punjab and Haryana High Court has upheld the constitutional validity of Sections 124(2) and 130(2) of the Finance Act, 2019, which deal with the ‘Vivad se Vishwas Scheme’ (VSV Scheme), dismissing the contention that the said provisions were violative of Article 14 of the Constitution of India since they deny refund to the assessee/ declarant even if the amount already deposited by it exceeds the amount payable under the Scheme. The bench of Justices Tejinder Singh Dhindsa and Pankaj Jain remarked that the legislature, in order to achieve the objective of encashing the disputes without creating liabilities, has repeatedly reiterated the condition that no refund can be granted to the declarant/ assessee under the Scheme. Holding that Sections 124 and 130 of the Finance Act have a close nexus with the objective sought to be achieved by the Act, the Court added that the ‘tests of vice of discrimination’ in a taxing law is less rigorous. The petitioner, M/s Schlumberger Asia Services Ltd, claimed to have deposited an amount under protest with respect to a show cause notice issued by the Service Tax Department for the relevant financial years. During the pendency of the appeal filed by the petitioner before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), challenging the service tax liability imposed on the petitioner, the Union of India promulgated the Finance Act, 2019 notifying the ‘Vivad se Vishwas Scheme’. The petitioner filed the requisite declaration under the Scheme for availing the benefit of the Scheme. Seeking adjustment of the amounts already paid by the petitioner under protest, the petitioner filed a writ petition before the Punjab and Haryana High Court. The petitioner sought refund of the excess amounts already paid by it. The petitioner also challenged the constitutional validity of Sections 124(2) and 130(2) of the Finance Act, 2019, contending that they were discriminatory in nature. The petitioner, Schlumberger Asia Services, argued before the High Court that, while computing the amount payable under the Scheme, Section 124(2) only allows adjustment/ deduction of pre-deposits made during the appellate proceedings or of the deposits made during an enquiry, investigation or audit. However, any amount deposited other than by way of the said pre-deposit/ deposit, is not qualified for adjustment/ deduction, it averred. Further, as per the proviso to Section 124(2) and Section 130(2) of the Finance Act, the declarant shall not be entitled for refund of any excess amount paid by it, it argued. Thus, the petitioner averred that the provisions contained in Sections 124(2) and 130(2) breed hostile discrimination since they only benefit assessees who have deposited/ pre-deposited the amounts, as stipulated, and not assessees like the petitioner, who are contesting the demand after having deposited the same under protest. The petitioner thus claimed that the said provisions were violative of Article 14 of the Constitution of India. The Union of India (respondent) submitted before the Court that as per the settled proposition of law, the legislature enjoys wide latitude in taxation statutes and the same should not be subjected to the minute gravities of Article 14 of the Constitution of India. It added that the Scheme is optional in nature and there is no compulsion for an assessee to opt for the same. Section 124 (2) of the Finance Act, 2019 provides that any amount paid as pre-deposit at any stage of appellate proceedings under the indirect tax enactment or as deposit during the enquiry, investigation or audit, shall be deducted while computing the amount payable by the declarant/ assessee under the ‘Vivad se Vishwas Scheme’. However, the proviso to Section 124 (2) provides that the assessee/declarant shall not be entitled to any refund if the amount of pre-deposit or deposit already paid by the declarant, exceeds the amount payable by the declarant under the Scheme. Section 130 (2) of the Finance Act also stipulates the same. Referring to the relevant provisions of the Finance Act, 2019, the Court remarked that the legislature in its own wisdom has repeatedly reiterated that the declarant under the Scheme shall not be entitled for any refund, irrespective of the fact that the amount of pre-deposit or deposit already paid by the declarant exceeds the amount payable under the Scheme. Rejecting the petitioner’s contention that Section 124 of the Finance Act, 2019 violates Article 14 and breeds hostile discrimination, the Court said, “Trite it is wooden equality is neither feasible nor the mandate of Part-II of the Constitution of India.” The bench further held that though the Finance Act, 2019, has been enacted with reference to a fiscal statute, it does not create or exempt levy of tax. “It has been enacted with the objective to reduce legacy litigation involving disputed...

S. 124 of Finance Act, 2019 Not Violative of Article 14: Punjab & Haryana High Court

Parina Katyal

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