Tax Relief Restored: Bombay High Court Clarifies 'Litigation' Status in Legacy Dispute Scheme

In a significant relief for taxpayers grappling with decades-old tax demands, the Bombay High Court has clarified the classification of cases under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS). The Division Bench of Justice M.S. Sonak and Justice Advait M. Sethna ruled that cases where tax liability remains pending for re-quantification—following a remand order—must be treated under the "Litigation" category rather than as "Arrears."

A Decades-Old Dispute

The matter originated from a 1993 Show Cause Notice (SCN) issued to M/s. Unique Enterprises demanding over Rs. 39 lakhs in Central Excise duty. Over the next three decades, the case traversed through appellate authorities, culminating in a 2010 remand order by the Tribunal for "re-quantification" of duty.

Crucially, as of June 30, 2019—the cut-off date for the SVLDRS scheme—the exact duty amount remained unfinalized. While the Petitioner filed, under the "Litigation" category, for a 70% tax relief, the designated authority rejected this, forcing the case into the "Arrears" category, which only permitted a 60% relief.

The Conflict: Pending Adjudication vs. Settled Arrears

The Petitioner argued that because the Tribunal had remanded the proceedings for fresh quantification, the demand was not "finalized" and therefore qualified as active litigation. The Respondent countered, claiming that since the Petitioner had failed to challenge certain subsets of the duty amount, those portions had attained finality, justifying the "Arrears" tag.

Furthermore, a procedural hurdle emerged regarding a Rs. 10 lakh pre-deposit made by the Petitioner. The authorities initially adjusted this amount in an early declaration (Form SVLDRS-2) but later issued an unfavorable demand (Form SVLDRS-3), ignoring the prior credit—a move the Court found contradictory and lacking in application of mind.

Defining 'Litigation' Under Finance Act, 2019

The Court leaned on established precedents, including UCN Cable Network (P) Ltd. and Morde Foods Pvt. Ltd. , to differentiate between the two categories. Justice Sethna, writing for the Bench, emphasized that the distinction hinges on the finality of the duty amount.

> "A 'litigation' category case would be one wherein the amount of duty has not been confirmed and has not attained finality; whereas an 'arrears' category case would be the one where the amount of duty has been confirmed and has attained finality."

The Bench further observed: > "The Petitioner became eligible to file declaration under form SVLDRS scheme, under the Litigation category. Thus, the issue of re-quantification of such duty as demanded in the show cause notice remained pending without it being finally quantified."

Key Observations

The judgment clarifies that the SVLDRS was intended to settle, not complicate, legacy disputes. The Court noted:

• On the Remand Effect: "The Tribunal by its order of remand dated 30 December 2010 categorically kept the issue of quantification of duty and penalty open to be determined by the Commissioner."
• On Statutory Interpretation: "We are afraid that such interpretation [by the Respondent], if accepted, would render the Scheme redundant, much less unworkable."
• On Pre-deposit Credibility: "The Respondents themselves in issuing the form SVLDRS-2 on 7 January 2020 have adjusted Rs. 10 lakhs... [we] do not find ourselves in agreement with [the respondent] the Petitioner has not paid the pre-deposit."

The Verdict and Its Impact

Setting aside the disputed Form SVLDRS-3, the Court directed the authorities to re-calculate the tax liability under the "Litigation" category. The Respondents have been given a two-month window to finalize this determination.

This ruling provides crucial support for taxpayers whose cases were caught in the "remand loop" as of 2019. By reinforcing that an unquantified demand cannot be shoehorned into the "Arrears" category, the Bombay High Court has safeguarded the intended taxpayer-friendly spirit of the SVLDRS, ensuring that legacy disputes are resolved with finality rather than further litigation.