Maintaining that no law would compel a person to do the impossible, the Supreme Court directed the commissioner, central goods and services tax (CGST) to accept an application and allow the benefit of the Vivad Se Vishwas (VSV) scheme to a company. The apex court also set aside the order passed by the Allahabad High Court (HC). Shekhar Resorts Ltd failed in making the necessary tax payment under the scheme due to a moratorium and it was denied the benefits of the scheme by the tax authority.
In an order passed earlier this month, a division bench of justice MR Shah and justice BV Nagarathna, says, "...as the appellant (Shekhar Resorts) was not in a position to deposit the settlement amount at the relevant time, more particularly on or before 30 June 2020 due to legal impediment and the bar to make the payment of settlement amount in view of the mortarium under the Insolvency and Bankruptcy Code (IBC), and as it is found that the appellant was otherwise entitled to the benefit under the scheme as form no1 submitted by the appellant has been accepted, form no3 determining the settlement amount has been issued, the HC has erred in refusing to grant any relief to the appellant as prayed."
The direct tax Vivad Se Vishwas Act introduced a dispute resolution scheme, which was applicable to all appeals and petitions filed by the taxpayers or the income-tax (I-T) department, pending until 31 January 2020, before any appellate forum. The scheme offered a complete waiver of interest and penalty if the taxpayer agreed to pay the disputed tax amount by 31 March 2020. It was further extended till 30 June 2020.
The SC bench observed that in this case, Shekhar Resorts was unable to make the payment due to the legal impediment and the bar to making the payment during the period of the moratorium given the provisions of the IBC (insolvency and bankruptcy code).
"In a given case it may happen that a person who has applied under the scheme and who was supposed to make payment on or before 30 June 2020, became seriously ill on 29 June 2020 and there was nobody to look after his affairs and therefore he could not deposit the amount; such inability was beyond his control and thereafter, immediately on getting out of sickness he tried to deposit the amount and/or approached the court - can the court close its eyes and say that though there may be valid reasons and/or causes for that person’s inability to make the payment, still no relief can be granted to him? There may be extra ordinary cases which are required to be considered on facts of each case. The Courts are meant to do justice and cannot compel a person to do something which was impossible for him to do," the apex court says.
In its order, the HC observed that in the exercise of powers under Article 226 of the Constitution of India, it could not extend the period under the scheme.
The bench of justice Shah and justice Nagarathna, however, says, that while the HC cannot extend the period under the scheme, it could have considered the plea for the remedial measure. "...the present case is not a case of extension of the scheme by the HC. It is a case of taking remedial measures...it is a case where the appellant was unable to make the payment due to the legal impediment..."
On 1 September 2019, the Union government introduced the Vivad Se Vishwas scheme. The last date for applying under the scheme was 30 December 2019. On 27 December 2019, Shekhar Resorts, a unit of Hotel Orient Taj, submitted an application in form no1. On 25 February 2020, the company was issued a form no3 and asked to pay the settlement dues on or before 25 March 2020. In view of the COVID-19 pandemic, the Union government extended the time up to 30 June 2020.
However, even before the scheme came to be introduced, Shekhar Resorts was subjected to proceedings under IBC which commenced on 11 September 2018 when the national company law tribunal (NCLT) admitted the application under Section 7 of the IBC. Thus, the moratorium under the IBC commenced on 11 September 2018.
On 4 June 2019, the committee of creditors (CoC) approved the resolution plan for the company. On 24 July 2020, NCLT approved the resolution plan of Shekhar Resorts. The moratorium under IBC continued till that day.
Under the provisions of IBC, no payment could have been made during the period of moratorium. It means Shekhar Resorts was statutorily restrained or debarred from making any payment. There was statutory disability on the part of the company in making the payment during the moratorium. If it had made any payment during the period of moratorium, Shekhar Resorts would have committed a breach of the provisions of IBC.
Therefore, SC says, it was impossible for Shekhar Resorts to make any payment during the period of moratorium. Immediately on the moratorium coming to an end, the appellant-resolution professional and the successful resolution applicant approached the authority requesting them to accept the settlement amount under the scheme as per form no3. However, Shekhar Resorts' request was rejected by the commissioner.
Since the company could not obtain permission from the tax authority for payment of the dues post the lifting of the moratorium, it approached the high court. However, the Allahabad HC dismissed the petition stating that it will not issue a direction contrary to the scheme and that the relief sought cannot be granted as the designated committee under the scheme did not exist.
However, the apex court pointed out a circular issued by the central board of indirect taxes and customs (CBIC), which says in a case where the HC or courts have passed an order setting aside the rejection of the claim under the scheme after 30 June 2020, the applications can be processed manually.
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 bench stated.
(Civil Appeal No8957 of 2022 Date: 5 January 2023)