No Bar In Assessee Seeking Restoration Of Appeal After Being Unsuccessful In Availing Amnesty Scheme: Supreme Court

Introduction

The Supreme Court of India, in a significant ruling delivered on September 1, 2023, clarified that taxpayers retain the right to seek restoration of withdrawn appeals if they fail to successfully avail benefits under amnesty schemes. The judgment in PM Paul vs The State Tax Officer & Ors [1] addressed a critical question about the interplay between statutory appeal rights and amnesty schemes designed to settle legacy tax disputes. This decision has far-reaching implications for assessees who participate in dispute resolution mechanisms such as the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, and various state-level amnesty programs. The court’s reasoning centered on a fundamental principle: since appeals constitute a statutory remedy under tax legislation, the mere withdrawal of an appeal as a precondition for participating in an amnesty scheme cannot permanently foreclose an assessee’s right to judicial review. In other words, taxpayers are entitled to restoration of appeal after amnesty scheme failure. This interpretation protects taxpayers from being left without any remedy when circumstances prevent them from successfully completing amnesty proceedings despite their good faith efforts to resolve disputes.

Factual Matrix of the Case

The appellant in this matter was a registered dealer under the Kerala Value Added Tax Act, 2003 [2]. The Sales Tax Officer had cancelled the appellant’s registration based on an assumption that the business had permanently closed, as evidenced by the absence of transactions and non-renewal of dealer registration. Additionally, the appellant faced an assessment order imposing tax liability amounting to Rs. 8,32,753. Both these orders were challenged before the Joint Commissioner (Appeals) through separate appeal proceedings.

While these appeals remained pending before the appellate authority, the Government of Kerala introduced an amnesty scheme aimed at settling outstanding tax arrears. Seeking to benefit from the relief provisions offered under this scheme, the appellant withdrew the pending appeals as required by the scheme’s conditions. However, despite initiating the amnesty process, the appellant could not successfully complete the settlement due to inability to pay the determined amount within the prescribed timeline. This failure to obtain amnesty benefits left the appellant in a precarious position, having relinquished the appeal remedy without securing the intended settlement.

The appellant subsequently filed an application before the Joint Commissioner (Appeals) seeking restoration of the withdrawn appeals so that the merits of the original tax disputes could be adjudicated. The appellate authority dismissed this restoration application, stating that no valid grounds existed for reviving appeals that had been voluntarily withdrawn. The appellant then approached the Kerala High Court through a writ petition challenging this refusal, but the Single Judge dismissed the petition holding that restoration could not be sought after unsuccessfully attempting to avail amnesty benefits. An intra-court appeal before the Division Bench of the Kerala High Court also met with rejection, leading the appellant to file a special leave petition before the Supreme Court.

Legal Framework Governing Amnesty Schemes

The Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 was introduced through the Finance (No. 2) Act, 2019 [3] to address the massive backlog of pending disputes relating to Central Excise and Service Tax that had been subsumed under the Goods and Services Tax regime. The scheme operated from September 1, 2019 to December 31, 2019, providing taxpayers with substantial relief through reduced duty payments and complete waiver of interest and penalties.

Under Section 125 of the Finance (No. 2) Act, 2019, eligible persons could file declarations for cases involving show cause notices, pending appeals, amounts in arrears, or matters under investigation where duty had been quantified before June 30, 2019. The scheme mandated that declarants withdraw any pending appeals or writ petitions before higher courts as per Section 127(7) of the Act. This requirement created the potential for assessees to lose their appeal rights if they subsequently failed to complete the amnesty process.

The designated committee established under Section 126 of the Act was responsible for verifying declarations and determining the amount payable by the declarant. Upon full payment of the determined amount and submission of proof of withdrawal of appeals, the committee would issue a discharge certificate in Form SVLDRS-4 under Section 127(8) of the Act [4]. This discharge certificate provided immunity from penalties, interest, and prosecution, representing the final settlement of the disputed tax liability.

Similarly, various state governments have implemented their own amnesty schemes for settling arrears under state tax legislations. The Kerala amnesty schemes, including those introduced through the Kerala Finance Acts, have provided opportunities for dealers to settle outstanding demands under the Kerala General Sales Tax Act, 1963, Kerala Value Added Tax Act, 2003, and Central Sales Tax Act, 1956 by paying principal amounts with waivers of interest and penalties [5].

Supreme Court’s Reasoning and Analysis

The Supreme Court bench comprising Justice BV Nagarathna and Justice Ujjal Bhuyan examined the fundamental nature of appeal rights in tax matters. The court observed that the appellant had withdrawn the pending appeal with the specific intention of seeking benefits under the state amnesty scheme. The withdrawal was not an abandonment of the challenge to the tax assessment but rather a procedural step necessitated by the scheme’s conditions.

The court emphasized that when an assessee unsuccessfully attempts to avail amnesty benefits despite fulfilling initial requirements, denying restoration of the withdrawn appeal would effectively eliminate both remedies simultaneously. This would leave the taxpayer without any forum to contest what might be an erroneous tax demand. Such an outcome would be contrary to principles of natural justice and the legislative intent behind providing statutory appeal mechanisms in tax laws.

The judgment recognized that appeal is a creature of statute, and when legislation provides for appellate remedies against assessment orders, these rights serve an essential function in the tax administration system. The Kerala Value Added Tax Act, 2003, like other fiscal statutes, contains elaborate provisions for appeals before the Joint Commissioner (Appeals), Tribunal, and higher courts. These hierarchical appeal mechanisms exist to correct errors in assessment and ensure that tax demands conform to legal requirements.

The court noted that amnesty schemes are designed to provide an alternative dispute resolution mechanism that benefits both the revenue and the taxpayer by reducing litigation and expediting revenue collection. However, these schemes operate on a voluntary basis, and their terms must not be construed in a manner that permanently forecloses statutory remedies when the voluntary resolution fails through no fault amounting to abuse of process by the taxpayer. The withdrawal of appeals as a precondition for participating in amnesty schemes should be understood as conditional upon successful completion of the amnesty process.

Drawing on established jurisprudence regarding the right to appeal, the Supreme Court held that appellate forums must adopt a pragmatic approach when assessing restoration applications filed by taxpayers who have made genuine attempts to resolve disputes through amnesty mechanisms. The court directed that in such circumstances, the appellate authority should restore the withdrawn appeal and proceed to hear it on merits, allowing the taxpayer to present arguments on the substantive tax issues originally challenged.

Implications for Sabka Vishwas Scheme Participants

This judgment has significant ramifications for participants in the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and similar tax settlement initiatives. Many assessees who filed declarations under the scheme were required to withdraw pending appeals before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), High Courts, and the Supreme Court as mandated by the scheme rules. For various reasons, including financial constraints or disputes about the amount determined by designated committees, some declarants could not complete the settlement process.

The Supreme Court’s ruling provides these assessees with a pathway to revive their original appeals and contest the tax demands through regular appellate channels. This is particularly important given that the designated committees established under the Sabka Vishwas Scheme determined payable amounts based on their assessment of documents and records, and these determinations were not always in agreement with the declarants’ own calculations. When such disagreements could not be resolved within the scheme’s framework, the Supreme Court’s interpretation ensures that assessees are not left without recourse.

Furthermore, this decision addresses situations where assessees faced practical difficulties in making payments within the prescribed timeline. The scheme required payment within thirty days of receiving the statement in Form SVLDRS-3, and many taxpayers found this period insufficient to arrange substantial funds, especially for large tax demands. The judgment recognizes that failure to complete the amnesty process due to such practical constraints should not result in permanent loss of the constitutional right to appeal against potentially unlawful tax demands.

The principles established in this case also apply to discharge certificate revocation scenarios. In some instances, discharge certificates issued under the Sabka Vishwas Scheme were later revoked by authorities alleging suppression of facts or provision of incorrect information by declarants [6]. When such revocations occurred, the question arose whether assessees could seek restoration of their withdrawn appeals. The Supreme Court’s reasoning supports the position that restoration should be permitted in these circumstances as well, since the ultimate failure of the amnesty process places the assessee back in the original dispute position.

Regulatory Framework and Procedural Requirements

The Finance (No. 2) Act, 2019 established a detailed procedural framework for the Sabka Vishwas Scheme through its provisions in Chapter V. Section 125 defined eligibility criteria, excluding persons who had been convicted for offenses under indirect tax enactments, those whose appeals had undergone final hearing before June 30, 2019, and cases involving erroneous refunds. The section also specified that separate declarations were required for each show cause notice or appeal, as clarified through subsequent circulars issued by the Central Board of Indirect Taxes and Customs [7].

Rule 8 of the Sabka Vishwas (Legacy Dispute Resolution) Scheme Rules, 2019 prescribed the manner of withdrawal of appeals and writ petitions. Declarants were required to file appropriate applications before the respective forums – CESTAT, High Courts, or Supreme Court – and submit proof of such withdrawal to the designated committee. The committee would only issue the discharge certificate after satisfying itself that all pending proceedings had been unconditionally withdrawn.

This procedural requirement created a temporal gap where declarants had already withdrawn their appeals but had not yet received the discharge certificate because they could not complete the payment obligation. The Supreme Court’s judgment addresses this gap by allowing restoration of appeals when the amnesty process breaks down at any stage before final settlement.

The ruling also has implications for cases where designated committees rejected declarations on technical grounds, such as filing a single declaration for multiple show cause notices contrary to the requirement in Rule 3(2) of the scheme rules [8]. When such rejections occurred after assessees had already withdrawn their appeals, the Supreme Court’s reasoning supports restoration since the declarants had acted in good faith based on their understanding of the scheme provisions.

Comparative Analysis with State Amnesty Schemes

The principles articulated by the Supreme Court apply equally to state-level amnesty and settlement schemes that require withdrawal of pending appeals as a precondition. The Kerala Finance Act, 2019 and subsequent Kerala amnesty schemes contained similar provisions mandating that assessees opting for settlement must withdraw all cases pending before appellate or revisional authorities, tribunals, or courts unconditionally [9]. The schemes specified that if withdrawal was not effected within sixty days, the permission granted under the scheme would be revoked.

These stringent withdrawal requirements placed assessees in vulnerable positions when they could not ultimately complete the settlement process due to inability to pay the determined amounts or disagreements about the calculation of arrears. The Supreme Court’s judgment provides relief by establishing that the withdrawal condition should be read as being contingent upon successful completion of the settlement process, rather than as an absolute and irreversible relinquishment of appeal rights.

Other states have implemented similar amnesty programs with comparable withdrawal requirements. The judgment’s principles extend to all such schemes, creating a uniform standard across the country that protects taxpayers’ fundamental right to appeal against tax assessments. This uniformity is crucial for maintaining consistency in tax administration and ensuring that dispute resolution mechanisms do not inadvertently create situations where genuine tax controversies remain unresolved due to procedural technicalities.

Conclusion

The Supreme Court’s decision represents an important development in tax jurisprudence by recognizing the conditional nature of appeal withdrawals made in connection with amnesty scheme participation. The judgment balances the government’s interest in encouraging voluntary dispute resolution through amnesty schemes with the taxpayers’ fundamental right to challenge potentially erroneous tax assessments through statutory appellate mechanisms. By holding that restoration of appeal after amnesty scheme failure must be permitted, the court has protected assessees from being caught in a procedural limbo without any remedy.

For taxpayers who participated in the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 or similar state-level settlement programs, this ruling provides valuable guidance. Those who withdrew appeals in good faith but could not complete the settlement process due to financial constraints, procedural difficulties, or disagreements about determined amounts can now approach the relevant appellate authorities seeking restoration of their original appeals. The appellate forums are obligated to consider such restoration applications favorably and proceed to adjudicate the substantive tax disputes on their merits rather than dismissing them on the ground that the appeals were voluntarily withdrawn.

This decision reinforces the principle that access to justice cannot be denied through technical interpretations of scheme conditions that were designed to facilitate dispute resolution rather than to eliminate judicial review altogether. As tax authorities continue to introduce various amnesty and settlement initiatives to clear backlogs of pending cases, this judgment serves as an important reminder that these mechanisms must operate within the framework of constitutional and statutory protections afforded to taxpayers, including the right to appeal against assessment orders.

References

[1] PM Paul v. State Tax Officer, 2023 SCC OnLine SC 1141 (Supreme Court of India, September 1, 2023). Available at: https://www.scconline.com/blog/post/2023/09/08/no-bar-for-seeking-restoration-appeal-assessee-unsuccessful-availing-benefit-under-amnesty-scheme-sc/ 

[2] The Kerala Value Added Tax Act, 2003 (Kerala Act 30 of 2004). Available at: https://keralataxes.gov.in/wp-content/uploads/2017/08/KVAT_ACT_2014.pdf 

[3] The Finance (No. 2) Act, 2019 (Act 23 of 2019), Chapter V – Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. Available at: https://www.gstindia.biz/update_article_page.php?content_id=czoyOiI1NCI7 

[4] Sabka Vishwas (Legacy Dispute Resolution) Scheme Rules, 2019, Ministry of Finance Notification. Available at: https://taxguru.in/excise-duty/sabka-vishwas-legacy-dispute-resolution-scheme-rules-2019.html 

[5] Kerala Finance Act, 2019 – Amnesty Scheme for Settlement of Arrears: Instructions, Circular issued by Commissioner of Commercial Taxes. Available at: https://taxguru.in/goods-and-service-tax/kerala-finance-bill-2019-amnesty-scheme-settlement-arrears-instructions.html 

[6] LiveLaw, “No Bar In Assessee Seeking Restoration Of Appeal After Being Unsuccessful In Availing Amnesty Scheme: Supreme Court” (September 12, 2023). Available at: https://www.livelaw.in/supreme-court/no-bar-in-assessee-seeking-restoration-of-appeal-after-being-unsuccessful-in-availing-amnesty-scheme-supreme-court-237598 

[7] Central Board of Indirect Taxes and Customs, Circular No. 1071/4/2019-CX.8 dated August 27, 2019, on Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. Available at: https://taxguru.in/excise-duty/clarifications-sabka-vishwas-legacy-dispute-resolution-scheme-2019.html 

[8] TaxGuru, “Applicability, Eligibility, Relief, Procedure of Sabka Vishwas Scheme” (September 21, 2019). Available at: https://taxguru.in/excise-duty/applicability-eligibility-relief-procedure-sabka-vishwas-scheme.html 

[9] Government of Kerala, Kerala Amnesty Portal – Amnesty Scheme 2021. Available at: https://kvatamnesty.kerala.gov.in/ 

Authorized and Published by Vishal Davda