Gujarat H.C : The petitioners in this group of matters are all top executive officers working in different units of the company Apollo Tyres Ltd.

High Court Of Gujarat

Omkar S. Kanwar vs. Union Of India

Sections 1998FA(No. 2) 87(m)(ii), 1998FA(No. 2) 97,

Kar Vivad Samadhan Scheme (Removal of  Difficulties) Order, 1998, para 2

D.M. Dharmadhikari, C.J. & A.R. Dave, J.

Special Civil Appln. Nos. 4326, 5549, 5551 & 5554 to 5561 of 1999

14th November, 2000

Counsel Appeared

E. Hidayathullah with P.K. Ram & Vikram Nankani for M/s Trivedi & Gupta, for the Petitioner : Mukesh R. Shah, for the Respondent Nos. 2, 3 & 4

JUDGMENT

D.M. DHARMADHIKARI, C.J. :

The petitioners in this group of matters are all top executive officers working in different units of the company Apollo Tyres Ltd. By these petitions under Art. 226 of the Constitution of India, prayer is made to read down or interpret in favour of the petitioners the provisions of para 2 of Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998, issued by the Central Government in exercise of powers conferred by s. 97(1) of the Finance (No. 2) Act, 1998, promulgating Kar Vivad Samadhan Scheme, 1998 (hereinafter referred to as “KVS Scheme” and as the “Order of 1998” issued thereunder.

The alternative prayer made by the petitioners is for declaring the impugned para 2 of the Order of 1998, dt. 8th Dec., 1998, to be discriminatory and ultra vires Art. 14 of the Constitution of India.

The occasion to challenge the Order of 1998 issued under the KVS Scheme arose on the following legal and factual developments.

The company Apollo Tyres Ltd. was assessed to duty, cess and penalties on various exercisable articles under the provisions of Central Excise Act of 1944.

The petitioners in the present group of cases as executives and managers were also proceeded against for imposition of penalty under the Central Excise Act and rr. 173(q) and 209A of the Central Excise Rules. The objectives of promulgating KVS Scheme by Finance (No. 2) Act of 1998 are contained in Finance Minister Budget Speech of 1998, which is as under : “Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered away in pursuing a large number of litigations pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentivise honest taxpayers, enable Government to realise its reasonable dues much earlier but coupled with administrative measures, would also make the system more user-friendly. I, therefore, propose to introduce a new Scheme called “Samadhan’. The Scheme would apply to both direct taxes and indirect taxes and offer waiver of interest, penalty and immunity from prosecution on payment of arrears of direct tax at the current rates. In respect of indirect tax, where in recent years the adjustment of rates has been very sharp, an abatement of 50 per cent of the duty would be available along with waiver of interest, penalty and immunity from prosecution” Object of the Scheme is purported to be : (a) reducing litigation, (b) collecting Government revenues early, and (c) de-clogging the system legal framework whereunder lot of administrative energies is deployed in chasing tax arrears.”

As is apparent from the objectives declared in the Budget Speech of the Finance Minister, the KVS Scheme was brought on the statute book to curtail litigation, to save litigation charges of the Department and to collect revenue within a reasonable short period. A few relevant provisions of the KVS Scheme need to be noticed. Sec. 87(k) defines the words “A person” which includes both an “individual” and a “company” apart from other natural and legal persons described in other sub-clauses of cl. (k) of s. 87. Sec. 87(m) defines “tax arrears” and sub-cl. (ii) of s. 87 deals with indirect tax enactments. Sub-cl. (a) of (ii) of s. 87 states that the amount of duties, cesses, interest, fine or penalty determined as due or payable under the enactment as on 31st day of March, 1998, but remaining unpaid as on the date of making a declaration under s. 88 fall within the Scheme. Sec. 88 contains procedure for making a declaration under the Scheme with particulars in the said declaration under the Scheme with particulars in the said declaration to be furnished in accordance with s. 89 for taking benefit of the Scheme. Sec. 90 of the Scheme deals with the time and manner of payment of tax arrears. Sec. 91 provides immunity from prosecution and imposition of penalty in certain cases in respect of matters covered in the declaration made under s. 88. Sec. 97 of the KVS Scheme under which Order of 1998 came to be issued needs reproduction which contains provision conferring power on the Central Government to pass orders for removing difficulties in giving effect to the provisions of the Scheme. “97. Power to remove difficulties—(1) If any difficulty arises in giving effect to the provisions of this Scheme, the Central Government may, by order, not inconsistent with the provisions of this Scheme, remove the difficulty : Provided that no such order shall be made after the expiry of a period of two years from the date on which the provisions of this Scheme come into force. (2) Every order made under this section shall, as soon as may be, after it is made, be laid before each House of Parliament.”

8. In exercise of powers under s. 97, Order of 1998 was issued to remove difficulties in implementation of the Scheme. The Explanatory Memorandum annexed to the Order of 1998 is relevant for our purposes and provides an insight into the aim and object of the issuance of the Order of 1998. The Explanatory Memorandum reads thus : “Explanatory Memorandum Under the Kar Vivad Samadhan Scheme, 1998, announced as a part of the Union Budget, 1998, attention of the Government has been drawn to the difficulties being encountered in settlement of certain categories of cases of pending show-cause notices involving also certain co-notices against whom penal action is proposed in the same case for the alleged involvement for the irregularities committed by the principal noticee.”

9. In accordance with the objective mentioned in Explanatory Memorandum quoted above in para 2 of the Order of 1998 (quoted below) benefit of KVS Scheme by settlement of cases on 50 per cent of payment of duties and penalties as against the main noticee i.e. the company is also extended to the co-noticees i.e., chief executives, directors and managers, etc. but only at the stage of proceedings and in circumstances mentioned in the said para 2 of the Order of 1998. The relevant part including para 2 or Order of 1998 reads as under : “1.(1) This order may be called the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998. (2) It shall be deemed to have come into force on the 1st day of September, 1998. 2. Where a declaration to the designated authority has been made in respect of tax arrears in relation to indirect tax enactment for the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine of penalty which constitutes the subject-matter of a demand notice or a show-cause notice issued on or before the 31st day of March ,1998, but remaining unpaid, and pending determination on the date of making a declaration and, where, in respect of the same matter stated in the said declaration, a show-cause notice has also been issued to any other person and is pending adjudication on the date of making the declaration, then, no civil proceeding for imposition of fine or penalty shall be proceeded with against such other person and in such cases the settlement in favour of the declarant under sub-s. (1) of s. 90 shall be deemed to be full and final in respect of such other person also on whom a show-cause notice was issued on the same matter covered under the declaration.” A few additional facts concerning liability towards tax and penalty of the company as the main noticee and its executives as co-noticees are also required to be stated in brief : By show-cause notices, the petitioners were called upon to show-cause why penalty should not be levied on them under r. 173(q) and r. 209(a) of the Central Excise Rules, 1944. The company was also issued the same notice calling upon it to show cause why differential duties demanded thereunder should not be paid by the company in addition to the fines and penalties proposed therein. The petitioner filed replies to the show-cause notices. By common order dt. 10th June, 1998, the excise authority imposed penalties on the petitioners. Aggrieved by the order imposing penalties all the petitioners being executives of the company preferred appeals before the Custom, Excise and Gold Control Appellate Tribunal (CEGAT), Mumbai. The company has also preferred appeals against the orders imposing duty and penalty on it.

To get benefit of the KVS Scheme and with a view to settle their excise cases on payment of 50 per cent of the duties and penalties separate declarations were filed in each of the cases by the company as main noticee and its executives i.e., the petitioners as co-noticees. The petitioners as co-noticees during pendency of their appeals against imposition of penalty paid 50 per cent of penalty arrears to obtain waiver of the remaining 50 per cent of the arrears towards penalties. The above facts are not in dispute. What has however been stated now by the petitioners in these petitions is that such declarations were made and filed by the petitioners i.e. executives of the company with deposit of 50 per cent of dues towards penalty for waiving remaining 50 per cent, under a legal misconception. On their behalf now it is being submitted that filing of declaration and payment of 50 per cent of tax arrears, duties and penalties by the main noticee i.e., the company was sufficient, on proper interpretation of the provisions of the Scheme and the Order of 1998-to waive 50 per cent of duty and penalty against the company and dropping of all penalty proceedings and prosecutions against the co-noticees i.e., executives of the company. On behalf of the petitioner, therefore, a letter was addressed to the Designated Authority on 3rd March, 1999, stating that declaration filed by them under the KVS Scheme and deposit of 50 per cent penalty made by them individually in their cases being under a legal misconception was an action which is non est in law. It was prayed that as against the petitioners as co-noticees all the proceedings proposing imposition of penalty are liable to be dropped and the amount deposited with the declaration is liable to be refunded as a result of settlement of case against the main noticee i.e., the main company on a declaration filed with 50 per cent of the tax arrears including penalty.

Learned counsel Shri Arshad Hidayatullah appearing for the petitioner seeks extension of the benefit of the KVS Scheme to the co-noticees i.e., the petitioners by dropping all proceedings for imposition of penalty pending at the original or appellate stage on settlement of the case under the Scheme as against the main noticee on the latter’s making a declaration with payment of 50 per cent of the tax arrears.

The principal submission advanced is that keeping in view the aims and objects of the KVS Scheme, the words “civil proceedings” used in para 2 of the Order of 1998 issued by the Central Government under s. 97(1) of the Finance (No. 2) Act should be read down to include within the words “even appellate proceedings” which are nothing but continuation of the original proceedings. Very heavy reliance is placed on the decision of the Supreme Court in the case of Mathew M Thomas vs. CIT 1999 (111) ELT 4 (SC).

15. The learned counsel points out that the present petitioners in relation to their industrial units within the State of Kerala had approached the Kerala High Court for grant of similar relief of extension of KVS Scheme to them as co-noticees with a settlement of case under the KVS Scheme with the main noticee. The Kerala High Court in its Division Bench by unreported judgment in Original Petition No. 13806/99 (with other group petitions) dt. 7th March, 2000 [reported as Onkar S. Kanwar & Ors. vs. Union of India & Ors. (2001) 168 CTR (Ker) 352—Ed] allowed the petitions and granted relief to the petitioners as co-noticees of the benefit of KVS Scheme with the settlement of cases with the main noticee i.e., the company. It is submitted that the Kerala High Court has also granted relief of directing refund of amount deposited by the co-noticees under the Scheme to them. Referring to the legal dictionary meaning of the word “proceeding”, it is submitted that in legal sense it includes not only the original proceedings but all proceedings in appeal or even in writ petition.

The alternative submission made by the learned counsel on behalf of the petitioner is that if the expression ‘civil proceedings’ used in the Order of 1998 is not read down to include in it all proceedings pending in appeal or writ petition—the provisions contained in the order restricting its operation only to co-noticees who have been served with show-cause notices for imposition of penalties but not to the cases of co-noticees against whom penalties have been quantified and they are in appeal, would render the relevant provision of the order per se discriminatory and violative of Art. 14 of the Constitution of India as it would treat differently co-noticees facing penalty proceedings at different stages of the cases.

It is submitted that the Order of 1998 if not reasonably construed, as is sought to be done on behalf of the petitioners, would have the effect of discriminating cases of co-noticees by extending benefit of Scheme to cases where penalty under r. 209-A has remained unadjudicated and denying such benefit where notice for penalty under r. 209-A of the Rules has culminated into adjudication of penalty irrespective of date on which the said notices for penalty have been issued. It is submitted that it is necessary to avoid such an absurd and anomalous consequences. For example, a notice issued prior in point of time for penalty under r. 209A of the Rules which has remained unadjudicated for a longer time will get the benefit of the Order of 1998 as against co-noticees but in another case where show-cause notice for penalty under r. 209-A of the Rules was issued even though later in point of time would not get the benefit of the said Order of 1998 on account of culmination thereof into an adjudication order. It is submitted that such interpretation of the Order of 1998 would not only be discriminatory but would frustrate the main object of the Scheme of reducing litigation and to make possible the recovery of tax arrears within a reasonable period. It is submitted that the only way to save the provisions contained in the Order of 1998 from unconstitutionality is to read to down so as to include for benefit of the Scheme all co-noticees thereunder notwithstanding the fact that on show-cause notices issued against them, penalty has been imposed and the co-noticees are in appeal. Reliance is placed on the decision of the Supreme Court in the case of Vishundas Hundumal vs. State of Madhya Pradesh AIR 1981 SC 1363 in support of this submission. It is stated that in the provisions of Order of 1998, there has crept in unconsciously an unintentional discrimination through oversight and the said mistake in the provision can be cured only by reasonably construing the provision by reading it down in the manner suggested on behalf of the petitioners to include within the words “civil proceedings” proceedings also in appeal.

Shri M.R. Shah, learned counsel appearing for the Union of India, in opposing the petition and replying to the contentions advanced, invited attention of this Court to the contents of the Trade Notice No. 100 of 1998, dt. 11th Dec., 1998, issued by the Commr. of Central Excise and Customs, Vadodara, on the subject of penalty of KVS Scheme. It is pointed out that the stand of the Department on perusal of the Order of 1998, containing the KVS Scheme, is amply clear that on settlement of case on 50 per cent payment of tax arrears by main noticee all proceedings for imposition of fine or penalty against the co-noticees pending at the show-cause notice stage alone shall lapse. The Order of 1998 nowhere manifests any intention to extend the benefit of KVS Scheme, on settlement of case with main noticee, as against co-noticees where-against the latter fine or penalty has already been determined by adjudication and the matter is pending in appeal. In such cases, the co-noticees have to file separate declarations and pay 50 per cent of the tax arrears under the KVS Scheme for getting cases settled against them for the remaining 50 per cent of the arrears. The relevant part of the said trade notice, dt. 11th Dec., 1998, which has been relied for the purpose of making clear the stand of the Department reads as under : “2. Under the Kar Vivad Samadhan Scheme, immunity had been provided only to the noticee or the person who came forward for settlement of the dispute by paying 50 per cent of the amount. The Government had received representations that for the irregularities committed by the principal noticee, action is also proposed to certain co-noticees like directors, office-bearers, suppliers, etc. It had been represented to the Government that since the co-noticees were not provided immunity as a result of settlement of the dispute against the principal noticee under the Kar Vivad Samadhan Scheme, it is discouraging even principal noticees to come forward for settlement. The Government have taken note of these representations, and for removal of difficulties, issued an order under s. 97(1) of the Finance (No. 2) Act, 1998, clarifying that no civil proceedings for imposition of fine or penalty shall be taken against the co-noticees where the principal noticee has got the case settled under the Samadhan Scheme. This however will not apply where fine, penalty has already been determined in adjudication, appeal, etc. In such cases, each person will have to file the declaration.

In simple words, it means that if the principal noticee gets the case settled under the Kar Vivad Samadhan Scheme, it will provide immunity to all other co-noticees also where the show-cause notice is pending adjudication. ……… There could be cases in dispute where the Department as well as declarants are in appeal for certain amounts of duties in dispute—as determined by the adjudicating authority or an appellate authority. In such cases of cross-appeals also, option will be available to the assessee to come forward for settlement of only his appeal or both his appeal as well as Departmental appeal. If he does not want to settle the disputed amount in the Departmental appeal and does not file a suitable declaration specifying the details including amount involved in such an appeal, Departmental appeals will continue and will not be affected by s. 92 and same would be heard by the appellate authorities/Courts on merits.

In the last 3 months of operation of the Scheme, if in any case the assessee has filed a declaration covering his appeal only, he will also have the facility to file another declaration if he so desires in relation to the amount involved in any pending Departmental appeal in that case. This declaration can be entertained and disputed amount settled in accordance with the provisions of this Scheme (i.e., paying up 50 per cent of the duty amount in dispute).

All the Trade Associations/Chambers of Commerce and Members of Regional Advisory Committee are requested to publicise the contents of this trade notice among their members/constituents.”

19. On behalf of the Union of India, learned counsel submits that in the Order of 1998 issued under the KVS Scheme for the purpose of removal of difficulties, more than what is stated therein cannot be read by recourse to the principle of “reading down”. It is submitted that the benefit of KVS Scheme to the declarant who is the main noticee would also get extended to the co-noticees only if the proceedings are at the stage of show-cause notice against the latter. This is clear from language used in para 2 of the Order and the contents of Explanatory Memorandum issued thereunder. In para 2 of the Order, the language used to be taken note of is : “fine or penalty which constitutes the subject-matter of a demand notice or a show-cause notice issued on or before 31st March, 1998, but remaining unpaid and pending determination on the date of making a declaration and, where in respect of the same matter stated in the said declaration a show-cause notice has also been issued to any other person and is pending adjudication on the date of making the declaration, then no civil proceedings for imposition of fine or penalty shall be proceeded with against such order person.”

In the Explanatory Memorandum the language used and highlighted on behalf of the Union of India is : “under the KVS Scheme……… attention of the Government has been drawn to the difficulties being encountered in settlement of certain categories of cases of pending show-cause notices involving also certain co-noticees against whom penal action is proposed in the same case for the alleged involvement and or the irregularities committed by the principle noticee.”

Learned counsel for the Union of India submits that the above quoted portion of the Order of 1998 and the Explanatory Memorandum thereunder is absolutely clear in making intention of the Central Government clear that action against co-noticees pending at the show-cause notice stage shall not be proceeded with if the case is settled under the KVS Scheme with the main noticee. The Order of 1998 does not cover the cases of co-noticees against whom penalties have been levied i.e., where the amount is quantified and the co-noticees may be in appeal. On behalf of the Union of India. it is submitted that obviously the co-noticees against whom penalties and fines have been adjudicated and amounts quantified, have been kept out of the purview of the benefit of the KVS Scheme which is to be read and understood with the order of removal of difficulty issued thereunder because it was never intended that co-noticees who have or who might have given a separate declaration and paid 50 per cent of tax arrears, should also get the benefit of wiping out of all their dues on settlement of cases against the main noticees. Such extension of benefit to conoticees was never intended against whom the penalties have been quantified. The Scheme and the order envisage that some of the co-noticees might have paid 50 per cent of tax arrears for settlement of cases against them under the Scheme. The Orders issued under the Scheme does not contemplate refund of penalties already deposited by co-noticees under the KVS Scheme under separate declarations filed by them. The aim and object of the Scheme, is not in the least, to confer any benefit on the tax evaders. The Scheme has duel purposes to achieve firstly to ensure collection of tax dues within a reasonable period by encouraging taxpayers to make voluntary payments of taxes and secondly save themselves from long drawn litigations which might involve them in coercive action and prosecution.

In his counter-reply, learned counsel for the petitioner reiterated his earlier submissions and submitted that qualification or non-quantification of penalties and fine is not a rational basis to discriminate between co-noticees facing penal proceedings at the show-cause notice stage and others who have suffered the proceedings by quantification of the amount and are at the appellate stage.

We have considered the rival contentions advanced by the two opposing counsel at the Bar. We have also carefully perused the relevant provisions of the KVS Scheme and the Order of 1998 issued thereunder by the Central Government. With utmost respect, we are unable to agree with the view expressed by the Division Bench of Kerala High Court in similar cases of the petitioner. In our considered opinion, it is not possible to accept the contentions advanced by the learned counsel on behalf of the petitioners that in the relevant part of the Order of 1998, the words “civil proceedings” should be interpreted on the principle of ‘reading down the provision’ to include in them “proceedings at the appellate stage as well”. We are also unable to accept the alternative submission that in the absence of the alleged reasonable interpretation of the provision of 1998 Order by reading it down, the provision would suffer from the vice of being discriminatory under Art. 14 of the Constitution of India. We have formed the above view for the reasons which follow.

The KVS Scheme of 1998 is part of the an Act of legislature being Finance (No. 2) Act of 1998. As we have noticed above the main noticee i.e. the company falls in the definition of “person” under s. 87(k) of the Scheme. Similarly, the co-noticees i.e., directors and executives of the company are also covered by the definition of “person” in cl. (k) mentioned above. Both the ‘persons’ in relation to proceedings against them for tax and penalty have right to make separate declarations under s. 88 for settlement of their tax liabilities and for wiping out the litigation and dues against them on payment of 50 per cent of the tax arrears due against them individually.

In the definition clause the meaning given to the words “tax appears” in cl. (m) of s. 87 is very important and requires to be noticed closely for the purpose of understanding the scope and effect of the Order of 1998. Clause (m)(ii) of s. 87 reads : “(m) “tax arrear” means, (i) in relation to direct tax enactment, the amount of tax, penalty or interest determined on or before the 31st day of March, 1998, under that enactment in respect of an assessment year as modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration; (ii) in relation to indirect tax enactment, (a) the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty determined as due or payable under that enactment as on the 31st day of March, 1998, but remaining unpaid as on the date of making a declaration under s. 88; (b) the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty which constitutes the subject-matter of a demand notice or a show-cause notice issued on or before the 31st day of March, 1998, under that enactment but remaining unpaid on the date of making a declaration under s. 88, but does not include any demand relating to erroneous refund and where a show-cause notice is issued to the declarant in respect of seizure of goods and demand of duties, the tax arrear shall not include the duties on such seized goods where such duties on the seized goods have not been quantified.”

In relation to indirect tax enactment, sub-cl. (a) of cl. (ii) of s. 87(m) defines tax arrears to mean “the amount of duties, cesses, interest, fine or penalty determined as due or payable under the relevant enactment as on 31st day of March, 1998, but remaining unpaid as on the date of making a declaration under s. 88”. Sub-cl. (a) of cl. (ii) thus refers to ‘tax arrears’ of the above description due or payable at whatever stage of the proceedings under the concerned enactment. As distinguished from cl. (a) in s. cl. (b) of sub-cl. (ii) the ‘tax arrears’ are explained to include the amount of duties, cesses, interest, fine or penalty which constitutes the subject-matter of a demand notice or a show-cause notice issued on or before 31st March, 1998, under that enactment but remaining unpaid on the date of making a declaration under s. 88.

26. The underlined portion in sub-cl. (b) [no underlining in the judgment—Ed.] distinguishes it from sub-cl. (a). In sub-cl. (a) are covered ‘tax arrears’ due on the specified date in relation to proceedings at any stage including appeal whereas cl. (b) speaks of tax arrears due on the relevant date when the proceedings are at stage of the demand notice or show-cause notice. On the settlement of tax arrears on the basis of declaration and payment of 50 per cent of dues, the Scheme provides that any pending appeal of the declarant or reference or reply to show- cause notice before any authority, Tribunal or Court shall be deemed to have been withdrawn in accordance with s. 19(4) of the Scheme. On such declaration and payment of 50 per cent of dues, the pending appeals shall not be proceeded with against the declarant in accordance with s. 92 of the Scheme. It is in the background of the above relevant provisions of the Scheme that the power of the Central Government contained in s. 97 to remove difficulties has to be understood for determining its scope and effect. Sec. 97 of the Scheme enables the Central Government by an order to remove difficulties which may arise in giving effect to the provisions of the Scheme. It is laid down in the said provision that such order for removing difficulties to be issued by the Central Government, should not be inconsistent with the provisions of the Scheme. Every such order made by the Central Government is required to be laid before each House of the Parliament. What is most important to be noted is that the Central Government has been empowered to only issue order to ‘remove difficulties’ in implementation of the provisions but it has no power to issue any order ‘inconsistent’ with the main Scheme. In the light of the above discussed provisions defining tax arrears under sub-cls. (a) and (b) of cl. (ii) of s. 87(m) what we have to ascertain is the nature of ‘doubt’ which has been removed by the Central Government by issuing the Order of 1998. We have already quoted the Explanatory Memorandum annexed to the Order of 1998 issued under s. 97(1) of the Scheme. The said Explanatory Memorandum is very clear in stating that “difficulties are being encountered in settlement of certain categories of cases of pending show-cause notices involving also certain co-noticees against whom penal action is proposed in the same case for the alleged involvement in the irregularities committed by the principal noticee.”

The Explanatory Memorandum quoted above clearly declares the reason and necessity for issuing the Order of 1998 for removal of difficulty. It appears that it was experienced by the authorities that settlement of cases against the main noticee at the show-cause notice stage was beset with difficulties because even if the case is settled on payment by the main noticee, the proposed penal action against the co-noticees has to continue. This difficulty arose in the matter of giving effect to settlement of tax arrears as defined and explained in sub-cl. (b) of cl. (ii) of s. 87 (m) of the Scheme. We have already noticed that under sub-cl. (b) of cl. (ii) (supra), the ‘tax arrears’ are defined to mean ‘arrears which constitute subject-matter of a demand notice or show-cause notice. The Explanatory Memorandum to the Order of 1998 is clear enough to indicate that it was necessary to remove certain difficulties in the matter of settlement of tax arrears at the demand notice or show-cause notice such as referred to in sub-cl. (b) of cl. (ii) of s. 87(m) (supra). It is for the above limited purpose that the Order of 1998 in para 2 limits the benefit of settlement of case under the Scheme to the main noticee as also to the co-noticees. The learned counsel appearing for the Department is very right in pointing out that in para 2 of the Order of 1998, the language employed is clearly intended to give a restrictive meaning to the expression “civil proceeding” as to include in it only proceedings at the demand notice or show-cause notice stage. It cannot, on the clear language employed in para 2 of the Order, be understood to mean even proceedings against the co-noticee pending at the appellate stage. It is necessary to mark the underlined portion in para 2 of the Order of 1998 and the language employed : “duties, cesses, interest, fine or penalty which constitutes the subject-matter of a demand notice or show-cause notice issued on or before 31st March, 1998.”

On the same subject-matter language used in other part of the order is also significant. It reads : “a show-cause notice has also been issued to any other person and is pending adjudication on making a declaration then no civil proceedings for imposition of final penalty shall be proceeded against such other person and only in such cases the settlement in favour of the declarant under sub-s. (1) of s. 19 shall be deemed to be full and final in respect of such other person also on whom a show-cause notice was issued on the same matter covered under the declaration.”

From the clear language of para 2 of the Order, there is no manner of doubt that in implementing the provisions of the Scheme with regard to the tax arrears which formed subject-matter of a demand notice or show-cause notice referable to sub-cl. (b) of cl. (ii) of s. 87(m), it was found necessary by the Central Government to issue an order of removal of difficulties. It was so necessitated because main noticee facing proceedings at the show-cause notice or demand notice stage were not coming forward to settle their cases in the absence of any benefit of the Scheme to the co-noticees against whom proceedings for penal action or penalty were pending on the same subject-matter. Since the present provision was acting as a deterrent to the main noticee in settlement of case, it was found necessary by the Central Government to issue an order so as to remove the difficulties or doubts in implementation of the Scheme against the co-noticees facing proceedings at the show-cause-notice or demand notice stage and to allow with the main noticee, settlement of cases also of the co-noticees. Thus, the relevant part of the Scheme and Order, a dealt with above, clearly includes within its abmit, proceedings against the main noticee and conoticees pending at the demand notice or show-cause notice stage only and not at the appellate stage.

The Scheme is a parent legislation which is an Act of the legislature. The Order of 1998 issued by the Central Government under s. 97 of the Finance (No. 2) Act of 1998 containing the Scheme is a piece of subordinate legislation. In the language of subordinate legislation something cannot be read which will not be consistent with the parent legislation. Sec. 97 which enables the Central Government to issue order for removal of difficulties, as expressly stated therein. The Central Government in exercise of its power under s. 97 can do nothing which would be inconsistent with the provisions of the main legislation i.e., the Scheme. In the Scheme, the main legislation i.e., the Scheme. In the Scheme, the main noticee i.e., the company is a “person” and the co-noticee i.e., the directors and executives are separate ‘persons’ as defined in cl. (k) of s. 87. The two separate legal ‘persons’ as defined in the Scheme have separate and independent right to make declaration and on payment of 50 per cent of tax arrears to get settlement of their cases. The facts of the present case are that the present petitioners as co- noticees made a declaration in cases against the co-noticees pending including at the appellate stage are liable to be settled on payment of 50 per cent of the tax arrears.

It cannot be assumed that the Central Government at the time of issuance of the order of removing difficulties under s. 97 was oblivious of the fact that large number of co-noticees had made declaration and sought settlement on 50 per payment of their cases which were pending at the appellate stage. The Central Government from the language employed in the order in para 2 could never have intended that co-noticees, who had submitted declaration and paid 50 per cent of the tax arrears would be totally exempted from tax, on settlement of case/cases against the main notices. Such intention cannot be gathered from the relevant part of the Scheme and para 2 of the Order of 1998. In the present group of cases, not only that the co-noticees desire this Court to read down the provisions contained in para 2 of the Order of 1998 but after such reading down the provisions, to direct settlement of their cases and even refund them the 50 per cent tax arrears which they had deposited for settlement of cases individually against them. In order to obviate refund of tax arrears paid under the Scheme by the co- noticees for settlement of cases against them on their individual declarations, the Central Government, purposely, in its Order of 1998 restricted the extension of benefit of settlement of cases to the co-noticees with cases of main noticees but only if the former are at the demand notice or show-cause notice and not at the appellate stage. The learned counsel for the Department appears to be perfectly right in submitting that para 2 of the Order of 1998 does not extend the benefit to the cases of co-noticees, where penalties have been quantified and/or appeals were preferred by the co-noticees. In cases before us, for settlement of the case under the Scheme the petitioner have submitted the declarations and have actually paid 50 per cent of the tax arrears individually due against them. The above aspect of the matter was totally overlooked by the Division Bench of the Kerala High Court in the decision relied on behalf of the petitioners. With respect, we are unable to agree with view expressed by the Hon’ble High Court of Kerala in their decision (supra). Much argument was advanced on behalf of the petitioner on the interpretation of expression “civil proceedings” used in para 2 of the Order of 1998. What we find is that word “civil” has been used in distinguishing the proceedings from ‘criminal’ such as actions of prosecution under the Tax law. The word ‘proceeding’ in its wider legal meaning, as is sought to be urged on behalf of the petitioner, would definitely include proceedings even at the appellate stage or proceedings in the writ petition before any Court or Tribunal. The word “proceedings” in the context in which it appears may have a wider legal meaning or a restrictive meaning depending upon the nature of the provision and the law in which it is used. In the present case, as we have discussed, in the light of the provisions of the Scheme, the word “proceedings” has been used in a restrictive sense to confine it to proceedings at the show-cause notice or demand notice stage and definitely not at the appellate stage. The word does not intend to include the proceedings at the appellate stage where the co- noticees have already may declaration and paid 50 per cent of tax arrears for settlement of their cases at the appellate stage. We cannot forget that what we are dealing with the interpretation is a provision in a subordinate legislation which has to be construed consistently with the main piece of legislation. The Central Government in exercise of its enabling provision under s. 97 of the Scheme have removed certain difficulties in implementation of the Scheme. With the assistance of the doctrine of ‘reading down’, as a method of statutory interpretation, the Court is not empowered to read more into the Order of the Central Government and remove the alleged additional doubts and difficulties as experienced by the noticees and the co-noticees before us. The order of the Central Government has to be interpreted reasonably on its plain language and in consonance with the Scheme under which it has been issued. The doctrine of reading down, as one of the principles of interpretation of the statute, cannot be applied to add and read additional words into a statutory order as which would transgress the limits of such Order and the Scheme. The doctrine of reading down as a permissible means of process of interpretation of statute can be resorted to give the statute reasonable meaning and to make it constitutionally valid but not for adding or supplementing any alleged unconscious omissions sought to be perceived in it.

At this stage, a reference may be made to the decision of the Supreme Court in the case of Mathew M. Thomas vs. CIT (supra). In the case before the Supreme Court, the provision that came before the Supreme Court, the provision that came up for consideration were those under Chapter XX-C introduced in the IT Act enabling the Tax authorities to acquire the properties intended to be sold for apparent undervalue. By s. 269RR Chapter XX-A order, was made inapplicable to transfer of a immovable property after 30th Sept., 1986. The CBDT issued a circular which stated that with a view to achieve earlier finalisation under existing Chapter XX-A of the IT Act, the Board has decided w.e.f. 1st April, 1996, that acquisition proceedings under s. 269C will not be initiated in respect of a immovable property for which the apparent consideration is Rs. 5 lacs or less and where acquisition proceedings have been initiated for issuance of a notice under s. 269D, the proceedings will be dropped if the apparent consideration of the immovable property is below Rs. 5 lacs. The question that arose was whether the above circular of the CBDT would also be applicable where acquisition proceedings are over and the party is in appeal. It is in the above context that the Supreme Court held : “the circular was obviously with an object of achieving earlier finalisation of the proceedings under Chapter XX-A. The circular is undoubtedly a beneficial measure in order to bring to an end the uncertainty of litigious proceedings with reference to properties, the value of which does not exceed Rs. 5 lakhs. The language of the circular does not in any manner indicate that it will apply only to proceedings pending before the competent authority. The mere fact that reference is made to the initiation of the proceedings by notice under s. 269D does not limit the operation of the circular to proceedings immediately following such notice and culminating with the order of the competent authority. If proceedings are pending before the Tribunal in appeal and before the High Court on further appeal, they are also acquisition proceedings of the same nature as they are only in continuation of the proceedings initiated by the competent authority.”

The above observation of the Supreme Court in the case of Mathew M Thomas (supra) can have no assistance to the case of the co-noticees under the Scheme before us. The order of removing difficulties, as construed consistently with the provisions of the Scheme requires a restrictive meaning to be given to the word”proceedings” to include in the expression only those proceedings against the co-noticees which are at show-cause notice stage and not at the appellate stage or where the penalties are quantified with right to co-noticees as “persons” defined in the Scheme to make separate declarations and seek payment ‘on settlement of cases against them. The decision of Mathew M. Thomas of the Supreme Court (supra), therefore, is distinguishable on the clear language contained in the relevant part of the Scheme and Order of 1998.

We are also not impressed by the alternative submissions made on behalf of the petitioners that if the Order of 1998 is not construed with the aid of doctrine of reading down to include in the words ‘civil proceedings’, the proceedings also at the appellate stage, it would be rendered discriminatory and violative of Art. 14 of the Constitution of India. In our considered opinion, for implementing the Scheme with the order of removal of difficulties, the co-noticees against whom the penalties have been quantified at the appellate stage and have made declaration and payment, constitute one separate class from those co-noticees who are facing proceedings at the show-cause notice stage against proposed penalty irrespective of stage of proceedings for recovery of tax and penalty against the main noticees. The two classes of co-noticees can reasonably be treated differently for the purpose of extending benefit of the Scheme. As we have noticed above, the intention and object of the Scheme is not to help or reward the tax evaders or those who have not paid tax in time. The purpose of the Scheme is to allow the Department to minimise litigation expenses and establishment charges and to make possible recovery of tax dues with reasonable speed. The ancillary object at the same time is to encourage the assessees i.e., taxpayers to make voluntary disclosures concerning their tax liability and pay tax ungrudgingly and without delay with a view to shorten the litigation and to save them from coercive and/or penal action. The legislature by the provisions of the Scheme and the Order issued thereunder by the Central Government to remove difficulties, can justifiably treat differently the co-noticees (with the main noticees) facing proceedings for tax recovery and penalty at the show-cause notice stage and those co-noticees against whom penalties have been quantified and they have individually gone in appeal and/or desirous of submitting declarations with payment of 50 per cent of arrears individually for settlement of their case. We do not find that such classification of co-noticees for different treatment under the section who are facing proceedings for tax recovery at the original stage and appellate stage is in any manner unreasonable or discriminatory because we find that such classification has nexus and reasonable connection with the object of the Scheme to collect revenue within a reasonable period and to curtail litigation with consequential benefit to the taxpayers to some extent.

For the detailed reasons stated above, we find no merit in these petitions and the connected group of petitions. They are all accordingly dismissed but in the circumstances without any order as to costs.

[Citation : 254 ITR 337]