Kerala H.C : All these original petitions were referred to the Division Bench by K.S. Radhakrishnan, J., since according to the learned single Judge, the question raised by the petitioners in these matters is of considerable importance which will have far-reaching consequences.

Counsel Appeared

Joseph Kodianthara & Thomas Vellappally, for the Petitioner : K. Ramakumar, for the Respondent

JUDGMENT

S. SANKARASUBBAN, J. :

All these original petitions were referred to the Division Bench by K.S. Radhakrishnan, J., since according to the learned single Judge, the question raised by the petitioners in these matters is of considerable importance which will have far-reaching consequences. The petitioners in these original petitions seek a declaration that the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998, is ultra vires, Art. 14 of the Constitution of India. In the alternative, they pray for a declaration that they are also covered by the above mentioned order notwithstanding that show-cause notices have been adjudicated upon in relation to them.

2. Since the facts are the same, we shall refer to the facts in Original Petition No. 13806 of 1999. The petitioner in that original petition is vice-chairman and managing director of Apollo Tyres Ltd. Apollo Tyres Ltd. is a company incorporated under the Companies Act, 1956. Respondent No. 1 is the Union of India, respondent No. 2 is the Designated Authority under the Kar Vivad Samadhan Scheme, 1998, and respondent No. 3 is the Commissioner of Central Excise. The Government of India announced the Kar Vivad Samadhan Scheme (hereinafter referred to as “the Scheme”). The scheme is contained in s. 86 to s. 98 of the Finance (No. 2) Act, 1998. The object of the scheme as stated when the Finance (No. 2) Bill, 1998, was introduced is as follows : “Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered 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 the Government to realise its reasonable dues much earlier but coupled with administrative measure would also make the system more user-friendly. I, therefore, propose to introduce a new scheme called ‘Samadhan’.”

The scheme applies to indirect taxes also. As per s. 87(m)(ii) of the scheme the amount of duties, cesses, interest, fine or penalty determined as due or payable under the enactment as on 31st March, 1998, but remaining unpaid as on the date of making a declaration under s. 88 would fall within the scheme. Sec. 89 of the scheme deals with particulars to be furnished in the declaration. Sec. 90 deals with time and manner of payment of tax arrear. Sec. 91 of the scheme deals with immunity from prosecution and imposition of penalty. Sec. 96 of the scheme deals with the power of the Central Government to issue directions and s. 97 of the scheme deals with power to remove difficulties in regard to the scheme. The facts regarding the case are as follows : The second respondent issued a show-cause notice dt. 30th July, 1996, to the petitioner, the company and other directors as to why penalty should not be levied under r. 173Q and r. 209A of the Central Excise Rules, 1944. The petitioner as well as the company replied to the show-cause notice on 17th Nov., 1997. By a common order dt. 8th May, 1998, respondent No. 3, inter alia, imposed a penalty of Rs. 2 lakhs on the petitioner as well as other parties to the case. Aggrieved by the order, the petitioner filed an appeal together with an application for dispensing with pre-deposit and stay before the Customs Excise and Gold (Control) Appellate Tribunal, Chennai, on 22nd July, 1998. The said appeal and stay application has been numbered as E/1812 of 1998 and E/Stay/1292 of 1998, respectively. The company also preferred an appeal as E/1774 of 1998 and stay application E/Stay/1250 of 1998 before the Tribunal. The Tribunal by its common order dt. 10th Aug., 1998, in all the connected appeals and stay applications directed that a sum of Rs. 50 lakhs be deposited by the company and on such deposit being made balance duty and penalties imposed on the company and officers including the petitioner stand waived and recovery thereof stayed.

The Kar Vivad Samadhan Scheme came into force on 1st Sept., 1998. Sec. 88 of the scheme states that, subject to the provisions of this scheme, where any person makes, on or after 1st Sept., 1998, but on or before 31st Dec., 1998, a declaration to the designated authority in accordance with the provisions of s. 89 in respect of tax arrear payable under the indirect tax enactment it can be settled at the rate of 50 per cent of the amount of such fine, penalty or interest, due or payable as on the date of the making of the declaration under s. 88. Sec. 92 of the scheme says that no appellate authority shall proceed to decide any issue relating to the disputed chargeable expenditure, disputed chargeable interest, disputed income, etc. specified in the declaration and in respect of which an order had been made under s. 90 by the designated authority or the payment of the sum determined under that section. Sec. 87 with regard to tax arrear states as follows : The scheme will apply to the amount of duties, cesses, interest, fine or penalty due or payable under that enactment as on 31st March, 1998, but remaining unpaid as on the date of making a declaration under s. 88. On 8th Dec., 1998, the first respondent issued what is called the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998. This order is dt. 8th Dec., 1998. It is produced as exhibit P-3 in the case. As per cl. 1(2) of the order, it shall be deemed to come into force on 1st Sept., 1998. We are concerned with cl. 2 of the above order. Clause 2 of the order states that, where a declaration to the designated authority has been made in respect of tax arrear 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 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 proceeding for imposition of fine, or penalty shall be proceeded with against such other person. In the explanatory memorandum of Ext. P-3, it is stated as follows : Under the Kar Vivad Samadhan Scheme, 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-noticees against whom penal action is proposed in the same case for the alleged involvement for the irregularities committed by the principal noticee. Having due regard to the aims and objects of the scheme, the Government have decided to issue an order for removal of difficulties. It has been, inter alia, clarified that no civil proceedings for imposition of fine or penalty shall be proceeded with against the co- noticees and in such cases the settlement in favour of the declarant under the scheme shall be deemed to be full and final in respect of other persons also on whom show-cause notices were issued on the same matter.

According to the petitioners, Ext. P-3 order is discriminatory because the said order is not applicable to those cases where show-cause notices have been adjudicated and the orders have been passed by the CIT and the demands have been confirmed and the penalties have been levied on the company as well as on the officials of the company. The show-cause notice in the petitioner’s case was issued on 30th July, 1996, and was adjudicated along with that of the appeal against adjudication was pending on the date when the scheme came into force. The company was given the benefit of the scheme even though adjudication was over and only the appeal was pending. But in the case of the petitioner a different treatment is meted out. The benefit of the scheme is given to those co-noticees with respect to whom the adjudication is not over and the show-cause notice is pending for adjudication. Learned counsel for the petitioner, senior advocate, Shri Arshad Hidayathulla, submitted that this is a case of discrimination because, according to him all the co-noticees belong to the same class and there is no rationale to discriminate among them. Learned counsel further submitted that in any event, since appeals are pending against adjudication proceedings, the words “pending adjudication” in cl. 2 of the Removal of Difficulties Order should be read as to include pending in appeal also. If such an interpretation is made there will be no discrimination.

A counter-affidavit is filed on behalf of the respondents. In the counter-affidavit it is stated as follows : The petitioner is not entitled to any of the reliefs prayed for in the original petition. Admittedly, the petitioner has availed of the facility offered by the Government of India. Once a person accepts and submits himself to the scheme and takes a chance before the adjudicating authority, he cannot turn around and attack the scheme itself. In para. 3 of the counter it is stated that, under the Kar Vivad Samadhan Scheme, cases where show-cause notices issued as on 31st March, 1998, and which were not adjudicated as on the date of making a declaration during the operation of the scheme were permitted to avail of the benefits under the scheme in terms of the provisions of s. 87(m)(ii)(b) of the Finance (No. 2) Act, 1998. However, a problem arose before the Government as to whether show-cause notices issued to the co-noticees proposing penal action will survive in the event the principal noticee avails of the benefits under the scheme. The further question was whether any proceedings that can be initiated against the co-noticees in the absence of the principal noticee participating in a quasi-judicial proceedings shall be violative of the principles of natural justice. Taking note of these difficulties, the Government thought it fit to extend the benefits under the Kar Vivad Samadhan Scheme to the co-noticees in the show-cause notice, once the principal noticee avails of the benefits under the scheme. However, this facility was not extended to the co- noticees in whose cases the adjudication proceedings were completed and the orders confirming demand of payment/penalty was quantified by the adjudicating authority on the day of filing a declaration under the Kar Vivad Samadhan Scheme. It is further stated that the petitioner having submitted to the adjudicating authority had an opportunity to explain his case and got himself exonerated completely. It is also stated that the petitioner is not entitled to, legally or morally, challenge the Removal of Difficulties Order as violative of Art. 14 of the Constitution of India.

Learned counsel for the petitioners cited before us certain decisions to show that there is violation of Art. 14 of the Constitution of India. The decisions reported in Vishundas Hundumal vs. State of M.P. AIR 1961 SC 1636, Union of India vs. Indian Charge Chrome (1999) 34 RLT 355 (SC), Devi Match Factory vs. Superintendent of Central Excise (1983) ELT 99 (Mad), Sree Annapoorna vs. State of Tamil Nadu (1986) 63 STC 18 (Mad) and certain other decisions are relied on by counsel for the petitioners.

As already stated, counsel for the petitioners raised two contentions. According to him, the provisions of cl. 2 of the Kar Vivad Samadhan Scheme should be declared as discriminatory insofar as it does not give the benefit to the co-noticees with regard to whom the adjudication is over. The further contention was that the expression “is pending adjudication” appearing in cl. 2 of Ext. P-3 should be interpreted to take in any proceedings where appeals are also pending.

The object of the scheme appears to be to shorten the litigation and settle the dispute between the parties. It is with this end in view that the scheme has been promulgated. Tax arrears has been defined with regard to indirect tax enactment as the amount of duties, ceases, interest, etc. determined as due or payable under that enactment as on 31st March, 1998, but remaining unpaid as on the date of making a declaration under s. 88. Under s. 88 of the scheme where a person makes a declaration to the designated authority in accordance with the provisions of s. 89, then the liability shall be discharged as per the scheme. It can be seen that so far as the sections were concerned, no distinction is there made with regard to a principal noticee or a co-noticee. All are entitled to get the benefit of the scheme whether the matter is pending in appeal or not. The Removal of Difficulties Order was issued because where the principal noticee had settled the matter under the scheme, what should be done with regard to the co- noticee. It is in that context, Ext. P3 was issued. In Ext. P-3 it is stated that such co-noticees are entitled to the benefit of the scheme provided the show-cause notice is pending adjudication on the date of making of the declaration. In the explanatory note, it is stated that a settlement in favour of the declarant under the scheme shall be deemed to be full and final in respect of other persons also on whom show-cause notices were issued on the same matter. Sri K. Ramakumar for the respondent, argued that the petitioners cannot compel as to how the Government should extend the benefit of the scheme. According to Sri K. Ramakumar it is only in cases where show-cause notices are pending adjudication, that the benefit of the scheme can be given.

Before we try to interpret Ext. P-3, we have to find out the meaning of the expression “is pending adjudication”. Now, before any action is taken under the excise laws or under the direct tax laws, notices are issued to the parties by the primary authority. The primary authority then considers the matter and disposes of the same by his order. It is a known fact that most of these Acts provide remedies against the orders passed by the primary authority.

Appeals, second appeals or revisions are provided against final orders. It is also a fact which does not require any proof that an appeal is a continuation of the original proceedings. Even though in appeal what the appellate authority considers is the correctness or otherwise of the order passed by the primary authority, the entire matter is before the appellate authority and in that sense we can say that the adjudication has not become final and is pending consideration. It can also be said that what is pending before the appellate authority is the adjudication of the show-cause notice.

A similar question arose before the Supreme Court in Mathew M. Thomas vs. CIT (1999) 152 CTR (SC) 172 : (1999) 236 ITR 691 (SC). The facts of the case are as follows. The appellants in that case purchased certain lands with buildings in 1977 for a sum of Rs. 2,45,000. The Inspector of Income-tax valued the properties at Rs. 3,24,000 and the DVO valued them at Rs. 7,24,000. The IAC, Acquisition Range, Ernakulam, ordered acquisition of the property on 31st March, 1981. The appellants filed an appeal to the Tribunal by order, dt. 31st Oct., 1981. The appeal was allowed and the proceedings were cancelled. As against the said order, the Revenue filed an appeal under s. 269H before the High Court of Kerala. During the pendency of the appeal, Chapter XX-C was introduced in the IT Act. The CBDT issued a circular which reads as follows: “With a view to achieve early finalisation of proceedings, under the existing Chapter XX-A of the IT Act, 1961, the Board has decided that w.e.f. 1st April, 1986, acquisition proceedings under s. 269C will not be initiated in respect of an immovable property for which the apparent consideration is Rs. 5 lakhs or less and that where acquisition proceedings have been initiated by issue of notice under s. 269D, the proceedings will be dropped if the apparent consideration of the immovable property is below Rs. 5 lakhs.”

When the appeal was taken up by the High Court, the appellants therein contended that the acquisition proceedings had to be dropped as the consideration was only Rs. 2,45,000. This was referred to a Full Bench of the High Court for decision in CIT vs. Mathew M. Thomas (1992) 108 CTR (Ker) 229 : (1993) 201 ITR 494 (Ker). The Full Bench opined that the circular was not applicable to the case on hand as the acquisition proceedings were over. It is the appeal against that decision which was considered by the Supreme Court. Srinivasan J. speaking for the Bench held as follows : “It is well settled that the word ‘proceedings’ shall include the proceedings at the appellate stage.” Their Lordships quoted the judgment of the Supreme Court in Garikapati Veeraya vs. N. Subbiah Choudhry, AIR 1957 SC 540, that the legal pursuit of a remedy, suit, appeal and second appeal are really but steps in a series of proceedings, all connected by an intrinsic unity and are to be regarded as one legal proceedings.

10. Thus the expression “is pending adjudication” should be interpreted to take in also cases where appeals against adjudication proceedings are also pending. In that case, the petitioners will be entitled to the benefit of the scheme and their claims cannot be rejected because the matter is pending in appeal. Considering the above circumstances, we allow the original petitions, declare that the co-noticees like the petitioners are also covered by the order dt. 8th Dec., 1998, notwithstanding the fact that the show-cause notice has been adjudicated upon in relation to the co- noticee as well as the declarant under s. 90(1) of the Finance Act, 1998. The amount deposited by the petitioners (stated to be Rs. 1 lakh) will be refunded to the petitioner within a period of two months from today. If it is not refunded within two months then it will carry an interest of 18 per cent from the date of judgment till the date of refund.

[Citation : 249 ITR 258]