IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 4326, 5560, 5561, 5549, 5551, 5554, 5555, 5556, 5557, 5558 and 5559 all of 1999 For Approval and Signature: Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- OMKAR S KANWAR Versus UNION OF INDIA -------------------------------------------------------------- Appearance: Mr.E.Hidayatullah, Sr.Advocate with Mr.P.K.Ram and Mr.Vikram Nankani, Advocates for M/s. Trivedi & Gupta for the petitioner Mr.Mukesh R Shah for Respondent No.2, 3, 4 -------------------------------------------------------------- CORAM : CHIEF JUSTICE MR DM DHARMADHIKARI and MR.JUSTICE A.R.DAVE Date of decision: 14/11/2000 CAV JUDGEMENT (Per : CHIEF JUSTICE MR DM DHARMADHIKARI) 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 Article 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 Section 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. 2. The alternative prayer made by the petitioners is for declaring the impugned para 2 of the order of 1998 dated 8.12.1998 to be discriminatory and ultra vires Article 14 of the Constitution of India. 3. The occasion to challenge the order of 1998 issued under the KVS Scheme arose on the following legal and factual developments. 4. 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. 5. 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 Rule 173(q) and 209-A 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 tax payers, 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." 6. 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 reasonably short period. 7. A few relevant provisions of the KVS Scheme need to be noticed. Section 87(k) defines the words "A person" which includes both an "individual" & a "company" apart from other natural and legal persons described in other sub-clauses of clause (k) of Section 87. Section 87(m) defines "tax arrears" and sub-section (ii) of Section 87 deals with indirect tax enactments. Sub-clause (a) of (2) of Section 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 Section 88 fall within the scheme. Section 88 contains procedure for making a declaration under the scheme with particulars in the said declaration to be furnished in accordance with Section 89 for taking benefit of the scheme. Section 90 of the Scheme deals with the time and manner of payment of tax arrears. Section 91 provides immunity from prosecution and imposition of penalty in certain cases in respect of matters covered in the declaration made under Section 88. Section 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. "Power to remove difficulties. 97.(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 Section 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-noticees 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% 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 part 2 of 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 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 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-section (1) of Section 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." 10. 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:- 11. By show-cause notices, the petitioners were called upon to show cause why penalty should not be levied on them under Rule 173(q) and Rule 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 dated 10.6.1998, 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. 12. To get benefit of the KVS Scheme and with a view to settle their excise cases on payment of 50% 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% of of penalty arrears to obtain waiver of the remaining 50% 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% of dues towards penalty for waiving remaining 50%, under a legal misconception. On their behalf now it is being submitted that filing of declaration and payment of 50% 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% 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 3.3.99 stating that declaration filed by them under the KVS Scheme and deposit of 50% penalty made by them individually in their cases being under a legal misconception was an action which is nonest 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% of the tax arrears including penalty. 13. 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 50% of the tax arrears. 14. 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 Section 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. Commissioner of I.T. reported in 1999 (111) Excise Law Times Page 4 (Supreme Court). 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 judgement in original petition No. 13806/99 (with other group petitions) dated 7.3.2000 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. 16. 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 perse discriminatory & violative of Article 14 of the Constitution of India as it would treat differently co-noticees facing penalty proceedings at different stages of the cases. 17. 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 Rule 209-A has remained unadjudicated and denying such benefit where notice for penalty under Rule 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 Rule 209-A 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 Rule 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 it 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 reported in 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. 18. Shri M.R.Shah, Ld. 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 dated 11.12.1998 issued by the Commissioner of Central Excise and Customs, Vadodara on the subject of benefit of KVS Scheme. It is pointed out that the stand of the Department on perusl of the order of 1998, containing the KVS Scheme, is amply clear that on settlement of case on 50% 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% of the tax arrears under the KVS Scheme for getting cases settled against them for the remaining 50% of the arrears. The relevant part of the said Trade notice dated 11.12.1998 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% 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 Section 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. 3. 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. 4. ...... 5. 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 Sec. 92 and the same would be heard by the appellate authorities/courts on merits. 6. 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% of the duty amount in dispute). 7. 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, Ld. 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 takennote 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 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 other person." (Underling for highlighting the meaning) 20. 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 & for the irregularities committed by the principle noticee. (Underlining by Court) 21. 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% 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 co-noticees 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% 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 dual 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