Facts of the Case

The petitioner, Mr. Lokesh Pathak, along with connected petitioners, was subjected to searches by the Directorate General of Central Excise Intelligence in November 2004 at business and residential premises. Goods were seized from associated entities and cash was seized from the residence of the petitioner. A Show Cause Notice dated 28.04.2005 was issued proposing demand of central excise duty, confiscation of goods, confiscation of seized cash, imposition of penalties, and levy of redemption fine.

The Show Cause Notice culminated in an Order-in-Original dated 30.03.2007, which confirmed duty demand, imposed penalties, ordered confiscation of goods and cash, and granted an option to redeem the confiscated goods on payment of redemption fine. Appeals were filed before CESTAT, which by final order dated 09.11.2016, set aside the Order-in-Original and remanded the matter for de novo adjudication without deciding the merits.

During pendency of adjudication, the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 was introduced. The petitioners filed declarations under the Scheme in December 2019 seeking settlement of the Show Cause Notice. The Designated Committee internally opined that cases involving seizure and redemption fine were not covered under the Scheme, though this decision was never communicated to the petitioners.

Issues Involved

Whether cases involving seizure of goods and imposition of redemption fine are eligible for settlement under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, whether redemption fine is distinct from duty and penalty for the purpose of the Scheme, and whether the Designated Committee was justified in denying issuance of discharge certificates.

Petitioner’s Arguments

The petitioners argued that the appeals before CESTAT had only resulted in a remand and were not finally decided on merits, and therefore they were not ineligible under Section 125(1)(a) of the Scheme. It was contended that redemption fine is in the nature of penalty and once tax dues are settled under Section 124 of the Scheme, redemption fine also stands waived. Reliance was placed on CBIC FAQs, flyers, and multiple High Court judgments holding that redemption fine is covered under the Scheme.

Respondent’s Arguments

The Department contended that the petitioners were ineligible under the Scheme as appeals had been decided prior to 30.06.2019 and that cases involving seizure and redemption fine were outside the scope of the Scheme. It was argued that redemption fine is not expressly mentioned in the statutory provisions granting waiver under the Scheme.

Court Order / Findings

The Delhi High Court examined the statutory framework of the Sabka Vishwas Scheme, including Sections 121, 123, 124, 125 and 129, and held that the petitioners were not ineligible as the CESTAT order had merely remanded the matter without adjudicating on merits. The Court held that the Show Cause Notice continued to remain pending and thus qualified as “tax dues” under the Scheme.

On the core issue, the Court held that redemption fine is a consequence of non-payment of duty and is in the nature of penalty. The Court relied upon and concurred with decisions of the Gujarat High Court in Synpol Products Pvt. Ltd., the Allahabad High Court in Jay Shree Industries, the Bombay High Court in Espee Electrotech LLP, and other High Courts, all of which held that redemption fine is covered under the waiver granted by the Scheme. The Court also relied upon CBIC flyers and FAQs which explicitly state that the Scheme provides total waiver of interest, penalty and fine.

The Court held that excluding redemption fine from the benefit of the Scheme would defeat its very purpose of providing finality to legacy disputes and would be contrary to the representations made by the Government through official explanatory material.

Important Clarification

The High Court clarified that seizure cases are not excluded from the Sabka Vishwas Scheme and that redemption fine cannot be treated separately once the underlying duty demand is settled under the Scheme. Upon payment of the amount determined under Section 124, the declarant is entitled to full waiver of duty, interest, penalty and redemption fine, and to issuance of a discharge certificate under Section 129.

Final Outcome

The writ petitions were allowed. The Delhi High Court directed the Designated Committee, SVLDRS, Central GST, Delhi West to issue discharge certificates to the petitioners in respect of the Show Cause Notice dated 28.04.2005, without insisting on payment of redemption fine, within two months. All pending applications were disposed of accordingly.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/75408092025CW106222024_133516.pdf


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