Written in : January 1999

Today the Kar Vivad Samadhan Scheme comes to an official end. The extension of a month from December to January doesn't seem to have done it any good. There have been no major new declarations that have been filed. Only those which were not filed in the last two days of December (since the Scheme was announced to be extended on December 30 itself) are likely to have been the bulk of the declarations filed this month.

In my last article I had said that the KVSS saga had not ended. Here are two issues which may be of interest to you.

If you have defaulted in payment of taxes after the demand is raised against you, you are required to pay interest for the delay in payment of the interest. That is, if you are an 'assessee in default', you pay interest as compensation for the delay.

You may have not paid interest for many reasons: you may have gone in appeal against what you thought was an unjustified assessment; you may have filed a petition for correction of errors; or you may simply have not had the money to pay what was a justified demand or one agreed to by you. In any case, it is a default in payment of demand that you committed and you are required to pay interest.

However, it is possible that you have asked for a stay of collection of taxes pending disposal of appeal against you. The stay may be granted or rejected, or the stay petition may be kept pending disposal. If the stay is granted, you are not in default. If it is rejected, from the date of rejection you may be considered to be in default. If the stay petition is pending, you may claim that you are not in default till it is rejected. Whether you are in default or not, therefore, depends on the facts.

However, this interest is an automatic levy, if you are in default.

How does this come into KVSS, you are perhaps thinking. It is because the department has introduced a new element into the Scheme.

As you know, the Scheme works like this:

• if you have taxes outstanding and you go for settlement, you pay a part of the taxes and the entire interest charged on you gets waived;
• if, on the other hand, only interest or only penalty or only interest and penalty are outstanding, then you pay 50% of the interest or penalty and the balance is waived.

Thus, when you have only interest or penalty outstanding against you, you benefit less and are made to pay half of the demand.

Now, you may still think it worthwhile to settle the outstanding arrears of interest or penalty. You make a declaration showing willingness to pay 50% of the arrears against you. Don't be surprised if you find that the Commissioner has determined a much higher sum payable by you.

The culprit is interest under section 220 which is for default. The department has now taken a stand that if a settlement of disputes is to be made by asking for payment of half of the outstanding arrears, it should also collect half of the interest on default which has become due.

When you made the declaration, it is likely that you thought of only interest and penalty outstanding against you. You never thought that the department would collect interest for default.

The new charge of interest is likely to surprise you, and rightly so. This is because, while discussing or explaining the Scheme, the department did not even whisper a word that it would also collect this interest.

Even if the department is right about collecting a part of this interest, it should have been forthright in saying so, it should have said so loud and clear. It did not. In fact, we come to know of such a stand only when we see certificates issued by the Commissioner determining amount payable. That is not the right way of doing it.

That the law charges interest is obvious. However, whether you are in default or not is a matter of investigation and you will certainly have something to say about it. The Scheme does not allow for such an explanation from you.

There is another angle to it. Suppose you had not filed a declaration for KVSS. Instead you had opted for payment of the outstanding arrears, or the officer had collected the arrears forcibly. In either case, how often would the department collect the interest? Not always. There is a decent chance that you might have got away without payment of interest. But under the Scheme, they ask you to pay half the interest payable. Such are the ways of the tax department.