The bench, consisting of justice AS Lahoty and justice CK Mahajan, heard on Tuesday the public interest petition filed by the AIFTP.

While hearing the petition, the court observed that it has only two options-- strike down the scheme or make amendments so that it no longer remains discriminatory.

The federation was represented by GS Sharma, senior advocate and PS Sarin, vice-president, AIFTP. The solicitor general of India, Lokur would make his submissions tomorrow.

According to AIFTP, the samadhan scheme is discriminatory as it favours those taxpayers who have not paid taxes and neglects those who have been obliging and paid their dues.

AIFTP's petition has pointed out that the Samadhan scheme does not provide for withdrawal of appeals by the income tax department though the revenue department itselfis a major litigant.

The federation had also submitted to the court that even the standing committee on finance has asked the government to make suitable amendments in the scheme so that the differentiation between the assesses is removed.

The much-touted scheme was to be introduced to reduce litigation (as announced by the finance minister in the budget speech) but the final scheme turned out to be focussed only towards reducing the tax arrears. KVSS came into force on September 1, 1998, and will close on December 31.

On Tuesday's hearing the bench asked the AIFTP if there was any way out so that the scheme survived but the discrimination removed.

"As such the scheme is laudable as it has sought to reduce litigation but the only (and major) drawback is that it differentiates between the assesses," said Sarin.

According to sources, the scheme would get a major boost if the court allows assesses who have paid the tax to avail themselves of the benefit of the scheme.

"The scheme has so far got onlya lukewarm response since a majority of the beneficiaries come under that category who have already paid the taxes and hence, have been left out," they added.

The scheme came up for hearing on August 20 when two weeks was given to the centre to file its reply. As the government failed to file the reply in the stipulated time, the hearing was fixed on September 21. However, the government filed its affidavit on September 20 and the final hearing was fixed on October 27.