Cus - Whether co-noticees are also entitled for waiver of penalty when CCESC settles case of main noticee - Reference to Larger Bench
By TIOL News Service
MUMBAI, JULY 13, 2017: THE noticee against whom a duty demand was made by a SCN settled his case before the Settlement Commission. In this scenario, whether the co-noticees who were a part of the proceedings initiated against the main noticee could be proceeded against separately, in case they did not make any application for settlement, for whatever reason, was the question that was dealt with by the CESTAT in a number of cases.
One of the earliest cases in this regard was of Shitala Prasad Sharma & Manoj Sharma 2005-TIOL-254-CESTAT-MUM wherein the main parties M/s Sapna Engineering and its proprietor Shri Subhash Chandra Sharma, had approached the Settlement Commission and by Order dated 13 Novemeber 2003, the Settlement Commission had while settling their case granted immunity to both of them from levy of the penalty. However, the co-noticees to the SCN in that case had not filed any application for settlement (presumably because there was no duty demand against them but only proceedings for imposition of penalty u/r 209A of the CER, 1944 and the law was unclear whether they could participate in settlement) and after the main case was settled the CCE, Mumbai-I had imposed penalties on Shitala Prasad Sharma & Manoj Sharma u/r 209A apparently because the SCN to the said extent had not been settled by the Settlement Commission.
In their appeals filed before the Tribunal, both had inter alia sought support of the decision in Union of India Vs. Onkar S. Kanwar – 2002-TIOL-924-SC-MISC wherein it was held by the apex Court that settlement by main declarant under KVS Scheme would also operate as full and final settlement in respect of all other persons to whom show cause notice was issued in respect of the same matter.
The Single Member Bench comprising of the Member (Judicial) had held -
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"3. After hearing both sides and perusal of the records and the case laws, I am fully convinced that the co-accused cannot be vested with any higher penal consequences than the main accused. Since the main accused stands absolved of the penal consequences, there is no question of imposition of penalty on the appellant. The impugned order is, therefore, set aside and the appeals are allowed."
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Similar view came to be taken by the CESTAT, Mumbai in the following cases and which also involves a Majority decision of 2007 which came to be relied upon in later cases.
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Sr. no.
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Party name
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Citation
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Held
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Constitution
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| 1 |
M/s ADHUNIK TRANSPORT ORG
M/s ATASH TRANSPORT
SHRI I P MISHRA |
2006-TIOL-1370-CESTAT-MUM |
Since the main parties have settled their case before Settlement Commission & granted immunities from penalty, no penalty u/r 209A can be imposed on the co-accused – SC decision in Onkar S.Kanwar referred.
Appeals allowed
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Division Bench |
| 2 |
SHRI S K COLOMBOWALA
M/s EAST WEST FREIGHT CARRIERS PVT LTD
SHRI MANHARLAL H VORA
SHRI ASHWIN SHANTILAL MEHTA
M/s NIPPON BEARING PVT LTD
SHRI SHALIN BEARINGS CORPORATION |
2007-TIOL-441-CESTAT-MUM |
Whether provisions relating to Settlement of cases under the Customs Act can be considered to be identical to KVSS justifying invocation of case laws under the KVSS - difference of opinion -
matter referred to President of Tribunal
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Division Bench |
| 3 |
---do--- |
2007-TIOL-1130-CESTAT-MUM-LB |
While provisions of KVSS and settlement are not completely identical, underlying objective in both is similar - Case against co-noticees comes to an end once a case is settled for main applicant : Cestat by majority |
Majority |
| 4 |
TRAVEL PLANNERS PVT LTD
SHIKHAR JAIN |
2007-TIOL-1033-CESTAT-MUM |
Customs - Once the main accused stands absolved of penal consequences by settlement commssion, then co-accused can't be penalised - Appellant's
appeal allowed
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Division Bench |
| 5 |
PEARL POLYMERS LTD |
2008-TIOL-737-CESTAT-MUM |
Penalty - Case against the co-noticees comes to an end once the order of the settlement is passed in respect of the person entitled to file an application before the Settlement Commission – Larger Bench decision in Nippon Bearing Pvt Ltd., Vs. CC (Imports) Mumbai as reported at 2007-TIOL-1130-CESTAT-MUM followed.
Appeal allowed
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Single Member Bench |
| 6 |
M/s WINDOORS (INDIA) |
2009-TIOL-704-CESTAT-MUM |
Main noticee having settled their case before the Settlement Commission and being granted immunity from fine, penalty and prosecution, co-noticees cannot be vested with any higher penal consequences – Tribunal decision in S.K.Colombowala - 2007-TIOL-1130-CESTAT-Mum relied upon.
Appeal allowed
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Single Member Bench |
| 7 |
CHANDRAKANT P MOTA |
2013-TIOL-2119-CESTAT-MUM |
Cus - Penalty imposed u/s 112(a) and 114A of the CA, 1962 - appellant contended that the case against the main co-noticee and other co-noticees have been settled by the Settlement Commission vide order dated 9.6.2010 - hence proceedings against the appellant also comes to an end as per the decision of this Tribunal in the case of S.K.Colombowala - 2007-TIOL-1130-CESTAT-MUM - therefore, impugned order quo penalty against the appellant be set aside : HELD - in the case of S.K.Colombowala, the Tribunal has held that cases against all co-noticees come to an end once order of settlement is passed in respect of the persons entitled to file an application before the Settlement Commission - in view of the above decision, when proceedings under the Settlement Commission have been settled, therefore, penalty is not imposable on the appellant and hence not sustainable - stay application as well as appeal allowed by setting aside the impugned order quo penalties : CESTAT [para 5, 6]
Appeal allowed
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Division Bench |
| 8 |
M/s EXPRESS TRANSPORT PVT LTD |
2014-TIOL-2446-CESTAT-MUM |
Cus - Penalties against co-noticees - Matter has been settled by the Settlement Commission against the importer who is the main party in the case, therefore, as per decision of S.K. Colombowala - 2007-TIOL-1130-CESTAT-MUM the proceedings initiated against all the four noticees comes to an end - impugned order set aside and appeals are allowed: CESTAT [Para 4]
Appeals allowed
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Single Member Bench |
| 9 |
DAROOWALA BROS CO |
2014-TIOL-2473-CESTAT-MUM |
Cus - Penalty - s.112(a) of Customs Act, 1962 - Importer had approached the Settlement Commission and got the case settled wherein the demand of differential duty and interest have been confirmed against the importer and penalty has been dropped - Penalty on the appellant CHA is not imposable in view of decisions in Mukesh Garg - 2011-TIOL-949-HC-DEL-CX and S.K.Colombowala - 2007-TIOL-441-CESTAT-MUM - Appeal allowed: CESTAT [para 5]
Appeal allowed
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Single Member Bench |
| 10 |
VINOD TOMAR |
2015-TIOL-110-CESTAT-MUM |
Cus - Penalty imposed on appellant CHA - Case against Nitco Tiles, the main party, has been settled before the Settlement Commission - relying on the decision of S.K.Colombowala, when the case against the main noticee has been settled by the Settlement Commission, in that case penalty against the other co-noticees have also got settled - Penalty set aside and appeal allowed: CESTAT [Para 4, 5]
Appeal allowed
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Single Member Bench |
| 11 |
SHRI NALIN CHOKSEY |
2015-TIOL-601-CESTAT-MUM |
Cus - Appellant helping importer in clearance of car through Customs - There are no multiple causes of action and the total action of sale is a indivisible act - Once a case has been decided in respect of the importer by the Settlement Commission, it is not open to Revenue to proceed against other co-noticees - Appeal allowed: CESTAT [para 6]
Appeal allowed
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Single Member Bench |
| 12 |
SHRI SANJAY KASHIKAR |
2016-TIOL-240-CESTAT-MUM |
Cus - Issue is settled by the main party, before Settlement Commission - Therefore, in view of the Majority decision of Tribunal in the case of S.K.Colombowala 2007-TIOL-1130-CESTAT-MUM Penalty is not imposable on the appellant CHA as the dispute is settled by the main-noticee before Settlement Commission - Order imposing penalty of Rs. 2 lakhs on the appellant u/s 112(a) & 114AA of the Customs Act, 1962 set aside & appeal allowed with consequential benefits: CESTAT [para 5, 5.1]
Appeal allowed
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Single Member Bench |
| 13 |
KINSHIP AGENCY PVT LTD |
2016-TIOL-486-CESTAT-MUM |
Cus - Appellant only acted as CHA and once the main noticees have settled the matter by approaching the Settlement Commission and on whom no penalties have been imposed, then in that case the appellant who is a co-noticee, cannot be penalized - Order set aside and appeal allowed: CESTAT [para 3, 5]
Appeal allowed
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Single Member Bench |
| 14 |
KAMLESH MAJITHIA |
2017-TIOL-1345-CESTAT-MUM |
CX - Penalty - Alleged fraudulent availment and utilization of CENVAT credit - Main noticee approached Settlement Commission and settled the case - penalty imposed on co-noticee - appeal to CESTAT by appellant as well as Revenue in the matter of penalty. Held: Tribunal has taken the view, time and again, that once a proceeding has been settled insofar as the main noticee is concerned, continuation of proceedings under the tax laws against the other noticees is not equitable - penalty imposed is set aside - Appeal of Kamlesh Majithia is allowed and that of Revenue is rejected: CESTAT [para 5, 6]
Assessee appeal allowed/Revenue appeal rejected
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Single Member Bench |
Interestingly, the following case saw a different stand taken by the CESTAT –
| 1 |
SHRI MOTILAL GUPTA & Ors. |
2016-TIOL-1329-CESTAT-MUM |
Cus - LB decision in S.K.Colombowala is sub silentio - Merely because the main noticee has settled its case before the Settlement Commission, it cannot be said that proceedings against co-noticees cannot continue - Appeals dismissed: CESTAT [para 4.4 to 4.8, 5, 6]
Appeals dismissed
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Single Member Bench |
Incidentally, in the present case, a similar question came before the Single Member Bench of the CESTAT, Mumbai.
The appellant was imposed a penalty of Rs.2,50,000/- under Section 112(b) of the Customs Act, 1962 and a penalty of Rs.1 lakh under Section 114AA of the Customs Act, 1962, in connection with a case of import of car in the name of Shri Kapil Wadhawan. At the time of import, the car was mis-declared as new car whereas on an enquiry it was found that it was an old car, value was also mis-declared.
Before the CESTAT, the appellant submitted that the case of the main appellant was settledby the Settlement Commission and, therefore, the present appellant should be absolved from the punishment of penalty imposed by the adjudicating authority. Case laws referred above were cited.
It is also submitted that though there is a contrary judgment to the above in the case of K. I. International Ltd. Vs. Commissioner of Customs, Chennai 2012-TIOL-2032-CESTAT-MAD but the same was departed in the Division Bench judgment in the case of HIM Logistics Pvt. Ltd. 2016-TIOL-1208-CESTAT-DEL. Furthermore, the judgment of S.K. Colombowala (supra) is to be considered as a Larger Bench judgment in the light of the Delhi High Court judgment in the case of P.C. Puri Vs. Commissioner of Income Tax, Delhi-II 2003-TIOL-503-HC-DEL-IT-LB and, therefore, it would prevail over the Division Bench in the case of K.I. International (supra).
The AR supported the order of the original authority and submitted that the decision in K.I. International (supra) is based on the Supreme Court decision in the case of S.P. Chengalvaraya Naidu AIR 1994 S.C.853 and, therefore,the decision in S.K. Colombowala (supra) was held as per incuriam and not a good law.
Inasmuch as in the case of K.I.International, it was held thus -
" 11. ORDER OF SETTLEMENT COMMISSION WHETHER SETTLES THE DISPUTE OF LITIGANTS WHO WERE NOT BEFORE THE COMMISSION: …The order of the Tribunal in the case of S.K.Colombowala V CC (Import) Mumbai - (2007-TIOL-1130-CESTAT-MUM) does not come to rescue of these appellants since that decision did not take into consideration the law laid down by Apex court in the case of Chengalvaraya Naidu (supra). Accordingly, the orders passed by Settlement Commission in case of importers are not binding on Tribunal to grant relief to the appellants who were not before the Settlement Commission and fraud and Justice being sworn enemy of each other, the appellants in aforesaid appeals are barred to take undue advantage of orders of Settlement Commission since they were not before the Commission. Further, the doctrine of finality does not immune these appellants who defrauded Revenue."
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After considering the submissions, the Member (Judicial) inter alia observed that in a recent case of Pankajakshi Vs. Chandrika [ Civil Appeal No. 201 of 2005 with C.A. No. 8576 of 2014, dated February 25, 2016], a 5-Judges Larger Bench of the Supreme Court had held that in case of reference to third member in case of conflicting views between two members of Division Bench, it can not be considered as Larger Bench decision . And, therefore, the decision of the Tribunal in case of S.K. Colombowala (supra) cannot be considered as a Larger Bench decision.
Noting that there are conflicting views of two Division Benches of the Tribunal and the dispute needs to be resolved by the Larger Bench, the following question was framed -
| "Whether in case when main assessees case is settled by the Settlement Commission, the other Co-noticees, in the same show cause notice, are also entitled for waiver of penalty from this Tribunal." |
The Registry was directed to place the matter before the President for constituting a Larger Bench.
In passing: What the Good and Simple Tax holds?
The Model GST Law brought out in June 2016 referred to Chapter XX as pertaining to Settlement of Cases. However, Page 111 of the said Model Law mentioned –
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Chapter – XX
SETTLEMENT OF CASES
At present, the provisions for settlement of cases are incorporated under Chapter VIIA of the IGST Act.
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Interestingly, there was no such Chapter VIIA in the IGST Act, 2016 (draft) but a Chapter – VIII titled "Settlement of Cases" and comprising sections 11 to 26.
The Model GST Law(s) brought out in November 2016 chose to keep mum on the provisions of settlement inasmuch as there weren't any Chapters dealing with "Settlement of Cases".
And, therefore, the FAQ on GST (2nd Edition, 31 st March 2017) released by the CBEC contained a Chapter 18, no doubt, titled "Settlement Commission [Omitted]" [Page 149] which mentioned – "Omitted as the chapter is no longer there in the Final GST Act(s)".
The long and short is that the Good & Simple Tax Law does not want any "Settlement of Cases" .
(See 2017-TIOL-2430-CESTAT-MUM)
