By TIOL News Service

AHMEDABAD, NOV 05, 2018: IN a case of clandestine removal without payment of CE duty, demand of Rs.71.21 lakhs was sought to be recovered from M/s Simalin Chemical with interest and penalty u/s 11AC of the CEA; confiscation of illicitly cleared finished goods was also proposed.

The demand notice also proposed penalties on the buyers including M/s. Shree Naklank Laminates (petitioner) under Rule 26 of the CER, 2002.

During the pendency of the adjudication of show cause notice proceedings, M/s. Simalin Chemical approached the Settlement Commission along with some other co-noticees and applied for settlement of the case.

The case was settled by granting immunity to the applicants therein in terms of section 32M of the Act.

The remaining co-noticees who had not approached the Settlement Commission were subjected to adjudication. The adjudicating authority imposed penalties of varying extent against each one of them.

Against such order, M/s. Shree Naklank Laminates and other manufacturers preferred separate appeals before the CESTAT.

The Tribunal dismissed their appeals and, therefore, the appellants are before the Gujarat High Court.

The substantial question of law is -

"In view of the fact that when in case of a manufacturer who was stated to have carry out clandestine removal of goods without payment of excise duty, the application for settlement was accepted by the Settlement Commission and was granted immunity from penalty and prosecution, the department can still proceed further against the present assessee who was facing only the notice for penalty?"

It is inter alia submitted that once the department decides to put an end to the proceedings against the main noticee, separate proceedings against the appellants cannot be conducted. Also that the proposed levy of penalty was below the minimum prescribed under the Act for which an application for settlement could be filed.

The Counsel for the Revenue submitted that the Tribunal has correctly assessed the factual and legal position. The scheme of settlement under the Act envisages application by each individual assessee and acceptance or rejection of each application. Upon acceptance of any such application for settlement, immunity would be limited to the person applying for such settlement. Such immunity cannot be expanded to cover cases of those who were not part of the settlement proceedings, the counsel emphasised.

After considering the submissions made by both sides, the High Court adverted to the provisions of Settlement contained in Chapter V of the CEA, 1944 and observed thus -

+ All these provisions thus clearly bring out one to one relation between a case where the assessee to whom such case relates who has filed an application for settlement and whose application for settlement is considered by the Settlement Commission.

+ At all stages, there is a requirement of cooperation with the settlement proceedings and true disclosures by the applicant for settlement. The order that the Settlement Commission may pass granting the application would contain details of sums to be paid and the manner in which the same would be paid. The Settlement Commission could grant immunity against prosecution, penalty and fine, subject to payment of such sums. Such immunity could be withdrawn subject to the situation envisaged in sub-section (2) or sub-section (3) of section 32K arising.

+ All these are indications that it is the assessee who applies for settlement alone whose application would be considered and either granted or rejected. The terms of settlement, the fulfillment of such terms by the applicant assessee and the resultant grant of immunity would all be in relation to the assessee who applies for settlement.

+ There is no warrant under the statutory provisions that we have noticed to hold that upon one assessee applying for settlement, such settlement application being granted and terms of settlement being fulfilled, any other assessee even if he happens to be a co-noticee, can avoid further adjudication of his case. Every assessee in whose case, the case is pending would have to apply for settlement if otherwise settlement application is maintainable and invite an order of settlement from the Commission in order to get any benefit of immunity from prosecution, penalty or fine.

Adverting to the apex Court decision in Omkar S. Kanwar v. Union of India - 2002-TIOL-924-SC-MISC relied upon by the petitioners, the High Court observed that the proceedings concerned Kar Vivad Samadhan Scheme, 1998 and in that regard -

++ The settlement is in respect of each declaration. Section 91 only gives immunity in respect of matters covered in the declaration. The matter covered in the declaration by the company is the "tax arrears" of the company. The declaration by the company admittedly does not cover the tax arrears of the directors/officers. Thus they get no immunity under section 91 on a settlement by the company. [paragraph 12 of the apex court decision (supra)]

++ On 8.12.1998, the Government of India also issued an order called the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order 1998. This order provided that "where a declaration to the designated authority has been made in respect of tax arrear 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 March 31, 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".

++ The explanatory memorandum along with the said order clarified that no civil proceedings for imposition of fine or penalty shall be proceeded with against the co-noticees and in such cases, the settlement in favour of the declarant under the scheme shall be deemed to be full and final in respect of other persons also on whom show cause notices were issued on the same matter.

++ This order [Kar Vivad Samadhan Scheme (Removal of Difficulties) Order] specifically extend the benefit of the declaration made by the company and the settlement of the case on basis of such declaration in favour of all other persons on whom show cause notice was issued in respect of the same subject matter. Kar Vivad Samadhan Scheme (Removal of Difficulties) Order thus made a special provision extending the benefit of settlement in case of the principal noticee to all persons to whom show cause notices were issued in respect of the same subject matter.

++ In fact, the extension of such benefit to the so-called subsidiary noticees was not the focal point of the judgments of Kerala and Gujarat High Court. What was at the centre of controversy was what can be stated to be a pending adjudication.

++ It was in this context while approving the decision of Kerala High Court, Supreme Court observed [in paragraph 14] that - "Thus read as a whole the words "pending adjudication" cannot be read to exclude cases where the proceedings are still pending in Appeal." Any other way of understanding this judgment of Supreme Court would pose a serious difficulty.

++ If we accept the contention of Ms. Vyas for the appellants that the ratio of the judgment of Supreme Court in case of Omkar S. Kanwar and ors (SC) (supra) was that in any settlement scheme of similar nature, once the principal noticee applies for settlement and settlement was granted, automatically benefit of immunity should enure to the benefit of all conoticees, the observations of the Supreme Court in paragraph 12 of the judgment would be in conflict with its ultimate observations and conclusions recorded in paragraph no.14.

++ Merely because the appellants herein could not have applied for settlement due to monetary limit would not change the situation.

In fine, the question of law was held against the appellants and in favour of the department.

The Tax Appeals were dismissed.

In passing: 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 - 2007-TIOL-1130-CESTAT-MUM

(See 2018-TIOL-2344-HC-AHM-CX)