FEBRUARY 15, 2010

Time to take a fresh look at Settlement Commission provisions

By Sunil Achutan

THERE was an outcry when the Finance Act, 2007 made drastic changes in the provisions concerning settlement of cases. Critics said that these amendments sounded the death knell for the Settlement Commission, Customs & Central Excise. However, the ground reality is that the Settlement Commission still functions and there are applicants settling their ‘cases', albeit the applications are in a trickle.

All said and done, the changes incorporated w.e.f 01.06.2007 have made opting for settlement a boring proposition to many would-be applicants. Some of the provisions are also palpably lopsided and favour every one else but not the applicant.

Take a look at the provision contained in section 32F(6) of the Central Excise Act, 1944 –

(6) An order under sub-section (5) shall not be passed in respect of an application filed on or before the 31st day of May, 2007, later than the 29th day of February, 2008 and in respect of an application made on or after the 1st day of June, 2007, after nine months from the last day of the month in which the application was made, failing which the settlement proceedings shall abate , and the adjudicating authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 32E had been made.

Suffice to say that if the Settlement Commission is not in a position to pass an order under sub-section (5) of section 32F within the mandatory period prescribed in law, the proceedings will abate and the case is tossed back to the adjudicating authority.

It is pertinent to note that the aforesaid application had crossed the threshold stage inasmuch it has been allowed to be proceeded with by the Settlement Commission under section 32F(1) of the CEA, 1944.

In the above scenario, in the context of section 32F(6) [ supra ] a few questions that direly need answers are -

+ What is the fault of the applicant if the Settlement Commission is unable to settle his case and pass an order within the prescribed period?

+ Assuming that the proceedings stand abated will the applicant get back the admitted amount of duty including interest deposited without filing a refund claim?

+ Shouldn't the principles of natural justice be followed before the proceedings are held to be “abated” by the Commission?

+ Will the applicant be entitled to file another application in respect of the same case after the previous proceedings stand abated?

In the matter of the new provisions inserted by the Finance Act, 2007 in the Income Tax Act, 1961 similar to the one on the Indirect Tax side, the Hon'ble High Court's have held thus -

+ Income Tax - Settlement Commission - abating of cases filed before June 2007 for no fault of applicant - not legal - Government to consider appointment of more benches if is desirous of clearing pending cases: Bombay HC [ Star Television News Ltd. vs. UOI 2009-TIOL-398-HC-MUM-IT]

+ I-T - Settlement applications not to abate on March 31, 2008 - It cannot be that only Petitioners are bound by law and Commission is not; Such situation would lead to anarchy : Delhi HC [Vatika Farms Pvt. Ltd. vs. UOI ] 2008-TIOL-191-HC-DEL-IT

The writer has attempted to answer the queries but feels that it would be prudent for the law makers to amend the settlement provisions the coming Budget with an eye on mopping up locked up revenue rather than making the Settlement Commission another forum of litigation!

+ The answer to the first question lies in the observations of the Hon'ble Bombay High Court in the case of 2009-TIOL-398-HC-MUM-IT - “ the Settlement Commission should consider whether the proceedings had been delayed on account of any reasons attributable on the part of the Applicant. If it comes to the conclusion that it was not so, then it should proceed with the application as if not abated .”

+ The answer to the second question would lie in the affirmative for the reason that there is nothing in law which mandates that the amount paid while filing the application for settlement is to be retained by the department.

+ The universally accepted Latin maxim - Audi alteram partem - no one should be condemned unheard necessitates that a hearing would be required to be granted to the applicant before his application is held to be “abated” by the Commission.

+ The answer to the fourth question appears a bit tricky.

In this regard, section 32O(2) of the CEA, 1944 reads -

“(2) Where an assessee has made an application under sub-section (1) of section 32E, on or after the 1st day of June, 2007 and if such application has been allowed to be proceeded with under sub-section (1) of section 32F , such assessee shall not be entitled to apply for settlement under section 32E in relation to any other matter :

Provided that such assessee shall not be prevented from filing an application for settlement if the issue in the subsequent application is, but for the period of dispute and amount, identical to the issue in respect of which the earlier application is pending before the Settlement Commission”

As mentioned, the present application has crossed the threshold of section 32F(1) of the CEA, 1944 and the Bench had allowed the application to be proceeded with. If this be so, as per section 32O(2), the applicant/assessee will not be entitled to apply for settlement in relation to any other matter . But, as far as the same matter goes, it can be deduced that the section does not bar the same. This argument finds support by the proviso clause which says that the bar is inoperative when the issue is identical but for the period of dispute and amount.

So, if an application is “abated” by the Settlement Commission in terms of section 32F(6) of the CEA, 1944, the applicant can once again approach the Settlement Commission with a fresh application!

Be that as it may, if the CESTAT's power to extend the stay granted beyond the mandatory period of 180 days has been upheld by the Apex Court in the case of Kumar Cotton Mills [2005-TIOL-42-SC-CESTAT], it is felt that the Settlement Commission can also hear and dispose the application filed the second time after the first one stands abated.

With the Union budget around the corner, it is time for a fresh look at these lopsided provisions of settlement.

(The views expressed are strictly personal of the author)