APRIL 26, 2015

By Pramod Kumar Rai, Advocate

1. A practice has developed whereby for settlement of a case before Customs, Excise & Service Tax Settlement commission as many applications are being filed as number of noticees in the Show Cause Notice. Under the Act, the settlement application can be filed by applicant alone and there is no concept of moving application as ' co-applicant '. However a customary practice has developed of moving application by each co-noticee from whom there is no demand of duty as co-applicant, without any kind of legal sanction. The noticee approaching the Commission with admitted tax liability is being termed as main applicant and other noticees on whom penalty is proposed in SCN are being termed as Co-applicant. The co-applicants are filing applications without admitting any kind of liability. The Commission is accepting the application of all the applicants/co-applicants with settlement application fee of Rs 1000/-.

2. The application filed by noticee with admitted tax liability is being entertained by Commission, irrespective of the fact whether or not other co-noticees on whom penalty is proposed in SCN, have approached Commission. In case some or all of the noticees with penal liability in SCN do not approach the commission their case is being kept out of settlement and being left open for adjudication. However,the application filed by a noticee on whom penalty is proposed in SCN is not entertained by Commission, in case the noticee with duty liability has not approached the Commission. In this way basically for a single SCN, Commission is making as many cases as number of noticees. Thus noticee specific settlement is being done by Commission and Commission is not settling the case in totality.

3. When case of a noticee with penal liability is kept open for adjudication even after settling the case of assessee with tax liability, the case is not settled in entirety. In Commissioner v. GE Medical Systems, the Karnataka High court held that imposition of penalty is directly linked and consequential to re-determination of duty and in that view, penalty cannot be decided without going into issue of duty evasion.

4. Settlement commission needs to settle the CASE based on application of APPLICANT. Under the law 'case' as well as 'applicant' is well defined. Section 31 of the CEA 1944 (Section 127A of Customs Act 1962) defines "case" as under -

"case" means any proceeding under this Act or any other Act for the levy, assessment and collection of excise duty , pending before an adjudicating authority on the date on which an application under sub-section (1) of section 32E is made:

5. It is to be noted that

a. Definition of case is not person or noticee specific rather subject matter specific.

b. Under CEA 1944/CA 1962, it is specifically in relation to the proceeding for the levy, assessment and collection of excise/customs duty and not in respect of proceeding for imposition of penalty in isolation. The proceeding of penalty is incidental and included in the proceeding of levy, assessment and collection of excise/customs duty. A proceeding of penalty has no existence in isolation to the proceeding of levy, assessment and collection of excise duty in relation to which penalty is proposed.

6. Section 32E of CEA, 1944 (parallel provision s. 127B in Customs Act, 1962) prescribes following qualification for the person to be applicant which shows that an assessee who is manufacturer of goods alone can be applicant and nobody else.

a. The applicant must be an assessee under the Act. The Director, transporter, broker, buyer not being an assessee cannot be applicant under Section 32E of the Act.

b. The applicant has to make a full and true disclosure of his duty liability which has not been disclosed before the Central Excise Officer having jurisdiction, and has to admit short levy of the duty. The person other than manufacturer cannot be applicant because he cannot disclose any duty liability on himself.

c. The applicant is one who has filed returns showing production, clearance and Central excise duty paid in the prescribed manner. The person other than manufacturer cannot be applicant because he has not filed any return.

d. The applicant has to pay the additional amount of excise duty accepted by him along with interest due under section 11AB in advance. The person other than manufacturer cannot be applicant because he cannot pay duty in advance on his count.

7. It is submitted that so-called Co-applicants cannot be applicants either under Section 32E of CEA 1944 or under section 127B of Customs Act because -

a. They do not approach Commission by admitting duty liability. For every applicant under the law it is mandatory to admit a minimum of three lakhs of tax liability. The co-applicants who are neither manufacturers nor importer/exporter cannot admit any tax liability also.

b. The applicant must be an assessee under the Act assessed to duty liability. The Director, employee, transporter, broker, buyer, CHA etc not being an assessee cannot be applicant under Section 32E/127B of the Act.

c. The applicant has to make a full and true disclosure of his duty liability which has not been disclosed before the Officer having jurisdiction, and has to admit short levy of the duty. The person other than assessee cannot be applicant because he cannot disclose any duty liability on himself.

d. The applicant is one who has filed returns showing production, clearance and Central excise duty paid under central Excise law or who has filed B/E or S/B under Customs Law. The person other than manufacturer/importer/exporter cannot be applicant because he has not filed any return/bill of entry/shipping bill.

8. It is submitted that so called Co-applicants are not applicants either under Section 32E of CEA 1944 or under section 127B of Customs Act rather they are just pro-forma interested parties having interest in the settlement of case and definitely they will be saddled with liability in case, the 'case' is not settled. However if the 'case' is settled, it needs to be settled in its entirety in respect of all persons who are associated with a case and not in respect of specific persons and once the case is settled no penalty can be imposed on any person in respect of that 'case' because definition of 'case' is not person specific.

9. This view has been taken by the Larger Bench of the Tribunal in the case of S.K. Colombowala - 2007-TIOL-1130-CESTAT-MUM where it was held that once the case is settled by the Settlement Commission, it is settled in its entirety and such a case then cannot be adjudicated qua other co-noticees. This decision has been followed in the cases of Windoors (India) V/S Commissioner Of Central Excise, Mumbai-II - 2009-TIOL-704-CESTAT-MUM and Pearl Polymers Ltd. - 2008-TIOL-737-CESTAT-MUM.

10. However the Commission continues to vivisect the SCN into as many cases as number of noticees and whenever the Tribunal decisions were placed before Commission, Commission refuses to take those decisions on record. Commission has not given any elaborate reasoning so far as to why it does not agree with Tribunal decisions and as to how and why it treats co-noticees without duty liability as applicant when under the law they cannot be applicant.

11. It is a wrong practice on the part of Commission to take application fee from proforma parties and to treat them as applicant when under the law they do not qualify as applicant. It is also wrong on the part of Commission to settle the case specific to noticee and not in its entirety. It is against the basic objective of settlement to keep part of the case open for adjudication. The case of duty evasion by a single party under a single SCN cannot be vivisected into as many cases as number of noticees. The practice of noticee specific settlement by commission needs to be changed towards settlement of the case in totality.