APRIL 03, 2006

By Suresh Kumar Nair

THE Settlement Machinery is meant for providing a chance to the taxevader who wants to turn a new leaf, as recommended by the Direct Taxes Inquiry Committee, popularly known as the Wanchoo Committee. To achieve this objective, the Commission, so constituted, was empowered to grant partial or full waiver from imposition of penalty and interest and so also grant immunity from prosecution so as to lure the taxevader to 'come clean'.  Almost six years since its inception, Settlement Commission for Customs & Central Excise has continued to serve this purpose of an alternative channel for resolution of disputes.

The law makers, probably having taken the cue from Income Tax Act, 1961 , stipulated certain conditions relating to filing of an application for settlement of cases in Customs and Excise, thereby restricting the scope of operation of the said machinery. Section 127B of the Customs Act is pari-materia with Section 245C of the Income Tax, 1961. Section 127B of the Customs Act, 1962 provides filing of application by the applicant for settlement of cases before the Settlement Commission. Accordingly, the Settlement Commission cannot entertain cases which are pending with the Appellate Tribunal or in a Court. Similarly, the matters relating to classification cannot be raised before the Commission. It is also specified that no application can be made unless the appellant has filed a bill of entry or a shipping bill etc or unless the appellant has received a show cause notice issued by the proper Officer and the additional amount of duty accepted as payable by the applicant in his application exceeds two lakh rupees.

Why restrict ?

Such restrictions and many others borne out of interpretation of the statute invariably lead to interpretation of the wordings thereof and eventually to litigation. One may say, that as law evolves out of such interpretation and given the nascent stage of the provisions related to the said machinery, such issues would definitely have been unavoidable. Accordingly, in the short span, the Settlement Commission has also been besotted with certain teething issues, which have since been 'settled'.  Before I proceed further let us browse through few such issues 'settled' --

a) After varied judgments, the Settlement Commission finally held that it has the power to cover smuggled goods i.e the Settlement Commission has powers and jurisdiction to entertain an application in respect of the goods which are not covered by a Bill of Entry filed by the importer. Hon'ble Bombay High Court in 2005-TIOL-135-HC held that Settlement Commission has jurisdiction to entertain all kinds of application for settlement and not limited to an application of short levy on account of misclassification or otherwise. 

b) The second proviso clause of Section 127B of the Customs Act, 1962 was considered as an impediment in the furtherance of the spirit of settlement with divergent views regarding its interpretation. The matter has since been settled by the five member Special Bench in 2005-TIOL-01-SETTLEMENT-MUM-SB wherein amongst other matter, it was held that the application was not barred in relation to goods which are listed or notified under sub section ( 2) of Section 123 of the Act.

c) Though Board continued to hold the view that the Settlement Commission did not have the jurisdiction to settle cases concerning regularization of EO default and settlement of Customs duty and interest , such cases were admitted and settled and the same maintained by Hon'ble Apex Court in the case of Mahendra Petrochemicals [ 2004 ( 174 ) ELT A035 (SC)].  Inception of the Foreign Trade Policy ( 01.09.2004 to 31.03.2009) has since empowered the Commission to settle cases involving EPCG/DEPB/Advance Licence violations w.e.f  01.04.2005 though Section 127A of the Customs Act, 1962 continues to be silent in this regard.

d) The spirit of Settlement was more than potent in the interim order of Settlement Commission in Re: Frost International Ltd [2005 (184) E.L.T. 330 (Sett. Comm.) ] wherein it was held that a letter issued by the Jt. DGFT requesting the applicant to deposit interest on the amount of customs duty paid , gives birth to a proceeding before Jt. DGFT for levy, assessment and collection of customs duty and accordingly the Hon'ble Bench opined that the applicant fulfils all the conditions laid down under Section 127B of the Customs Act, 1962 for admission of the application in this case and accordingly, the said application was allowed to be proceeded with under Section 127C(1) of the said Act.

e) Coming to the Central Excise front, proviso clause ( a) to Section 32E(1) of Central Excise Act mandates the requirement that the applicant approaching the Settlement Commission should have filed returns showing production, clearance and central excise duty paid in the prescribed manner. Plain reading of the said proviso clause implies that declarant units who do not file returns in the prescribed manner are not entitled to file application for settlement. However, The Special Bench of the Settlement Commission in the case of Emerson Electric, Mumbai, [ 2005-TIOL-02-Settlement-Mum-SB,]  has interalia held that even declarant units, who do not file returns in the prescribed manner but have merely filed a 'declaration', are also entitled to file application for settlement.*

f) As per Section 32M of the Central Excise Act, the orders of Settlement Commission are conclusive and cannot be reopened in any proceedings. But the Delhi High Court in 2004-TIOL- 29-HC-DEL-CX ruled that this provision does not bar judicial review under Article 226 and the High Court can interfere if the order of the Commission is against the Act or the Rules.

The above list is not exhaustive and only illustrative. 

The ritual ?

Settlement Commission has in furtherance to the spirit of settlement , as expounded in its title , settled matters by subtly expanding its purview of operation much to the chagrin of Revenue ( or at least of the officers who represent  the cases before the Bench ).  It is a fact that such issues, as above, have been fought tooth and nail by the Department before conceding these brownie points. Though the Act continues to speak the same language, the interpretation of the same coupled by the above judgments and many more has vastly diluted any scope of opposing admission / final settlement of cases through the Settlement Machinery. Yet, it is almost a ritual to see the admission being opposed for the sake of it ( especially when complete duty liability has been accepted by the applicant ) or at least trying to make a case out with regard to imposition of  penalty, fine and prosecution . What's wrong in fighting for imposition of penalty, fine and prosecution ? My response is 'Is it worth the trouble ?'. To examine this response, lets look the relevant section in this regard.

What the statue says :-

Section 127H(1) of the Customs Act, 1962 , reproduced herein below, addresses the Settlement Commissions power to grant immunity from prosecution and penalty.

The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 127B has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his duty liability, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also either wholly or in part from the imposition of any penalty, fine and interest under this Act, with respect to the case covered by the settlement :

A peep into a plethora of decisions concerning the said Section and it is evident that Settlement Commission has been following a practice of allowing immunity when the applicant comes clean with full and true disclosure of its duty liability which also sets the trend as far as co-operation with the Commission is concerned . Though the same is in consonance with the spirit of Settlement and also the language of the relevant section, such a view has been a cause of heartburn for the enforcement wings given that in most cases hard core offenders and smugglers backed by the power of  money hoarded after indulging in such activities get away with next to nothing. It is pertinent to note that the language of the said Section does leave any scope to consider a repeat offender or for that matter the nature of offence / modus operandi and cartel involved.

I do not know when was the last time, the Settlement Commission decided it fit to impose part penalty or some amount of redemption fine in a case where the entire duty liability has been accepted by the applicant. Consequent to the view expounded in Frost International Ltd [2005  ( 182 ) ELT 272 ( Sett Comm ) ( the review against which was also dismissed , as reported in 2005 ( 188 ) ELT 537 ( Sett Comm ) and in a slew of other cases, I do not think there is a case made out for imposing penalty as more often than not , one will find that the full and true disclosure and co-operation with the proceedings before the Commission invariably leads to grant of immunity from penalty and prosecution to the applicants and even co-applicants , if any. One may argue that there is no binding precedent in Settlement matters, but once the trend has been set and continued judgments on the same line such as Siddha Exports ( Final Order No 11/2005 ' Cus dated 22.02.2005 ) ; Ralson Carbon Black [ 2003 ( 159 ) ELT 1073 ( Sett. Comm ) , Nirma Ltd [ 2003 ( 153 ) ELT 452 ] and the ilk , is there any scope of contesting the matter of imposition of penalty , fine  and prosecution ?  If such is the view, why should one oppose the application in case of full and final disclosure is accepted by the applicant, just for the same of opposition ?  Why cannot the Settlement Commission unilaterally decide the issue without going through the regular unwarranted modalities of hearing both sides.

Before parting '

As I hit the keys for this article, the first thing that came to mind was THE RULE OF LAW : If the facts are against you, argue the law . If the law is against you, argue the facts. If the facts and the law are against you, yell like hell .

Given the above constraints in the subject matter, it is important to have a look as to whether the 'tax evader does turn into a new leaf' after Settlement of his case or feels more buoyed at the ease at which he has escaped the clutches of law, with no scratches, to say the least. Go ahead try and defraud the Government again ' In case your stars are against you and the Department nabs you in the Act, the ambience of Settlement Commission is a soothing balm to take recourse to'.. A premium to evade duty one is compelled to ask ? At an interest rate of 10% on the duty evaded and absolute immunity from all other punitive measures, the hard core tax evader may never bother to turn a new leaf. Though the Commission has indeed served the purpose of curbing litigation to a great extent, I feel that this trend of granting immunity from whole of penalty and fine in serious cases of economic offence / blatant cases of smuggling and involvement of a large syndicate / cartel in organized crime needs to be revisited as the same could have grave implications in days to come. Is there a trend where only blatant smuggling cases and cases of clandestine removal are visiting the doorsteps of Settlement Commission? I cannot stop myself from quoting Jefferson, Letter   1801 : ' The sword of the law should never fall but on those whose guilt is so apparent as to be pronounced by their friends as well as foes' ' May be there was no Settlement Commission during the material time ' If it were to be, this great man may not have bothered to come up with these few words of wisdom !!!

(The Author is a serving departmental officer; the views are his personal)