2018 (2) TMI 1248 - HC - Service Tax

Application for settlement u/s 32 of the CEA 1944 - security agency and manpower recruiting agency service - It is the case of the petitioner that on account of prevailing fluid situation about applicability of the service tax to security service agency, the service tax was not paid for the particular disputed period. However, after the visit by the officers, the service tax was substantially paid. Held that - The order of the Settlement Commission is passed on three findings. Firstly, the Settlement Commission was not convinced with the explanation offered by the petitioner regarding the circumstances for not filing the returns referred to in sub-clause-(a) to proviso to Section 32E(1), secondly, impliedly, the petitioners have not made true and full disclosure and thirdly, that the case was pending for decision before the CESTAT in an appeal filed by the Revenue. Upon receipt of the application under Section 32E, the Settlement Commission is required to issue notice within seven days on receipt of such application, calling upon such applicant to explain in writing why the application made for settlement should be allowed to be proceeded with - in connection with the hearing, a communication dated 19.12.2014 came to be issued, informing the petitioners about date of hearing on 08.01.2015. In-between, there does not appear to be any communication with regard to the application before the Settlement Commission. The affidavit in reply on behalf of the Department also does not indicate any proceedings in-between. With regard to the ground regarding pending appeal before the CESTAT, it would be pertinent to mention that the so called pending proceeding referred to by the Settlement Commission pertains to coercive action initiated under Section 87 of the Finance Act, 1994 freezing five bank accounts of the petitioners. The appeal of the petitioners came to be allowed by the Commissioner (Appeals) by its order dated 23.12.2013, against which the Department has preferred appeal before the CESTAT. In the opinion of this Court, such proceeding, for the purpose of this case, cannot be considered as a restriction under 3rd proviso to Section 32E(1) to entertain the application for settlement. Admittedly the petitioner had not paid the full tax on admitted liability. Settlement Commissioner was therefore, correct in not entertaining the application for settlement on this ground. The statute requires that along with the application, the applicant must deposit the entire tax on admitted liability - petition dismissed.

Summary

Issues:
1. Rejection of settlement application under Section 32 of the Central Excise Act, 1944.
2. Grounds for rejection: non-filing of returns, non-deposit of declared amount, pending appeal before CESTAT.
3. Interpretation of Section 32F(1) regarding the procedure for settlement application.

Analysis:
1. The petitioner, a security agency and manpower recruiting agency, filed a petition under Article 226 to set aside the Settlement Commission's order rejecting their application under the settlement scheme. The petitioner claimed non-payment of service tax due to uncertainty about its applicability, but substantial payment was made post-official visit.

2. The rejection was based on various grounds, including non-filing of returns, non-deposit of declared amount, and a pending appeal before the CESTAT. The Settlement Commission found discrepancies in the petitioner's explanations and non-payment of admitted liabilities, leading to rejection.

3. The Settlement Commission's decision was challenged, arguing that the rejection was unjustified. The petitioner contended that the application should have been considered on merits rather than on admissibility. Additionally, errors in calculating tax and interest were claimed to be unintentional, warranting an opportunity to rectify the shortfall.

4. The Department defended the rejection, citing provisions of the Central Excise Act. They highlighted non-payment of service tax, non-filing of returns, and pending attachment proceedings as valid reasons for dismissal. The Department emphasized the statutory requirement of depositing the entire tax on admitted liability along with the application.

5. The Court examined the Settlement Commission's findings and the statutory provisions governing settlement applications. The Court noted discrepancies in the petitioner's explanations, non-payment of admitted tax liabilities, and the pending appeal before the CESTAT. The Settlement Commission's decision was upheld based on these grounds.

6. The Court referred to Section 32F(1) detailing the procedure for settlement applications. The timeline for issuing notices, applicant explanations, and order issuance was outlined. The Court observed the compliance with these procedural requirements in the case at hand.

7. Ultimately, the Court dismissed the petition, upholding the Settlement Commission's decision to reject the application. The petitioner's failure to pay the full tax on admitted liability along with other discrepancies led to the dismissal. The Court did not address the possibility of reapplying for settlement after rectifying the payment shortfall.