RECTIFICATION OF MISTAKES BY SETTLEMENT COMMISSION

[Mr. M. GOVINDARAJAN]

Settlement Commission

Chapter V of the Central Excise Act, 1944 deals with the settlement of cases by Settlement Commission established under section 32 of the said Act.  Section 32E of the Act provides that the  assessee may, in respect of a case relating to him, make an application, before adjudication, to the Settlement Commission to have the case settled, in such form and in such manner as may be prescribed and containing a full and true disclosure of his duty liability which has not been disclosed before the Central Excise Officer having jurisdiction, the manner in which such liability has been derived, the additional amount of excise duty accepted to be payable by him and such other particulars as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of misclassification, under-valuation, inapplicability of exemption notification or CENVAT credit [or otherwise and any such application shall be disposed of by the Settlement Commission.

The provisions of Central Excise Act regarding to Settlement Commission are also applicable to service tax under Chapter IV of Finance Act, 1994.

Objects of Settlement Commission

The objectives of the Settlement Commission are-

• Providing an alternate dispute resolution mechanism for the assesses;
• Speedy recovery of Customs, Central Excise duties and service tax blocked at various adjudication and appellate levels;
• To avoid costly and time consuming litigation process;
• To provide an opportunity to an assessee to disclose true and complete figures of their liability;
• To promote quick settlement of disputes.

Benefits

The following are the benefits available to the assessee in approaching the Settlement Commission to resolve a dispute of tax between the assessee and the Department-

• Immunity from Prosecution,
• Reduced penalty or no penalty;
• Peace of mind as the settlement order is conclusive and cannot be challenged by the department.
• Savings on litigation cost.

The mandatory requirement for submission of application by the assessee that the applicant shall provide full and true disclosure, including information and materials not provided under the jurisdiction officer at the time of assessment. 

Rectification of mistake

The issue to be discussed in this article whether the Settlement Commission can rectify its own findings.  There is no explicit provision under the Central Excise Act giving powers to the Settlement Commission to rectification of mistakes.

In S. SARAVANA ARUL VERSUS THE CUSTOMS & CENTRAL EXCISE SETTLEMENT COMMISSION, THE COMMISSIONER OF SERVICE TAX, SERVICE TAX COMMISSIONERATE, CHENNAI [2021 (7) TMI 230 - MADRAS HIGH COURT], the petitioner is engaged in the business of textiles, jewellery, house hold articles in Chennai.  The petitioner took over his family business and the commercial properties.  The petitioner duly registered with VAT authorities, Tamil Nadu and Service tax department.  The petitioner paid the taxes and filed the returns periodically under these two indirect tax laws.  One of the tenant of the petitioner, viz., Canara Bank refused  to pay service tax for the building rented to it by the petitioner with reference to the decision of High Court.  Therefore the petitioner did not levy tax from the bank and did not remit any tax in this regard.

The Director General of Central Excise Intelligence, Chennai initiated action by visiting the business premises and conducted enquiries regarding renting of immovable property for commercial purposes by the petitioner.  In order to settle the issue in a peaceful manner the petitioner filed an application before the Settlement Commission setting out the facts and the circumstances.  The said application was adjudicated by the Settlement Commission with reference to the information and particulars provided by the petitioner.  The Settlement Commission accepted the terms of reference and finally granted partial immunity from penalty to the applicant and further granted immunity from prosecution and the order was passed on 17.09.2014.

The petitioner claimed inclusive of tax for the rent charged from Canara Bank under the impression that the service tax was not attracted in this case.  The same was disputed by the Department.  The Settlement Commission observed that the petitioner has not produced any evidence that the service tax is not recoverable for such services.  Therefore the benefit of cum-tax was not allowed to the petitioner.  The Settlement Commission settled the service tax at ₹ 1,57,39,836/-  and the interest income @ ₹ 49,86,109/-.  The applicant paid both the service tax and interest.

However the petitioner filed the present writ petition before the High Court challenging the order of the Settlement Commission dated 17.09.2014.  The petitioner put forth the following contentions before the High Court-

• With reference to Sales tax they were remitting the same with the department.
• With reference to service tax collected from the tenants they have paid the tax with the department.
• They have not committed any irregularity.
• The interest portion settled by the Settlement Commission is erroneous and contradictory to the facts placed before the Settlement Commission.

Therefore the petitioner is constrained to approach the High Court by means of writ petition. 

The Department contended that there was short payment by the petitioner with reference to the payment of service tax.  The service tax and interest settled by the Commission have been paid by the petitioner.  Once the matter is settled pursuance to the application submitted by the petitioner, there is no scope for further adjudication of facts on merits and thus the writ petition is not maintainable.

The High Court considered the submissions put forth by the petitioner and the Department.  The High Court held that interest is chargeable based on certain admitted facts and circumstances placed before the Settlement Commission.  If at all there is any error apparent in respect of such findings with reference to the original records, the petitioner is at liberty to approach the Settlement Commission for clarification or for rectification of any such error apparent regarding the facts admitted or pleaded.  The High court cannot do such adjudication in a writ petition, which requires the examination of original records and admission statements made by the parties before the Settlement Commission with reference to the application filed under Section 32E of the Central Excise Act, 1944.

The High Court did not interfere with the orders of the Settlement Commission.  The High Court further held that the Settlement Commission is empowered to rectify such mistakes by following the procedures contemplated.  The petitioner is given liberty to file an application, if required.