SETTLEMENT OF CASES UNDER SERVICE TAX

[Dr. Sanjiv Agarwal]

The provisions relating to settlement of cases have been introduced by the Finance Act, 2012 to help resolve disputes with greater ease.

Amendment in Section 83

Section 83 of the Finance Act, 1994 has been amended to make Settlement Commission provisions applicable to service tax in line with similar provisions contained in sections 31,32 and 32A to 32 P of Central Excise Act, 1944 .

Amendment in Section 94

Section 94 of the Finance Act, 1944 has been amended to so as to provide for power for making rules in respect of provide for the settlement of cases in accordance with sections 31, 32 and 32A to 32 P of Central Excise Act , 1944 as made applicable to service vide section 83.

SETTLEMENT OF CASES

CBEC in its clarificatroy Letter No 334/1/2012-TRU dated 16.3.2012 has explained the reasons behind the settlement provision as follows –

“Provisions relating to Settlement Commission are being brought in the Service Tax by adding sections 31, 32 and 32A to 32P of the Central Excise Act in section 83. On the date of the enactment of the Finance Bill, notification containing Service Tax (Settlement of Cases) Rules, 2012 along the lines of Central Excise (Settlement of Cases) Rules, 2007, will come into effect. This should encourage quick settlement of disputes and save the business from the worries of prosecution in certain situations”.

Statutory Provisions

Settlement of cases shall be governed by relevant statutory provisions in Central Excise Act, 1944 , ie, sections 31, 32 and 32 A to 32 P and Service Tax (Settlement of Cases) Rules 2012 which shall be on the lines of Central Excise (Settlement of Cases) Rules 2007.

Chapter V of Central Excise Act, 1944 deals with settlement of cases. The statutory provisions are contained in sections 31, 32 and 32A to 32 P of the Act which provide for as follows –

Section            Deals with

31        Definitions  of assessee bench, case, Settlement Commission etc 

32.       Customs and Central Excise Settlement Commission

32A      Jurisdiction and power of Settlement Commission

32B      Vice- Chairman to act as Chairman or to discharge his function in certain circumstances

32C     Power of Chairman to transfer cases from one Bench to another.

32D     Decision to be by majority

32E      Application for settlement of cases

32F      Procedure on receipt of an application under section 32E

32G     Power of Settlement Commission to order provisional attachment to protect revenue.

32H      Power of Settlement Commission to reopen completed proceedings

32 I      Powers and procedure of Settlement Commission

32J      Inspection, etc., of reports

32K      Power of Settlement Commission to grant immunity from prosecution and penalty

32L      Power of Settlement Commission to send a case back to the Central Excise Officer

32M     Order of settlement to be conclusive

32N      Recovery of sums due under order of settlement

32 O    Bar on subsequent application for settlement in certain cases

32P      Proceeding before Settlement Commission to be judicial proceedings]

Settlement Commission

The concept of Settlement Commission is based on Wanchoo Committee Report The objectives  of Settlement Commission is to provide quick and easy settlement of indirect tax disputes of high revenue stake so that time and energy of both, litigants and the Department are saved. Settlement Commission serves the following benefits.

• Quick settlement of disputes to avoid prolonged litigation
• A one time tax evader or an un-intending defaulter can make clean  his affairs through Settlement.
• Any defaulting person can admit his guilt, pay taxes with applicable interest and avoid further liabilities.
• Settlement Commission can grant waiver/ reduction of penalty, fine or interest
• Settlement Commission can grant immunity from prosecution to assesse, its directors and partners.

In Rajshri Plastiwood  Ltd 2001 (3) TMI 322 (Sett)it was held as under –

“There is delirious effect of frequent disclosure schemes on the level of compliance  among the tax paying public and the morale of administration. However, this does not mean that the door for compromise with an errant tax payer should remain forever closed. In the administration of fiscal laws, whose primary object is to raise revenue, there has to be some room for compromise and settlement. A rigid attitude would not only inhibit a one time tax-evader or an un-­intending defaulter from making a clean breast of his affairs, but would also unneces­sarily strain the investigation resources of the department in case of doubtful benefit to revenue while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in law for a settlement with a tax payer at any stage of the proceedings”.

Bombayhigh court in A Mahesh Raj 2001 (6) TMI 227 (Sett) held that settlement machinery is meant for providing chance to tax evader who wants to turn a new leaf, as recommended by Direct Taxes Enquiry Committee (Wanchoo Committee). Also see Wipro GE Medical Systems 2002 (6) TMI 221 (Sett). In yet another case of Mandhana Dyeing v Union of India 2010 (1) TMI 241 (HC), it was held that object of Settlement Commission is not to close the doors for settlement but to open the doors for settlement . It is a beneficial statute. Court should adopt construction which advances, fulfils and furthers the object of the Act rather than the one which would defeat the same and prevent settlement. A rigid attitude would inhibit a one time tax evader or un intending defaulter from making a clean breast of his affairs and would also unnecessarily strain the investigation resources of the Government.

According  to section 32 A, the powers and authority of the Settlement Commission shall be exercised by a principal bench at Delhi and such additional benches established by the Central Government at the places as it considers necessary. The Chairman of the Settlement Commission may, for the disposal of any particular case, constitute a special bench of three or even more members. Decisions of the Commission will be by majority.

Settlement Commission’s offices are located atNew Delhi, Mumbai, Chennai and Kolkata.

Settlement of Cases

Following points are worth nothing in relation to settlement of cases-

-                      any assessee can approach the Settlement Commission

-                      The proceedings /  cases should be pending with aggregate amount of more than Rs 3 lakh involved .

-                      Application to Settlement Commission should be made with prescribed fee and in prescribed form.

-                      Application once made, can not be withdrawn.

-                      Application can be made by any assessee including directors or partners of firms .

-                      Application can also be filed by two or more assessees an joint / co - noticees.

-                      One of the pre-condition for application to Settlement Commission is that the proceedings or case must be pending before the adjudicating authority on the date of application. A show cause notice should have been issued.

-                      Application must make full and true disclosures before the Settlement Commission which is the very basis of settlement.

-                      Issues relating to recovery of Cenvat credit can also be taken up before the Settlement Commission

-                      Cases involving only penalty or cases which are pending before court or Appellate Tribunal shall not be entertained by the Settlement Commission.

-                      Cases involving interpretation of classification and valuation can not be taken up by Settlement Commission .

Settlement Rules

Service tax (Settlement of Cases) Rules 2012 shall be framed on the lines of Central Excise (Settlement of Cases) Rules 2007 to cover form and manner of application, disclosure of information in the application for Settlement of Cases, manner of provisional attachment property and fees for copies of report etc.

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