READING DOWN MODEL IGST ACT - (SETTLEMENT OF CASES)(PART-11)

[Dr. Sanjiv Agarwal]

Chapter VIII comprising of Sections 11 to 26 of the Model IGST Law provide for settlement of cases. There is no provision for settlement in Model GST Law but Chapter XX of the said Act states that at present, the provisions for settlement of cases are incorporated under IGST Act. It appears that similar provisions may be contained in CGST law.

Under the present law, provisions for settlement of cases do exist, both in Service Tax and Central Excise. (Section 31, 32 to 32P of Central Excise Act, 1944).

Background of Settlement

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 assessee, its directors and partners.

In Rajshri Plastiwood Ltd 2001 (3) TMI 322 - SETTLEMENT COMMISSION, CUSTOMS & CENTRAL EXCISE 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".

Bombay high court in A Mahesh Raj 2001 (6) TMI 227 - SETTLEMENT COMMISSION, CUSTOMS & CENTRAL EXCISE 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 - SETTLEMENT COMMISSION, CUSTOMS & CENTRAL EXCISE, . In yet another case of Mandhana Dyeing v. Union of India 2010 (1) TMI 241 - BOMBAY HIGH COURT , 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.

In CCE, C& ST, Bhubaneshwar-I v. Vedanta Aluminum Ltd.  2016 (4) TMI 932 - CALCUTTA HIGH COURT , it was held that 'settlement' means an official agreement that ends argument between two people. Settlement Commission under central excise and customs law is created as a statutory forum for the purpose of settlement.  It is to be noted that 'settlement' means 'an official agreement that ends an argument between two people'. (Oxford Advanced Learners Dictionary). In the case in hand, in view of the provisions in Section 32E(1) of the Act, the respondents 'to have the case settled' and 'before adjudication', instead of filing a reply to the notice and having the case adjudicated, filed applications before the Commission for settlement.

Statutory Provisions in Draft IGST Law

Model IGST law contains the following provisions in relation to settlement of cases

Section	Provision Relating to
11	Definitions – bench, case, Settlement Commission etc
12	Constitution of National Goods and Service Tax Settlement Commission
13	Jurisdiction and Powers of Settlement Commission

Settlement Commission (SC)

The Settlement Commission shall be constituted by the Central Government on the recommendation of GST Council which will be called National Goods and Service Tax Settlement Commission (NGSTSC) which will be headed by National Chairman. The Commission will have benches for one or more state benches to be called State Settlement Commission (SSC) to be headed by State Chairman. NGSTSC and SSC shall have members including technical member -  IGST. While the Chairman shall be a person who is or has been a high court judge, the qualification, eligibility, manner of selection and appointment of chairman and members shall be prescribed on the recommendations of GST Council. The matters dealt with by the Commission shall be decided by majority and where the views are equally divided, the matter will be referred to third member and then decided by majority accordingly.

Cases

SC will settle the cases. What is meant by 'case' is defined in section 11 (b). Accordingly, case would mean any proceeding under this Act for the levy, assessment and collection of IGST before an IGST officer, or before a First Appellate Authority in connection with such levy, assessment or collection of IGST pending on the date on which an application under sub-section (1) of section 15 is made.

Thus, 'case' means any proceedings under IGST Act

1. Pending before IGST officer for -

1. levy of IGST, or
2. assessment of IGST, or
3. collection of IGST, or

2. Pending before first appellate authority- appeal in connection with levy, assessment or collection of IGST

on the date of application before SC.

What is important is that the matter must relate to levy / assessment / collection / appeal of IGST and pending on the date of making application for settlement. Where an order is passed by an adjudicating authority and for which the appeal period has not expired shall also be deemed to be a proceeding pending.

Following cases shall not be covered within the scope of 'case' for consideration by the SC-

1. where any appeal has been preferred after expiry of the period specified for filing such appeal under this Act and which has not been admitted.
2. where any Court or Appellate Tribunal or the First Appellate Authority refers a case back to the original adjudicating authority or the First Appellate Authority, as the case may be, for a fresh adjudication or decision.

Application for Settlement

Application for settlement of cases shall be made by taxable person in terms of section 15. The form and manner of application shall be prescribed. The application should contain a full and true disclosure of his tax liability which has not been disclosed before the jurisdictional IGST officer, the manner in which such liability has been derived, the additional amount of tax accepted to be payable by him and such other particulars as may be prescribed.

Following are the pre-conditions for making the application to SC-

1. the applicant has furnished the return(s), which he is or was required to furnish under the provisions of this Act;
2. a show cause notice for demand of tax issued by the IGST officer has been received by the applicant or an order confirming the demand of tax has been issued by the IGST officer and the same is pending before the First Appellate Authority;
3. the additional amount of tax accepted by the applicant in his application exceeds five lakh rupees; and
4.  the applicant has paid the additional amount of tax accepted by him along with interest due thereon under section 36 of the CGST Act

In case of non-filing of return, if SC is satisfied that there exists reasons for non-filing of returns, it may allow the application to be made, after recording reasons for  the same.

It has also been provided that –

• No application shall be entertained by the Settlement Commission in cases which are pending with the Appellate Tribunal or any Court.
• No application shall be made for determination of any question having a bearing on the rate of tax or determination of liability to pay tax on goods and/or services under the Act.
• Every application made shall be accompanied by prescribed fees.
• An application once made shall not be allowed to be withdrawn by the applicant.

Disposal of Application

Section 16 provides for procedure for settlement / disposal of application by the SC. Accordingly, following procedural aspects are worth noting.

1. The Settlement Commission shall, within seven days from the date of receipt of the application, issue a notice to the applicant to explain in writing as to why the application made by him should be allowed to be proceeded with, and after taking into consideration the explanation provided by the applicant, it shall, within a period of forty five days from the date of the notice, by an order, allow the application to be proceeded with, or reject the application as the case may be, and the proceedings before the Settlement Commission shall abate on the date of rejection.
2. An application shall not be rejected unless an opportunity has been given to the applicant of being heard.
3. Where no such notice / order is issued by the SC, the application shall be deemed to have been allowed.
4. Copy of order shall be sent to IGST officer and applicant.
5. Where an application is allowed, the Settlement Commission shall, within seven days from the date of order, call for a report along with the relevant records from the jurisdictional IGST officer.
6. Such officer shall furnish the report within a period of sixty days of the receipt of communication from the Settlement Commission.
7. Where the jurisdictional IGST officer does not furnish the report within the aforesaid period of sixty days, the Settlement Commission shall proceed further in the matter without the report of such officer.
8. After examination of the report of the jurisdictional IGST officer received, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may, within 15 days of the receipt of the report, direct, for reasons to be recorded in writing, the Designated Officer to make such further enquiry or investigation and furnish a report within a period of ninety days of the receipt of such direction, on the matters covered by the application and any other matter relating to the case.
9. Where the Designated Officer does not furnish the report within the stipulated period, the Settlement Commission shall proceed to pass an order without such report.
10. After examination of records, reports etc. the Settlement Commission may pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report.
11. An order shall not be passed in respect of an application after twelve months from the last day of the month in which the application was made, failing which the settlement proceedings shall abate.
12. The order passed shall provide for the terms of settlement including any demand by way of tax, interest, fine or penalty, the manner in which any sums due under the settlement shall be paid and all other matters to make the settlement effective and in case of rejection contain the reasons there for.
13. The amount of settlement ordered by the Settlement Commission shall not be less than the tax liability admitted by the applicant.
14. Settlement arrived shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts.
15. Where any tax, interest, fine and penalty payable in pursuance of an order is not paid by the taxpayer within thirty days of receipt of a copy of the order by him, or within such period as extended by the Settlement Commission not exceeding three months, the amount which remains unpaid, shall be recovered along with interest due thereon at the rate prescribed under section 36 of the CGST Act.

Order of Commission shall be conclusive and no matters covered by such order can be reopened (except as provided in section 18) in any proceedings under IGST Act or under any other law.

Powers of Settlement Commission

SC shall have the following powers to be exercised in the course of its functioning -

1. Power to order provisional attachment to protect revenue (Section 17)
2. Power to reopen completed proceedings with the concurrence of the applicant within a period of five years from the date of application (Section 18)
3. Power to grant immunity from prosecution and penalty (Section 20)
4. Power to send case back to IGST officer (Section 21)
5. Power to rectify order arising  due to rectification of mistakes (Section 24)
6. Powers of a civil court under the Code of Civil Procedure, 1908 for exercising functions regarding discovery and inspection, enforcing the attendance of any person and examining him on oath, issuing commissions and compelling production of books of account and other records(Section 25) 
7. Powers of civil court for the purpose of section 195 and 196 of Indian Penal Code, 1860 (Section 26)

Bar on Subsequent Settlement

Section 23 bars subsequent application for settlement in the following manner –

1. where

1. after the passing of an order of settlement under sub- section (5) of section 16, in relation to a case, such person is convicted of any offence under this Act in relation to that case; or
2. the case of such person is sent back to the jurisdictional IGST Officer or the First Appellate Authority, as the case may be, by the Settlement Commission under section 21;

then, he shall not be entitled to apply for settlement under section 15 in relation to any other matter.

2. No person shall be allowed to avail of the facility of settlement under this Chapter more than twice.

Thus, for case covered under (a) above, no subsequent application shall be allowed for any other matter. In other cases, the words used are 'more than twice' which implies that two opportunities can be availed to make application u/s 15 but more than twice is not allowed.

(To be continued …..)