2016 (1) TMI 928 - HC - Service Tax

Service Tax Dispute - Settlement Commission rejected the application - The Petitioners say that since they had accepted that there was a short payment of service tax and interest, in addition to filing periodical returns as required, the Petitioners approached the Settlement Commission for a settlement of the dispute - The Settlement Commission purported to note that the Petitioners did not have sufficient supporting documentation. Held that - Settlement Commission has plenary powers to summon and take evidence. If there was any doubt about this, it is completely set at rest by the plain wording of Section 32-L(2) which speaks specifically of the Central Excise Officer being entitled to use all the materials and information produced by a petitioner before the Settlement Commission, or the result of the enquiry held or evidence recorded by the Settlement Commission in the course of proceedings before it as if such materials, information, enquiry and evidence had been produced before such Central Excise Officer or held or recorded by him in the course of proceedings before him . For the Respondents to say, therefore, in paragraph 2 that the Settlement Commission is not a forum for evaluating evidence or deciding a matter involving complicated issues of facts and law is clearly incorrect. We will assume for the purpose of this Petition that a copy of the Revenue s report was in fact made available to the Petitioners. We find, however, that the Petitioner was given no opportunity of meeting it. The Settlement Commission seems to have straightaway accepted that Report not only as gospel, but as totally incontrovertible, and incapable of being subjected to any rational settlement. There is absolutely no basis for this, other than the Settlement Commission saying, to all intents and purposes, that the matter is apparently too onerous and too taxing on the Settlement Commission s time, energy and resources. This is wholly unacceptable. The very least the Settlement Commission ought to have done, in our view, was to give the Petitioner an opportunity to respond to the Revenue s observations and Report. Had the Petitioners then failed to do so, or if, on a close examination, that response was found on merits to be without substance, the application could have been dealt with accordingly. But to deny that opportunity and to thereby short-circuit a properly brought Settlement Case in this fashion is not, in our view, in keeping with the statutory mandate at all. We are satisfied that there has been a fatal violation of the principles of natural justice. We are also satisfied that the Settlement Commission has not proceeded in accordance with its statutory mandate under Chapter V of the CEA. We specifically reject and repeal the reason given by the Settlement Commission that it cannot take evidence or that, when confronted with conflicting submissions on facts and law, its only recourse is to dismiss a settlement application brought before it. Nothing could be further from the statutory intent. The Petition succeeds in part. - Matter restored before the Settlement Commission for a fresh consideration.

Summary

Issues Involved:
1. Admissibility of the Settlement Application by the Settlement Commission.
2. Alleged short payment of service tax and the Petitioners' liability.
3. Principles of natural justice and the statutory mandate of the Settlement Commission.
4. The adequacy of the Settlement Commission's evaluation process and handling of evidence.

Issue-wise Detailed Analysis:

1. Admissibility of the Settlement Application by the Settlement Commission:
The Petitioners challenged the rejection of their Settlement Application by the Settlement Commission under Section 32E of the Central Excise Act, 1944. The Settlement Commission found that the Petitioners' application was inadmissible due to discrepancies and lack of supporting documentation. The Petitioners argued that they were not given an opportunity to respond to the Revenue's Report, which was a violation of natural justice principles. The court noted that the Settlement Commission's role is to strive for a possible settlement and not to merely accept the Revenue's version without attempting to bridge the differences.

2. Alleged Short Payment of Service Tax and the Petitioners' Liability:
The Petitioners, a partnership firm providing event management services, claimed that during the financial years 2007-2008 to 2010-2011, they faced setbacks due to non-payment by clients, leading to a delay and short payment of service tax. They accepted a liability of Rs. 20,84,792/- and interest of Rs. 16,77,519/-, which they paid along with interest. The Settlement Commission, however, rejected their application, citing discrepancies and lack of documentation. The Petitioners contended that they had provided all necessary documents and explanations, and the Settlement Commission's rejection was unjust.

3. Principles of Natural Justice and the Statutory Mandate of the Settlement Commission:
The court emphasized that the Settlement Commission must adhere to the principles of natural justice by providing the Petitioners an opportunity to respond to the Revenue's Report. The court found that the Settlement Commission failed to do so, thus violating these principles. The court also highlighted that the Settlement Commission has a statutory mandate to evaluate evidence and resolve disputes, contrary to the Settlement Commission's claim that it was not a forum for evaluating evidence.

4. The Adequacy of the Settlement Commission's Evaluation Process and Handling of Evidence:
The court criticized the Settlement Commission for its approach in rejecting the Settlement Application without proper evaluation of the evidence and without giving the Petitioners an opportunity to respond to the Revenue's Report. The court noted that the Settlement Commission has plenary powers to summon and take evidence, and it must strive to resolve disputes in a manner that protects the interests of the Revenue and avoids protracted litigation.

Conclusion:
The court quashed and set aside the impugned order dated 18th February 2015 and remanded the Settlement Application to the Settlement Commission for fresh consideration. The court directed that a copy of the Revenue's response/report be provided to the Petitioners, who would then submit their response. The Settlement Commission is to consider all the material before it and pass an appropriate order on merits and in accordance with law. The court clarified that it had not addressed the contentions of either side on merits, leaving these open for consideration by the Settlement Commission. The Writ Petition was disposed of with no order as to costs.