2017 (12) TMI 452 - HC - Service Tax

Jurisdiction - power of Settlement Commission to reject an application - case of petitioner was that the application cannot be rejected subsequent to the stage of subsection 1 of section 32-F on the ground of bar created by section 32-O. Paragraph 9 is exactly to the contrary - penalty - Held that - section 32-O creates a bar for entertaining subsequent application for settlement. It provides that the bar will be attracted if there is an imposition of penalty on the person who makes an application for settlement on the ground of concealment of his duty liability. If the order dated 31st October 2014 is read in its entirety, there is a finding that particulars of the duty liability were concealed and were disclosed subsequently as set out in paragraph 2.1 of the said order. The bar under clause (i) of subsection 1 of section 32-O is attracted once it is established that there was a penalty imposed on the ground of concealment of particulars of duty liability. There is no specific requirement that the penalty should be imposed under section 78. Moreover, the said order of imposing penalty has become final. Therefore, the petitioner is bound by the said order and findings recorded therein. Therefore, we cannot accept the submission that there was no penalty imposed which is covered by clause (i) of subsection 1 of section 32-O. There is an option available for the Settlement Commission either to reject the application or to proceed with the application. If subsection 5 of Section 32-F is considered, it is apparent that even after crossing the stage of subsection 1 of section 32-F, the Settlement Commission is empowered to reject the application. In fact, subsection 5 of section 32-F clearly indicates that the Commission may pass such order as it thinks fit on the matters covered by the applications. Section 32-O is a disqualification provided for entertaining an application for settlement. Therefore, the argument that after crossing the stage of subsection 1 of section 32-F, the application cannot be rejected on the basis of the bar created by section 32-O, cannot be accepted at all. In the fact of the present case, the impugned order itself records that that the applicants before the Settlement Commission were put to notice that the contention regarding bar of section 32-O would taken into consideration. Petition dismissed - decided against petitioner.

Issues Involved:
1. Applicability of Section 32-O of the Central Excise Act.
2. Distinction between different branches of the petitioner-company for service tax purposes.
3. Validity of the Settlement Commission's rejection of applications post the initial stage under Section 32-F.
4. Interpretation of Circular dated 8th August 2013 by the Central Board of Excise and Customs.
5. Legal precedents and their applicability to the case.

Detailed Analysis:

1. Applicability of Section 32-O of the Central Excise Act:
The impugned order was based on the application of Section 32-O, which bars subsequent settlement applications if a penalty has been imposed for concealment of duty liability. The Settlement Commission rejected the applications on the ground that a previous penalty of ?1,50,000 was imposed on the Coimbatore branch of the petitioner-company. The petitioner argued that the penalty was not specifically under Section 78 of the Finance Act, 1994, which deals with concealment. However, the court found that the show cause notice included penalties under Sections 76, 77, and 78, and the final order indicated that the penalty was for tax evasion, thus satisfying the conditions of Section 32-O.

2. Distinction between Different Branches of the Petitioner-Company:
The petitioner contended that each of its 13 branches, having separate service tax registrations, should be treated as distinct assessees. The court, however, held that Section 32-O refers to the "person" making the application, which in this case is the petitioner-company as a whole, not individual branches. The court emphasized that the term "person" in the Finance Act, 1994, includes the entire company, thereby applying the bar under Section 32-O to all branches collectively.

3. Validity of the Settlement Commission's Rejection Post Initial Stage under Section 32-F:
The petitioner argued that once the Settlement Commission decided to proceed with the applications under Section 32-F(1), it could not later reject them based on Section 32-O. The court clarified that Section 32-F(5) allows the Settlement Commission to reject applications at any stage if it deems fit, including after the initial stage. The court cited the decision in Poona Tools Pvt. Ltd., which supports the Commission's authority to consider the bar under Section 32-O even after the initial acceptance of the application.

4. Interpretation of Circular Dated 8th August 2013:
The petitioner relied on a circular issued by the Central Board of Excise and Customs, which clarified that different branches with separate registrations are distinct assessees for service tax purposes. The court, however, noted that the circular pertained specifically to the Service Tax Voluntary Compliance Encouragement Scheme, 2013, and could not be generalized to apply to Section 32-E and Section 32-O of the Central Excise Act. The court thus rejected the petitioner's reliance on the circular.

5. Legal Precedents and Their Applicability:
The petitioner cited various judgments, including the Division Bench decision in Poona Tools Pvt. Ltd. and the Allahabad High Court decision in Commissioner of Central Excise vs. Sun India Pharmacy Pvt. Ltd. The court distinguished these cases, noting that the facts and legal issues differed. Specifically, the court held that the Settlement Commission had the discretion to reject applications under Section 32-F(5) and that the bar under Section 32-O was applicable based on the findings of concealment in the previous penalty order.

Conclusion:
The court dismissed the petition, upholding the Settlement Commission's decision to reject the applications based on Section 32-O. The court found no merit in the petitioner's arguments and clarified the legal provisions and their application to the case. The petitioner was granted liberty to seek limited protection if the next date of proceedings before the Adjudicating Authority was imminent.

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