2018 (11) TMI 81 - HC - Central Excise

Levy of penalty by the Settlement Commission - Clandestine removal - Kar Vivad Samadhan Scheme - case of appellant is that the scheme of settlement under the Act envisages only one settlement proceeding. Once the settlement application of the main noticee is accepted by the Settlement Commission, there could thereafter be no separate adjudication of the case against the remaining noticees. In view of the fact that when in case of a manufacturer who was stated to have carry out clandestine removal of goods without payment of excise duty, the application for settlement was accepted by the Settlement Commission and was granted immunity from penalty and prosecution, the department can still proceed further against the present assessee who was facing only the notice for penalty? Held that - The Court was clearly of the opinion that under KVS Scheme, there is no adjudication on the subject matter of the demand notice or show cause notice but there is a settlement of tax arrears. Even though the same show cause notice may call upon the company and its Directors to show cause, there is a separate tax demand for arrears against the Directors. Thus each entity or person would have to file a separate declaration. The settlement is in respect of each declaration. Under section 91, immunity would be available only in respect of matters covered in such declaration. It was emphatically held that the matter covered under the declaration by the Company is the tax arrears of the company and therefore, the directors or the officers of the company cannot claim immunity on the basis of immunity granted to the company. Kar Vivad Samadhan Scheme (Removal of Difficulties) Order thus made a special provision extending the benefit of settlement in case of the principal noticee to all persons to whom show cause notices were issued in respect of the same subject matter. In fact, the extension of such benefit to the so called subsidiary noticees was not the focal point of the judgments of Kerala and Gujarat High Court in case of Omkar S. Kanwar 2000 (11) TMI 19 - GUJARAT HIGH COURT and 2000 (3) TMI 16 - KERALA HIGH COURT . What was at the centre of controversy was what can be stated to be a pending adjudication. It was in this context while approving the decision of Kerala High Court, Supreme Court observed that Thus read as a whole the words pending adjudication cannot be read to exclude cases where the proceedings are still pending in Appeal. Any other way of understanding this judgment of Supreme Court would pose a serious difficulty. It was open for the Settlement Commission to impose penalty on the directors in addition to imposing penalty on the company, if there was material justifying imposition of such penalty. Merely because the appellants herein could not have applied for settlement due to monetary limit would not change the situation - question is held against the appellants and in favour of the department. Appeal dismissed.

Summary

Issues Involved:
1. Whether the department can proceed against the present assessee for penalty when the main noticee has settled the case with the Settlement Commission and received immunity from penalty and prosecution.

Detailed Analysis:

Issue 1: Department's Right to Proceed Against Assessee Post Main Noticee Settlement

The central issue in these appeals is whether the department can continue proceedings against the assessee for penalty when the main noticee has settled the case with the Settlement Commission and received immunity from penalty and prosecution.

Background and Facts:
The appellant, a proprietary concern, was issued a show cause notice by the Directorate General of Central Excise Intelligence, Ahmedabad, for being involved in the clandestine removal of goods without payment of excise duty. The main noticee, M/s. Simalin Chemical Industries Pvt. Ltd., and several co-noticees, including the appellant, were implicated. M/s. Simalin Chemical settled the case with the Settlement Commission, receiving immunity under section 32M of the Central Excise Act, 1944. The co-noticees who did not approach the Settlement Commission were subjected to adjudication, resulting in penalties.

Appellant's Contentions:
1. Single Settlement Proceeding: The appellant argued that the scheme of settlement envisages only one settlement proceeding. Once the main noticee's settlement application is accepted, no separate adjudication can proceed against the remaining noticees.
2. Abettors of Evasion: The appellants were alleged to be abettors of the main noticee's evasion. They argued that once the main noticee's proceedings are settled, separate proceedings against them cannot be conducted.
3. Purpose of Settlement: The purpose of settlement would fail if individual noticees are prosecuted after the main noticee's settlement.
4. Monetary Limit for Settlement: The appellants contended that their proposed penalties were below the minimum prescribed for filing a settlement application, making the department's insistence on separate applications incorrect.

Department's Contentions:
The department argued that the scheme of settlement requires each individual assessee to apply separately. Immunity granted to one does not extend to others who were not part of the settlement proceedings.

Legal Provisions and Interpretation:
1. Penalty Provisions: Section 11AC of the Act pertains to penalties for non-levy or short-levy of duty due to fraud or collusion. Rule 26 of the Central Excise Rules, 2002, pertains to penalties for certain offenses.
2. Settlement of Cases: Chapter V of the Act outlines the settlement process. Section 32E allows an assessee to apply for settlement before adjudication. Section 32F details the procedure for settlement applications, and Section 32K empowers the Settlement Commission to grant immunity from prosecution and penalties.

Court's Analysis:
The court emphasized the one-to-one relationship between the assessee applying for settlement and the Settlement Commission's consideration of that application. The statutory provisions do not support the notion that immunity granted to one assessee extends to others who did not apply for settlement. Each assessee must independently apply for settlement to receive immunity.

Supreme Court Judgment in Omkar S. Kanwar:
The court referred to the Supreme Court's judgment in Union of India vs. Omkar S. Kanwar, where it was held that each entity/person must file a separate declaration under the Kar Vivad Samadhan Scheme. The settlement is in respect of each declaration, and immunity is limited to the matters covered in the declaration. The Supreme Court's interpretation was based on the specific provisions of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, which extended the benefit of settlement to all persons on whom show cause notices were issued in respect of the same matter.

High Court Judgments:
The court also considered various High Court judgments, including those from Calcutta, Bombay, and Delhi, which dealt with similar issues under different contexts. These judgments generally supported the view that immunity from settlement does not automatically extend to co-noticees unless specific provisions, like the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, apply.

Conclusion:
The court concluded that the statutory provisions of the Central Excise Act do not support the appellants' contention that immunity granted to the main noticee extends to co-noticees. Each assessee must independently apply for settlement to receive immunity. Consequently, the appeals were dismissed, and the question was held in favor of the department.

Final Judgment:
The appeals were dismissed, and it was held that the department can proceed against the present assessee for penalty despite the main noticee's settlement and immunity.