Modification pleas cannot be outsourced by Settlement Commission to Secretary - Orders quashed
THE Settlement Commission (both direct and indirect taxes) has only former Revenue Officers as its Members and quite often these Members forget the fact that they are no more revenue officers, as these two interesting cases would show.
In the first case concerning Service Tax, the CCESC had passed an order u/s 32F(5) of the CEA, 1944 rejecting the application filed for settlement by holding it as impermissible u/s 32E of CEA, 1944.
The long and short of this service tax case is that the applicant was served a SCN proposing to recover service tax of Rs. 36,61,893/- for FY 2007-2008 to 2010-2011 along with interest and penalties. They accepted that there was a short payment of service tax and paid an amount of Rs. 20,84,792/- as also interest of Rs. 16,77,519/-, which they said was their liability. Later, they approached Settlement Commission and sought immunity from penalties and prosecution.
The Revenue filed a report dated 5th August 2014 u/s 32F(1) and submitted that the difference between the values accepted by the applicant and those claimed by the Revenue was substantial; that the applicant had not substantiated their claim with any documents from their customers; that there were no corresponding entries in the audited Profit & Loss account and Balance Sheet to reflect any write off; and that the applicant had not accepted their full liability.
On 30th October 2014, the Settlement Commission directed the Revenue to examine the applicants' calculations and present a factual report within 15 days. By their letter dated 31st October 2014, the applicant submitted a reconciliation statement and various supporting documents. The Revenue did not submit any verification report as directed by the Settlement Commission.
On 23rd December 2014, the applicant was informed that since one of the Members of the Settlement Commission has retired, a fresh date for re-hearing of the matter was scheduled on 15th January 2015. At that hearing, the Settlement Commission noted that no report had been received so far from the Revenue despite specific directions in that behalf. The Settlement Commission, therefore, adjourned the matter with a specific direction to submit a report within 10 days.
Like a bolt from the blue the applicant received the Final Order dated 18th February 2015 rejecting their application for settlement as being not admissible. The Final Order indicated that the Revenue had given its Report on 4th February 2015 and this showed that the claim of the applicant could not be accepted.
Before the High Court, the applicant petitioner challenged this order on the primary ground that the Revenue's Report was never supplied to the Petitioners nor were the Petitioners given an opportunity of dealing with it; that the Settlement Commission accepted the Revenue's contentions regarding discrepancies without giving the Petitioners an opportunity to explain.
The High Court observed -
"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. Without this balancing and taking into account the views and submissions on both sides, we fail to see how any "settlement", can be worked out or how the Settlement Commission can possibly discharge its bounden statutory duty. Indeed, it seems to us extremely strange that the Settlement Commission has adopted this approach given the obvious public purpose of the introduction of Chatper V to the CEA. By a summary rejection in this fashion of the settlement application the interest of the assessee is not met; but equally, and perhaps more importantly, the interest of the Revenue and, therefore, of public funds in the hands of Government, is also defeated. The entire purpose of ensuring a return to Revenue and avoiding costs in protracted litigation is lost."
Holding that there had been a fatal violation of the principles of natural justice, the final order was quashed and set aside and the matter remanded to the CCESC for fresh consideration.
Please see 2016-TIOL-159-HC-MUM-ST.
In the second case, an order dated 27th August, 2015 was passed by the Income Tax Settlement Commission. Incidentally, the applicant had sought payment in at least four quarterly installments, payable in case any additional tax liability, was determined. As this submission was not considered, the Petitioner filed a rectification application dated 25th Sep, 2015 to the Commission. The Commission agreed that there was a mistake apparent from record. However, without considering the assessee's prayer for four quarterly installment facilities, the Commission passed an order dated 20th Oct, 2015 granting four monthly installments to pay the tax along with interest. Since this order was passed without hearing, the assessee filed a further application for rectification dated 23rd Oct, 2015 pointing out the circumstances which would make it impossible for them to comply with the orders.
Strangely, this application for rectification was disposed of by the Secretary of the Commission.
The applicant filed a Writ Petition against this communication and this is what the Court observed -
"We are unable to understand how an application for rectification of orders passed by the Settlement Commission can be disposed of by the Secretary of the Commission who would have no role to play in passing of the orders dated 27th Aug, 2015 and 20th Oct, 2015 which was sought to be rectified. It is for the Commission to consider the applications which are filed before it seeking the modification or rectification of the orders passed by it and same cannot be outsourced by the Commission to its Secretary. In view of the above and in the peculiar facts of the present case, we set aside the orders dated 20th October, 2015 being the order passed on assessee's rectification application u/s 245(D)(6B) as it is an order passed not only without hearing the assessee but also without recording any reasons why the rectification application made by the assessee is not being allowed in its entirety."