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M/s. Cineyug Worldwide Versus The Union of India, The Commissioner of Service Tax, Mumbai-II

2016 (1) TMI 928 - BOMBAY HIGH COURT

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 su .....

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efore 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 giv .....

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ttlement 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 mand .....

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ore it. Nothing could be further from the statutory intent. - The Petition succeeds in part. - Matter restored before the Settlement Commission for a fresh consideration. - Writ Petition No. 2474 of 2015 - Dated:- 22-1-2016 - S. C. Dharmadhikari And G. S. Patel, JJ. For the Petitioner : Ms. Padmavati Patil, Advocate For the Respondent : Mr. Jitendra B. Mishra, Advocate JUDGMENT ( Per G. S. Patel, J. ) 1. Rule. Mr. Mishra for the 2nd Respondent waives service. By consent, Rule is made returna .....

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ent Commission, Additional Bench, Customs & Central Excise, Mumbai under Section 32F(5) of the Central Excise Act, 1944 in a Settlement Application No. 142/ST/JL/2014-SC(MB) SA(ST) 262/2014 dated 29th May 2014. By that order, the Settlement Commission rejected the application in question as impermissible under Section 32E of the Central Excise Act, 1944 ( CEA ). 3. The Petitioners are a partnership firm. They provide event management services. These services are covered by Section 65(40) rea .....

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unts of unpaid fees by reversing the entries in question in their books of account. 5. 1During this period (FY 2007-2008 to 2010-2011) in view of the provisions of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, service tax was payable by the 5th of the month immediately following the calendar month in which payments were received for taxable services rendered and billed. For assessees who were individuals, proprietorship or partnership firms, service tax was .....

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hey had billed or charged for services rendered, despite the fact that the fees in question had not actually been received by the Petitioners at all. This, the Petitioners say, resulted in a delay in payment of service tax as also short payment. 6. During the course of a Service Tax Audit of the Petitioners records, a written query was raised on 11th May 2012 Exhibit B , p. 48 seeking details of an amount of ₹ 13,67,233/- shown as other income for the period 2009-2009. The Petitioners resp .....

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8377; 10,08,800/- was merely a reimbursement. The Petitioners clarified that they had not charged Videocon Industries any amount as fees for making this payment on its behalf. The Petitioners produced various ledger copies and other documents, including a copy of their agreement with Videocon Industries in this behalf. 7. A reconciliation statement was also sent under cover of the Petitioners letter dated 1st September 2012 for FY 2006-2007 to 2010-2011. Exhibit D , pp. 53-55 The Petitioners sta .....

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s reasons. Among the reasons cited by the Petitioners was the credit they gave to non-paying clients such as Star India, Hindustan Unilever Limited & Zee TV of the amount first charged for event management services. In other words, since the fees charged by the Petitioners had not been paid, the amounts were reversed. It was also pointed out that an amount of ₹ 2,00,000/- due from Reliance Broadcast Network for the FY 2010-2011 was written off since the party did not agree to pay these .....

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agraph 13 of the Petition. 9. On 19th April 2013, the Joint Commissioner issued a showcause notice to the Petitioners proposing to recover service tax of ₹ 36,61,893/- for FY 2007-2008 to 2010-2011 along with interest and penalties. Exhibit F , pp.58-65 10. The Petitioners say that since they had accepted that there was a short payment of service tax and had in fact paid an amount of ₹ 20,84,792/- as also interest of ₹ 16,77,519/-, in addition to filing periodical returns as re .....

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y from penalties and prosecution. Exhibit G , pp. 66-78 11. It appears that a notice for proceeding with the Application was issued to the Petitioners by the Settlement Commission. Certain discrepancies in the Application were pointed out. The Petitioners provided some clarifications. Ultimately, on 30th June 2014 the Settlement Commission allowed the Petitioners Application to proceed. Exhibit J , pp. 87-88 The Application was opposed by the Revenue. It filed a report dated 5th August 2014 unde .....

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d a personal hearing on 30th October 2014. During the course of this hearing, the Petitioners inter alia accepted an additional liability, thus taking their total admitted liability to ₹ 20,86,353/-. However, they also contended that there was excess tax paid in FY 2009-2010. They requested an opportunity to explain their calculations. On 30th October 2014, the Settlement Commission directed the Revenue to examine the Petitioners calculations and present a factual report within 15 days. Ex .....

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aring, the Settlement Commission noted that no report had been received so far from the Revenue despite specific directions in that behalf. The response from the Revenue s representative was that he was unaware of any such directions. The Settlement Commission, therefore, adjourned the matter with a specific direction to submit a report within 10 days. Exhibit P , pp. 165-166 14. The Petitioners then received the impugned Final Order dated 18th February 2015 by which the Settlement Commission re .....

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pportunity of dealing with it. The Petitioners also claim that the Settlement Commission accepted the Revenue s contentions regarding discrepancies without giving the Petitioners an opportunity to explain that there were in fact no such discrepancies. In the Petition, the Petitioners have dealt with each one of the so-called discrepancies. It is submitted that the Settlement Commission has incorrectly and wrongly proceeded on the basis of the discrepancies recorded in the Revenue s Report. It is .....

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of Division-II, Service Tax VI, Mumbai. In paragraph 2 of this Affidavit, Mr. Dwivedi says: 2. I say that the present petition inter alia challenges Final Order No. 24/Final Order/ST/RB/2015 dated 18-02-2015, whereby the Settlement Commission rejected the Settlement Application of the Petitioners as inadmissible. The Settlement Commission observed that every aspect of the Revenue s investigations and conclusions were challenged. The facts were also disputed. There was no meeting ground between t .....

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the Petitioners. I say that every contention of the Petitioners will be examined by the adjudicating authority on the basis of evidence and material furnished. I therefore most respectfully submit that no cause or intervention having been made out, this Honorable Court may be pleased to dismiss the petition with costs. (Emphasis added) 17. We will turn to this paragraph presently, as it appears to us to be one that vitiates the entire basis of the Final Order impugned in this Petition, but befo .....

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y of dealing with it. That opportunity appears to us clearly to have been denied. 18. We have also carefully considered the impugned order in question. From paragraph 8.1 onwards of the Report, we find the findings of the Settlement Commission. In paragraph 8.5, the Settlement Commission opines: 8.5 From the above it is seen that every aspect of Revenue s investigations and conclusions have been challenged by the Applicant. Even the facts of the case have not been accepted by both sides. There i .....

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653 (Del) wherein it has been held as under: 49. The other principle which has been set down in several judgment of this court is that the Settlement Commission is not a substitute for adjudication proceedings before the central excise authorities and where complex issues of fact and law are involved for which a detailed inquiry is necessary, settlement proceedings cannot act as a proper substitute for the adjudication proceedings. In Picasso Overseas and Others v. Director General of Revenue ( .....

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ng principles were set out: (i) The Settlement Commission cannot substitute itself for the adjudicating officer by deciding complicated and highly disputed or contentious questions and issues of facts themselves, because the expression settlement is used in the Customs Act in contradistinction with adjudication and the very scheme of the settlement provisions is to settle and not adjudicate. (ii) All the provisions made it abundantly clear that what is required of the Settlement Commission is a .....

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of fact for which detailed inquiry is necessary, the Settlement Commission should refer the matter back to the adjudicating officer to be taken up from the stage from which the matter was before such officer just before the making of the settlement application. 51. The above principles were reiterated by two other judgments of this Court:- (i) Ashwani Tobacco Company Pvt. Ltd. V UOI & Ors., 2010(251) E.L.T. 162 (Del.); (ii) Director General or Central Excise (intelligence) v. Murarilal Haris .....

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an Applicant feels is payable by him and therefore is bound to inquire into highly disputed questions of facts. The Division Bench however hastened to add that these observations will not apply to demands which are totally unsupported. 19. Ms. Patil submits that the entire approach of the Settlement Commission is incorrect and contrary to the settled law as laid down in a long catena of decisions of this Court. She submits that it is the statutory mandate and duty of the Settlement Commission u .....

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payment of penalty and prosecution. To merely opine only on the basis of Revenue s Report that because there was a difference between the Petitioners case and that of the Revenue, no settlement is possible is directly contrary to the statutory mandate. In no case, Ms. Patil says, will there not be such a difference. Indeed, the whole purpose and object of the Settlement Commission is to bridge that difference and to arrive at a via medea. Ms. Patil submits that if in every case the Settlement Co .....

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was introduced by an amendment of 1998. The Settlement Commission is constituted under this Chapter (Sections 31 to 32-P). Section 32-A provides for the jurisdiction and powers of the Settlement Commission. Section 32-I, sets out the powers and procedures of the Settlement Commission and subsection (1) clearly says that the Settlement Commissioner has all the powers that are vested in a Central Excise Officer under the CEA or the Rules made thereunder. Section 14 of the Act confers on the Centra .....

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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 clea .....

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this Court considered at some length a case where there was an abrupt closure of the settlement proceedings, also holding the Application as not admissible. In paragraph 9 of that decision, it was noted that the Settlement Commission found that the Petitioner in that case was contesting the methodology adopted by the Department. The Court held that the Settlement Commission Bench could not on the basis that it would have to go into the law and details of the disputes, pass the impugned order cl .....

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ork of Chapter V has been set out by this Court. JSK Industries Private Limited v Union of India, 2015 (317) E.L.T. 671 (Bom.) Our Court has also noted that it is not proper to abandon the proceedings in a peremptory fashion or in violation of the principles of natural justice, i.e., without putting the applicant to notice about the consideration of a particular fact or legal provision. Poona Tools Private Limited v Union of India, 2015 (323) E.L.T. 572 (Bom.); Dream Yachts Private Limited v Uni .....

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revenue loss. The Legislature intended to keep at bay an overly rigid approach and favoured a statutory regime that allows the defaulting taxpayers to come clean. The purpose is to avoid an unnecessary burden on Government resources. This is, clearly, the statutory mandate. 24. 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 Settlem .....

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ur 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 takin .....

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