TMI Blog2018 (11) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of clandestine removal of finished goods to different manufacturers of laminated sheets and plywood. Amount of sale proceeds would be collected in cash which was not accounted in the records. M/s. Simalin Chemical would issue Central Excise invoices to manufacturers of laminated sheets and plywood for transportation of goods from factory premises to the premises of buyers. Soon after the delivery of goods, such invoices would be returned and cancelled. After cancellation of the invoices, sale proceeds of such transactions would be received in cash. The assessee M/s. Shree Naklank Laminates was one such manufacturer of laminated sheets and plywood. In the show cause notice, the authority proposed to levy unpaid duty of excise of ₹ 71.21 lacs (rounded off) from M/s. Simalin Chemical with interest and penalty under section 11AC of the Central Excise Act, 1944 ( the Act for short). The notice also proposes confiscation of illicitly cleared finished goods. The notice also proposes penalties on the buyers including M/s. Shree Naklank Laminates under Rule 26 of the Central Excise Rules, 2002 ( the Rules for short). During the pendency of the adjudication of show cause notice p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n insisting that separate applications for settlement ought to have been filed by the applicants. Counsel brought to our notice large number of judgments including those which have taken a view contrary to her contentions. We would refer to these judgments at an appropriate stage. 4. On the other hand, learned counsel Shri Divyeshvar for the department opposed the appeals contending that the Tribunal has correctly assessed the factual and legal position. The scheme of settlement under the Act envisages application by each individual assessee and acceptance or rejection of each application. Upon acceptance of any such application for settlement, immunity would be limited to the person applying for such settlement. Such immunity cannot be expanded to cover cases of those who were not part of the settlement proceedings. 5. There are various judgments of the Tribunal and different High Courts in the backdrop of facts which may seem similar but may have crucial differences. We would first try to give our interpretation to the scheme of settlement contained in the Act and then refer to judgments cited before us. 6. We may first briefly refer to penalty provisions. Section 11A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n would have to pass through various stages mentioned in the said section. After passing through such stages, under subsection (5) of section 32F after examination of the records and the report of the Principal Commissioner, if any, and after giving an opportunity to the applicant and to the department and after examining such further evidence as may be placed before it or obtained by it, the Commission may, in accordance with the provisions of the Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Principal Commissioner. Subsection( 8) of section 32F provides that the order passed under subsection (5) shall provide for the terms of settlement including any demand by way of duty, penalty or interest, the manner in which any sums due under the settlement shall be paid and all other matters to make the settlement effective. In case the application for settlement is rejected, the reasons thereof. Subsection( 9) of Section 32F provides that where any duty, interest, fine and penalty payable pursuant to order under subsection (5), is not paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus clearly bring out one to one relation between a case where the assessee to whom such case relates who has filed an application for settlement and whose application for settlement is considered by the Settlement Commission. At all stages, there is a requirement of cooperation with the settlement proceedings and true disclosures by the applicant of settlement. The order that the Settlement Commission may pass granting the application would contain details of sums to be paid and the manner in which the same would be paid. The Settlement Commission could grant immunity against prosecution, penalty and fine, subject to payment of such sums. Such immunity could be withdrawn subject to the situation envisaged in subsection( 2) or subsection( 3) of section 32K arising. All these are indications that it is the assessee who applies for settlement alone whose application would be considered and either granted or rejected. The terms of settlement, the fulfillment of such terms by the applicant assessee and the resultant grant of immunity would all be in relation to the assessee who applies for settlement. There is no warrant under the statutory provisions that we have noticed to hold tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of such fine, penalty or interest. On 8.12.1998, the Government of India also issued an order called the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order 1998. This order provided that where a declaration to the designated authority has been made in respect of tax arrear in relation to indirect tax enactment for the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest fine or penalty which constitutes the subjectmatter of a demand notice or a show cause notice issued on or before March 31, 1998, but remaining unpaid, and pending determination on the date of making a declaration and, where in respect of the same matter stated in the said declaration, a show cause notice has also been issued to any other person and is pending adjudication on the date of making the declaration then, no civil proceeding for imposition of fine, or penalty shall be proceeded with against such other person . The explanatory memorandum along with the said order clarified that no civil proceedings for imposition of fine or penalty shall be proceeded with against the conoticees and in such cases, the settlement in favour of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deposited with the declaration should be refunded. The Gujarat High Court referred to the explanatory memorandum and did not accept the contention of the petitioners that the same would include the proceedings at the appellate stage as well. The Court was also of the opinion that not including the proceedings at the appellate stage would not render the provisions discriminatory and therefore, violative of Article 14 of the Constitution. 26.10.2018 16. Both these judgments of Kerala and Gujarat High Courts were considered by the Supreme Court for common disposal in case of Omkar S. Kanwar and ors (SC) (supra). In case of Omkar S. Kanwar and ors (SC) (supra), on behalf of the Revenue it was argued that the show cause notices were issued not only to the company but to its various Directors and the officers. It was argued that the KVS Scheme was clear. Each declaration under the scheme had to be made separately and dealt with separately and the settlement would be arrived in respect of each declaration. 17. On the other hand, on behalf of the original petitioners it was argued that only one show cause notice was issued. Once the company had settled the case under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending adjudication. However, the same order also talks of the show cause notice being in respect of same matter on which the show cause notice has been issued to the main declarant. Then the Order provides that a settlement in favour of the declarant will be deemed to be full and final in respect of other persons also. This Order has to be read as a whole. If read as a whole, it is clear that a settlement by the main declarant is to operate as full and final settlement in respect of all other persons on whom show cause notice was issued in respect of the same matter. Thus read as a whole the words pending adjudication cannot be read to exclude cases where the proceedings are still pending in Appeal. Even otherwise the order has to be read along with the Kar Vivad Samadhan Scheme. Under the Kar Vivad Samadhan Scheme a party can file a declaration so long as the proceedings are pending. Thus, even thought the show cause notice may have been adjudicated upon and an Appeal is pending a party could still take the benefit of the Kar Vivad Samadhan Scheme and file a declaration. The object of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order is to give benefit to a settleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the same subject matter. In fact, the extension of such benefit to the socalled subsidiary noticees was not the focal point of the judgments of Kerala and Gujarat 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. If we accept the contention of Ms. Vyas for the appellants that the ratio of the judgment of Supreme Court in case of Omkar S. Kanwar and ors (SC) (supra) was that in any settlement scheme of similar nature, once the principal noticee applies for settlement and settlement was granted, automatically benefit of immunity should enure to the benefit of all conoticees, the observations of the Supreme Court in paragraph 12 of the judgment would be in conflict with its ultimate observations and conclusions recorded in paragraph no.14. Paragraph 12 is a complete answer to the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst all conoticees would abate. But when the orderinoriginal is a composite order and the liability fastened upon the principal noticee and the conoticees is based on separate, distinct and independent causes of action and the principal noticee settles only part of the tax arrears arising out of such composite order, the benefit of immunity to the principal noticee would not be valid to conoticee. The decision of Supreme Court in case of Omkar S. Kanwar and ors (SC) (supra) was noticed. The Court was of the opinion that the ratio of the said decision is that only when the tax arrears arises from the same matter then the declaration made by the principal noticee would cover all other persons against whom show cause notice has been issued. Decision of Supreme Court on that ground was distinguished. 22. In Modest Shipping (Agency) Pvt. Ltd. v. Chief Commr. Of Cus., Bombay reported in 2004 (114) ECR 269 (Bombay), Division Bench of Bombay High Court referred to the decision of Supreme Court in case of Omkar S. Kanwar and ors (SC) (supra) and of Bombay High Court in case of Yogesh Korani (supra) and held that liability fastened on the petitioners cannot be said to be arising ..... X X X X Extracts X X X X X X X X Extracts X X X X
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