Settlement Commission: Not powerful enough to settle its own differences

Tulsi R Rustagi

Article 265 of the Constitution lays down a fundamental proposition that no tax can be collected without the authority of law. The responsibility of specifying the nature of a particular tax, its scope and manner of collection lies on the legislature.

However, quite often disputes arise on interpretation of law. Many a times attempts are made to reduce the tax liability by legal avoidance in the name of tax management. Some indulge in outright evasion.

Unreasonable interpretation by tax officials is also not uncommon. All these lead to disputes and litigation, which is costly and time consuming. The customs and excise laws provide for settlement of disputes through the settlement commission. This is conceived to be a cheaper and faster way of settling disputes.

Section 127B of the Customs Act lays down the manner of making application to the commission and prescribes certain conditions to be satisfied by the applicant. One of the conditions for applying to the commission is that an application should contain “a full and true disclosure of hid duty liability which has not been disclosed before the proper (customs) officer, the manner in which such liability has been incurred, the additional amount of customs duty acceptable to be payable by him (the applicant).” The other is that the additional amount of duty accepted by the applicant in his application should exceed two lakh rupees.

The commission sits in benches comprising senior departmental officers well versed in this field. The commission examines the application for settlement, goes into the facts, hears both the sides and then offers the terms of settlement. What is important is that the commission can grant immunity from penalties, interest and prosecution. These vast powers add greatly to the importance of the settlement commission.

If accepted by the applicant, the terms of settlement are final and no appeal lies against the order of the settlement commission.
Settlement commission can settle cases involving complex questions of law and facts, steering clear of unwinding arguments. It is, however, interesting that at times the benches of the commission are not able to settle the differences of its own members.

Take a recent example. Facts first. An assessee was alleged to have imported CT scanners along with optional accessories. However, he mis-declared them as imports of parts with a view to derive undue pecuniary advantage on account of the fact that parts carried low rate of customs duty than scanners.

The department issued notice for recovery of the short levy and also sought to take penal action against the assessee. On these developments, the assessee decided to approach the settlement commission and filed an application for settlement of his case. Before doing so the assessee deposited an amount of more than six lakh rupees as the additional duty (that was demanded by the department) along with interest. This fact raised the question as to whether the commission was within its power to admit the application, having regard to the intent of section 127B ibid.

The department argued that when no additional amount of duty remained to be accepted as payable by the assessee, the provisions of section 127B were not attracted and therefore the assessee had no right to approach the commission. It was urged that the assessee did so with an ulterior motive only to claim immunity from prosecution and penalty.

The bench comprised three members, presided by the vice chairman. Two of them, including the vice chairman, rejected the department’s objection as not maintainable. They expressed the view that the additional amount already paid “has to be taken as only a deposit and cannot be said to be against any assessed levy, since the assessment is not complete.” Rejecting the objection as self defeating, the two members cautioned: “If the machinery of settlement is shut in such cases, none will be encouraged to pay the amount till the receipt of an order in adjudication thereby delaying the accrual of the amount due to the government.” Furthermore, they reminded of the basic aim of settlement.

They said: “The process (of settlement) helps both the applicant and the revenue in that the former gets peace while the latter gets the revenue, and acquires knowledge on the modus operandi.” They also found fault with the department’s objection also on one more ground. “Admission of an application does not automatically guarantee immunities,” they observed.

The third member of the bench, however, differed. He emphasised upon the fact that section 127B of the Customs Act referred to “the additional amount of customs duty accepted to be payable (by the assessee)”. It also provided for payment of the additional amount within thirty days, unless extended by the commission. He felt strongly that the purport of the section 127B of the Customs act is mandatory and cannot be diluted, more so by the creatures of the statute.

According to him it is wrong to infer that the settlement commission can be approached even if the admitted additional amount is already paid. He felt necessary to remind his learned brothers “it should be remembered that the apex court has laid down that a creature under the law has to go by the wordings of the statute, irrespective of the larger effect it may have (if interpreted liberally)”.

The third member also differed in his perception towards the aim and objective of the settlement mechanism provided for under the Customs Act. This is how he explained the logic of his assertion:
“it is essential to note that the law relating to setting up of the settlement commission was enacted to enable taxpayers to come forward and pay undisclosed liabilities. It is also to enable government to recover tax/duty from the taxpayers which may not be easily recoverable from them in view of non-disclosure.

This is a machinery provision geared to collect revenue for the government. Therefore, where it already stands discharged/paid, and hence collected, even at the time of filing the application, admission of the said would not result in achievement of the goal of further recovery or collection of revenue to government.

It would only enable the assessee to seek for, and secure, immunities, if allowed by the commission. Obviously, the settlement commission cannot be used as a vehicle for merely obtaining immunities, without any gain in the form of additional revenue.”
The settlement commission for customs and excise cases is a relatively new institution. Its decision in one case has no precedent value of a binding nature in another case to be decided by it. That is the law. Yet its decisions, opinions and observations will influence opinions of many. That seems to be settled!