CA Pradeep Jain, CA Preeti Parihar, CA Neetu Sukhwani

Introduction

The budget for the financial year 2013-14 took a hard hand by drastically amending the penal provisions relating to the offences under the Central Excise and Service Tax law. Though these provisions are harsh in the way making certain offences as cognizable and non-bailable, but, these amendments seems to restore the charm of Settlement Commission. How? To have an answer to this question, let’s have a close look on the relevant amendments and their implications.

Section 32K – Prior to 1.6.2007

Section 32K of the Central Excise Act, 1944 empowers the Settlement Commission to grant immunity from prosecution and penalty in certain cases. This section prior to 1.6.2007 read as follows:-

32K. POWER OF SETTLEMENT COMMISSION TO GRANT IMMUNITY FROM PROSECUTION AND PENALTY. –

(1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 32E has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his duty liability, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also either  wholly or in part from the imposition of any penalty, fine and interest under this Act, with respect to the case covered by the settlement :

Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 32E

Thus, prior to 1.6.2007, the Settlement commission was empowered to grant immunity from prosecution for any offence under the Central Excise Act as well as under the Indian Penal Code or under any other Central Act for the time being in force. Also, the immunity could be granted either wholly or partly from imposition of penalty, fine and interest under this Act.

Section 32K w.e.f. 1.6.2007

An important amendment was made in section 32K effective from 1.6.2007 whereby the offences covered by Indian Penal Code or any other Central Act were detached from the purview of this section. The amended section as existing at present reads as follows:-

(1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 32E has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his duty liability, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act and also either  wholly or in part from the imposition of any penalty and fine under this Act, with respect to the case covered by the settlement :

Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 32E.

Explanation – For the removal of doubts, it is hereby declared that applications filed before the Settlement Commission on or before the 31st day of May, 2007 shall be disposed of as if the amendment in this section had not come into force.

Thus, as from 1.6.2007; the Settlement Commission is empowered to grant immunity from prosecution for any offence under the Central Excise Act only. Also, the immunity from interest was also done away as from this date. Thus, now the immunity can only be granted from imposition of penalty and fine under Central Excise Act. To justify with the old cases, an explanation was added to the effect that the old cases prior to 31.5.2007 were to be disposed off as per old provisions.

Assessees Resorting Settlement Commission

Since the settlement commission was empowered to grant immunity from prosecution, most of the assessees resorted to it only for the purpose of escaping the prosecution. The fear of prosecution was the significant factor that increased the no. of cases pending with Settlement Commission every year even after 1.6.2007 when only the offences related to Central Excise Act were subject matter of Settlement Commission. The scene continued for few more years till year 2011 when the Supreme Court judgment in the case of M/s Om Prakash was passed.

Supreme Court judgment in the case of M/s Om Prakash v/s UOI:-

In the landmark judgment given by the Hon’ble Supreme Court in the case of Om Prakash vs Union of India [2011 (272) E.L.T. 321 (S.C.)], it was held that all the offences under the Central Excise Act and the Customs Act were bailable and non-cognizable. This judgment diluted the charm of going towards settlement commission as the offenders also took a lenient attitude due to the sole reason that they would be bailed for any offence that is committed under these Acts. However, there had been several problems in going to Settlement Commission that were in form of additional liabilities under Income tax or sales tax laws as the income disclosed in one law was followed by notices under other laws. But still the immunity from prosecution was the main factor that attracted the assessees towards the Settlement Commission. But this decision had the effect of diluting the lure of getting immunity from prosecution and in some way weakened the relevance of the provision of immunity.

Amendments: Budget, 2013-14:-

Budget, 2013 has brought significant amendments in section 9A of the Central Excise Act, 1944 and simultaneous amendments in the service tax law too. Under Central Excise Act, the offences where the duty liability exceeds Rs. 50 lakhs have been made as cognizable and non-bailable. Similarly, under service tax law, any person who collects the service tax but does not pays it to the government exchequer within six months and the amount exceeds Rs. 50 lacs; is liable to imprisonment upto 7 years.

Implication of Budget, 2013:-

The budget, 2013 has taken a chance to make certain offences as cognizable and non-bailable. This attempt seems to have nullified the impact of Supreme Court judgment in the case of M/s Om Prakash. Thus, the fear of imprisonment has arisen once again in the minds of offenders. This amendment seems to restore the relevance of section 32K of the Central Excise Act, 1944.

While parting:-

The recent amendments clearly reveal the stringent attitude of the government to punish the persons with go-by attitude towards the legal provisions. It seems that the charm of moving to Settlement Commission would be regained so that more applications would be now be pending for settling the case as there is immunity from prosecution under Central Excise Act. Thus, the charm of Settlement Commission that existed prior to decision of Supreme Court in the case of M/s Om Prakash seems to be restored by this amendment.

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