Case Law Details

Case Name : The Settlement Commission, Customs And Central Excise, Mumbai [Additional Bench] In Re. to Emerson Electric Company (India) Pvt. Ltd.
Appeal Number :
Date of Judgement/Order : 13/06/2005
Related Assessment Year :
Courts : Settlement Commission (1)

(a) Whether the yearly ‘declaration’ filed, by a small scale manufacturer can be treated as a ‘return’ under Sec. 32E(1) of the Central Excise Act.

Answer: Yes. As discussed supra. A return of production, clearance and duty paid in the prescribed manner, is a statutory requirement. In the absence of a specific reference in Section 32E to ER1/ER3 i.e. monthly/quarterly returns prescribed under Rule 12 of the Central Excise Rules, since the ‘declaration’ filed by a small scale manufacturer also contains the basic particulars of estimated production and clearances though not the duty paid, as the product is totally exempt, and keeps the Department aware of the bona fide existence of the applicant, the yearly declaration can be deemed to serve the purpose of ‘return’, in so far as Sec. 32E(1) of the Central Excise Act is concerned.

(b) Whether a consolidated return filed just before filing the application or along with the application by a person who is not registered with Central Excise and did not obtain ECC Number can be considered as satisfying the condition in Clause (a) of Sec. 32E(1) of the CEA, 1944.

Answer:  No. Though Section 32E(1) does not refer to Rule 12 of the C.E. Rules under which ER1/ER3 returns are prescribed, since the said returns contain details of excisable goods manufactured, cleared and duty paid in the prescribed manner, the said return can be deemed to be the ‘return’ referred to in Section 32E(1). Therefore, even if the views of the counsels that clause (a) of the first proviso to Section 32E(1) lays down for filing of returns in the prescribed manner are to be accepted, then too as per Rule 12 of the Central Excise Rules, 2002, ‘returns’ are to be filed by an assessee on a monthly/quarterly basis. There is no provision for filing of these ‘returns’ in a consolidated manner covering more than one month. Though there is no specific bar against filing of belated returns relating to a particular month, there is no provision for consolidating the returns for any number of months. But going by the earlier stated view that the said Section 32E(1) only refers to mention of the duty paid in the prescribed manner in the return, the Bench observes that if the applicant is to file a consolidated return belatedly without ECC Number, and covering more than one month, such return cannot, naturally, contain the details of any duty paid in the prescribed manner, as no duty would have been paid at nil till then. Further, if the assessee is to file a consolidated return before filing an application or along with the application, there would be questions even on the details of production and clearances shown therein. If the applicant is to furnish the quantum, which is to be reflected in the application for settlement, there will be no additional duty liability disclosure in the said settlement application over and above that in the consolidated return. He cannot also show at the belated stage any ad hoc quantum of production and clearances merely to be able to show extra disclosure in the application form, as the said ad hoc disclosure would not be truthful at that stage. As a result, a consolidated return filed just before filing the application or along with the application by a person, not registered with Central Excise and not having ECC Code Number, cannot be considered as satisfying the requirement of having filed returns as laid down in Clause (a) of the first proviso to Section 32E(1) of the Central Excise Act, 1944.

(c) Can returns filed after obtaining ECC Code, but for the period prior to obtaining such Code Number, be treated as valid returns as per Sec. 32E(1) of the Central Excise Act, 1944.

Answer : No. The reply furnished to question (b) applies in toto to this also. The only difference in the instant question is that in the earlier point, reference was to the consolidated returns filed without obtaining ECC Code, whereas the present question is on the returns (without reference to consolidated or otherwise) filed after getting ECC Number. In this case also, the applicant would not be able to indicate ‘duty paid’ in the prescribed manner (or even in any manner) and question would continue to agitate about the details of production and clearance to be filled in such belated returns. However, in case the applicant had filed monthly/quarterly returns voluntarily, even if late, but before the commencement of any inquiry or at least issuance of a SCN, the position would be different. In the said belated returns filed after getting ECC Code the applicant would be able to indicate the duty paid by him in the prescribed manner atleast from the date of obtaining the ECC Code, along with production and clearance as desired by him. Such returns can be taken cognizance of for the purpose of Section 32E(1) of the Central Excise Act, 1944 to allow filing of settlement application.

(d) Whether a limited company or partnership firm having two divisions at two different locations, one of which pays duty and files returns and another neither pays duty nor files returns, can be said to have complied with the conditions of filing the returns as per Sec. 32E(1) of the CEA, 1944.

Answer : No. Unlike direct taxes, in the case of excise levy, the registration by an assessee is premises – specific, i.e. a corporate or a firm or an individual having more than one premises for manufacturing excisable goods, is enjoined under Rule 9 of the C.E. Rules, 2002 to register each place of manufacture of the excisable goods and to maintain accounts and registers separately in respect of each premises. The said manufacturer is also to file return specifically for each of the said manufacturing premises registered separately, and as a corollary in case total exemption is to be availed declaration in lieu of registration is also required in respect of each premises. It may be a different issue that in the application for registration, or in the declaration form, the assessee is directed to furnish the details of all other manufacturing premises that they have and the addresses of such places. But this does not, and cannot, substitute the requirement of registration (and, therefore, returns) or declaration for each of the premises. This being the case, if a limited company or a partnership firm having two (or more) divisions at different locations, cannot be said to have complied with condition of filing return in respect of both (or all) the divisions for purpose of Section 32E(1) if one of the divisions pays duty and files returns. The said limited company or a partnership firm can be said to have complied with the requirement of Section 32E(1) only in respect of the premises for which required declaration has been filed.

Additional Points :

(e) Whether applications filed by units, which had functioned as SSI units, but had not even filed declarations during the material period, would be eligible for admission.

Answer : No. Unless the SSI units, which did not have to file returns, had filed prescribed declaration before the intervention of Revenue authorities, they would not be eligible to apply for settlement.

(f) The practice of filing declaration upon commencement of manufacturing operations in every financial year (by 15th April) was dispensed by Notification No. 52 of 98-C.E. (N.T.), dated 2-6-1998, whereby a declaration filed at the time of commencement would suffice. Whether such non-filing of declaration renders the applicant ineligible for filing application for settlement?

Answer: No. If declaration had been filed at the appropriate time as required under the above Notification, an application can be made for settlement. (Para 11)+

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BEFORE THE SETTLEMENT COMMISSION, CUSTOMS AND CENTRAL EXCISE, MUMBAI

[ADDITIONAL BENCH]

S/Shri K.P. Sridhara Raman, Chairman, V.K. Sharma, Vice-Chairman, M.V.S. Prasad, Vice-Chairman, B.N. Das and R. Mukhopadhyay, Members

IN RE: EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD.

Special Bench Order No. 1/CEX/2005, dated 13-6-2005

S/Shri K. Kumar, C. Natarajan, Sr. Advocates, V. Sridharan, Gajendra Jain and B.N. Gururaj, Advocates, for the Appellant.

O  R   D   E   R

A.Background of the case leading to constitution of the Special Bench :

1.0The genesis leading to constitution of the Special Bench is narrated below in a nut-shell :

(a)        M/s. Emerson Electric Company (India) Pvt. Ltd. applied for settlement of the case covered under Show Cause Notice dt. 3-6-2004 before the Additional Bench, Mumbai of the Customs & Central Excise Settlement Commission. The Show Cause Notice was not issued to this applicant, but was issued to M/s. Branson Ultrasonics, demanding C.E. duty amounting to Rs. 16,52,725/-, which the applicant accepted as payable though simultaneously praying for adjustment of the net duty amount granting deduction from the demanded amount, Rs. 2,27,962/- by way of deeming their price as cum-duty price and extending permissible deduction therefrom to re-determine correct assessable value and a further deduction of Rs. 2,18,876/- on account of Modvat credit. As such, the applicant prayed for settlement of the case accepting the duty liability as Rs. 12,05,887/-. The application was heard for admission by the Additional Bench, Mumbai on 25-11-2004.

(b)        The issue involved in the case was that the noticee M/s. Branson Ultrasonics [Division of M/s. Emerson Electric Company (India) Pvt. Ltd.], were engaged in the activities of trading of ’Ultrasonic Plastic Welding and Cleaning Machines’ as well as manufacturing of ‘‘Horns of Fixtures” made out of Aluminium Titanium materials. They affixed the brand name ‘BRANSON’ on the Horns. They were active since 1996-97 and cleared the branded goods without following Central Excise procedure and without paying the Central Excise duty. They were also not registered with Central Excise and were not filing ‘return’ showing production, clearance and amount of duty paid. They, however, filed one RT-12/E.R.-1 return for each financial year covering the entire period from 1996-97 to 2003-04 i.e. from 1-4-1996 to 31-3-2004 on the date of filing the S.C.(E)-1 application before the Settlement Commission, i.e. 30-7-2004.

(c)        Since the application for settlement was submitted by someone other than the noticee namely M/s. Branson Ultrasonics, a reference was made to the noticee by the Commission asking for clarifications. The noticee in their reply dt. 14-9-2004 submitted that they were a Division of the applicant company M/s. Emerson Electric Company (India) Pvt. Ltd.

(d)       According to the Show Cause Notice, the noticee manufactured Horns & Fixture with a brand name and were thus not eligible for exemption available to small scale manufacturers and, accordingly, duty due on the entire value of clearance Rs. 1,03,29,530/- during the entire period from May ’99 to March ’04 came to Rs. 16,52,725/-.

(e)        The respondent Commissioner of C.E., Mumbai-IV, in his report under Section 32F(1) of the Central Excise Act, 1944, submitted that the applicant could not be treated as a manufacturer going by the address of M/s. Branson Ultrasonics, appearing in the relevant Registration Certificate. Further, the provisions under Section 32E makes filing of application by an ‘assessee’ obligatory. As such, M/s. Branson Ultrasonics, who are the manufacturers, are the ‘assessee’ and not the applicant and hence the application should have been filed by them only and not by the applicant, herein, M/s. Emerson Electric Company (India) Pvt. Ltd.

(f)        The Addl. Bench, Mumbai under F. No. SC/Mz/CE/147/2004/ 5472, dated 24-12-2004, accordingly referred to the Chairman, Customs & Central Excise Settlement Commission for referring the issue to Special Bench.

2.0Similar issues had been decided by the various Benches of the Commission in the following cases :

2.1On somewhat similar issue, earlier, the case of M/s. Sunshine Jewellers was rejected by the Additional Bench, Mumbai. The matter related to a final product which was exempt and thus not requiring submission of any ‘return’, but an intermediate product emerging in the course of manufacture of the said exempted final product was not exempt from payment of duty. In the said case, application was filed on 13-2-2002 and after filing the application for settlement, ER-1 return was filed on 19-3-2002 for the period October, 2000 to March, 2001. They cited the following case laws reg. Kullu Valley Transport reported in 77 ITR 518, passed by the Hon’ble Supreme Court : State of Andhra Pradesh v. Donthala Rajaiah reported in (1960) 11 STC 819 (AP). They also quoted the Circular No. 2/93-CX.6, dated 15-1-1993 issued by the Central Board of Excise & Customs permitting submission of belated return in cases of evasion by bulk drug manufacturers in order to substantiate that filing of return belatedly is also to be treated as return filed. It was observed in that case that in the said return, which was not accepted by Revenue for the reason that the applicant was not registered with Central Excise, the applicant had declared certain amount of duty as payable but in the application for settlement did not declare anything more, and hence they did not fulfil one of the conditions enabling an assessee to seek settlement. The application was rejected.

2.2In the case  of M/s. Bharat Industrial Works, it had been pleaded that the applicant undertook job work on site and was under the impression that their activities did not fall under the purview of ‘manufacture’ and that is why they did not file ‘declaration’ nor applied for registration before a case was detected and a Show Cause Notice issued. In that case also, the Revenue had a similar objection that since the applicant did not have themselves registered and did not file any return, their case could not be entertained. The case was also rejected under Order No. A-116/CE/2003-SC(PB), dated 4-6-2003 [2003 (160) ELT 951 (Sett. Comm.)]. However, when the matter was contested in a writ before the Hon’ble High Court of Delhi, the ld. Chief Justice while disposing the Writ Petition No. WP(C)5091/2003 directed that “It is stated that the petitioner will file the return and in view of that there would be compliance. On behalf of the respondent it is stated that the application will, thereafter, be considered in accordance with law.” Four weeks’ time was granted for filing the said ‘return’ by the Hon’ble Court. Thus in this case the concept of a ‘belated’ return, as also referred by the ld. Advocate in the case of M/s. Sunshine Jewellers supra, was given cognizance by the Hon’ble High Court.

2.3In another case of Shri Rajendra Sharma, proprietor of M/s. Muskhan Trading Company, having marginally different set of facts, the application was admitted by the Principal Bench of the Settlement Commission under Admission Order No. A-l57/CE/03-SC(PB), dt. 4-11-2003. In this case, there was suppression of production and removal of excisable goods during the financial year 2000-2001. The applicant did not take out registration nor did he file return till October, 2001. After the visit of the Central Excise Officers on 10-10-2001, in the course of investigation, the applicant deposited an amount of Rs. 10 lakhs and got registered with Central Excise on 29-10-2001. Thereafter they continued to submit return from the subsequent month. In the Show Cause Notice demand of duty was made and the applicant submitted that they were agreeable to have the deposited amount appropriated towards the demand of duty. As mentioned supra the application was admitted, citing the case of M/s. Oriflame India Ltd., reported in 2000 (l22) E.L.T. 601 (Sett. Comm.) [Order No. 1/2000, dated 10-10-2000] it was held that ‘if a person has filed returns for a certain period, there is no inhibition to come to the conclusion that the applicant has fulfilled the proviso to Section 32E(1) of the Act.’ (emphasis supplied).

2.4The case of M/s. FabIndia Overseas, Delhi/Bangalore/Mumbai, manufacturer of garments from handloom fabrics and exporter, was also admitted under Admission Order A-127 to 129/CE/03-SC(PB), dated 14-7-2003. In the case, the applicants pleaded that since C.E. duty was imposed w.e.f. 1-5-2001, the applicant took some time to understand the implications of the levy and before they could develop/install appropriate accounting systems for all its shops located at different places, their premises were raided and show cause notices were issued.

2.5Another similar case was of M/s. Search Pharma Pvt. Ltd., Gurgaon & Anr., engaged in manufacture of Ayurvedic Medicine, some of which were affixed with brand names belonging to other persons. The main applicant was not registered with the C.E. department. It was pleaded in that case that they were under the bona fide belief that being a SSI unit, they were not required to pay C.E. duty nor were they required to take even the registration till the visit of the Officers of C.E. Immediately thereafter, they obtained C.E. registration and started complying with the provisions of law. The Revenue objected to admission of the case on the ground that at the time of detection of evasion, the applicant was not registered and that there was no fresh declaration inasmuch as after detection of the case, the applicants filed returns showing all the details therein. The Bench informed Revenue of the following views taken in the case of M/s. Shield Biotech in Admission Order No. A-192/CE/04-SC(PB), dated 19-5-2004 and the Revenue agreed with those views.

“5………… Rule 9 of Central Excise (No. 2) Rules, 2001 exempted a manufacturer from applying for registration till the aggregate value of clearances exceeded the specified limit. Similarly, both the notifications did not prescribe any conditions to file any declaration before availing the exemption. In view of the above, it is clear that a manufacturer eligible for availing SSI exemption was exempt from taking registration till the aggregate value of clearances exceeded the specified limit and as a consequence was not required to file the returns. Hence once the applicant believed that the SSI exemption, was available, it is natural that the applicant was not required to file the return. In such a situation, non-filing of return cannot be held against the applicant. Perusal of the SCNs do not give the impression that the applicant knew he was not eligible for the exemption but still availed the same. There does not appear to be any clandestine clearance as goods were cleared on invoices, without charging duty. However, the applicant has filed a consolidated return in March, 2004 covering the period 1-1-2002 to 27-12-2002 and have been filing the returns regularly after taking out the registration in January, 2003. Therefore, the Bench holds that the application has to be taken as satisfying the requirement under Clause (a) of the first proviso of sub-section (1) of Section 32E of the Act. On a query from the bench that in the consolidated return filed in the month of March, 2004, the applicant has disclosed the full duty liability and hence whether there is any fresh disclosure in the settlement application, the Advocate submitted that the consolidated return was filed long after issue of the SCN and whereas it will be clear from the SCNS that the applicant has not disclosed the fact of manufacturing and clearing the goods affixing the brand name of other persons and thereby becoming ineligible to avail the benefit of SSI exemption as per para 4 of both the notifications namely 8/2001-C.E., dt. 1-3-2001 and 8/2002-C.E., dt. 1-3-2002.“

3.0The  Chairman, Customs and Central Excise Settlement Commission, New Delhi in his reference F. No. C-18/Tech/02-SC(PB), dated 12-1-2005 constituted a Special Bench under sub-section (7) of Section 32A of Central Excise Act, 1944, read with Section 127N of the Customs Act, 1962 (hereinafter referred to as the Act in this order) comprising (1) Shri K.P. Sridhara Raman, Chairman, Customs & Central Excise Settlement Commission, New Delhi – Presiding Officer; (2) Shri M.V.S. Prasad, Vice-Chairman, CCESC, Chennai – Member; (3) Shri R. Mukhopadhyay, Member, CCESC, Kolkata – Member; (4) Shri V.K. Sharma, Vice-Chairman, CCESC, Mumbai; – Member; and (5) Shri B.N. Das, Member, CCESC. Mumbai – Member.

4.0The following issues were referred to the Special Bench for decision :

(a)        Whether the yearly ‘declaration’ filed by a small scale manufacturer can be treated as a ‘return’ under Section 32E(1) of the Central Excise Act, 1944?

(b)        Whether a consolidated return filed just before filing the application or along with the application by a person who is not registered with C. Ex and did not obtain ECC No., can be considered as satisfying the condition in clause (a) of Section 32E(1) of the Central Excise Act, 1944?

(c)        Can returns filed after obtaining ECC No., but for the period prior to obtaining such code no., be treated as valid returns as per Section 32E(1) of the Central Excise Act, 1944?

(d)       Whether a limited company or a partnership firm having two divisions at two different locations, one of which pays duty and files returns and another neither pays duty nor files returns, can be said to have complied with the conditions of filing the returns as per Section 32E(1) of the Central Excise Act, 1944?

Additional points :

(e)        Whether applications filed by units, which had functioned as SSI units, but had not even filed declarations during the material period would be eligible for admission?

(f)        The practice of filing declaration upon commencement of manufacturing operation and on every financial year (by 15th April) was dispensed with by Notification No. 52/98-C.E. (N.T.), dated 2-6-1998, whereby a declaration filed upon commencement would suffice. Whether such non-filing of declaration renders the applicant ineligible for filing application for settlement?

Submissions B. made in course of proceedings before the Special Bench.

5.0Submissions by Shri V. Sridharan, Advocate appearing for hearing before the Special Bench. He submitted his arguments exhaustively and also submitted written submission which was followed up by further submission dated 13-4-2005, signed by Shri Gajendra Jain, Advocate; and 18-4-2005 signed by Sh. V. Sridhara, Advocate and submissions of Sh. B.N. Gururaj :

Sum and substance of such arguments and submissions are as follows :

[I]        Whether annual declaration filed by SSIs can he treated as ‘return‘ under Section 32E(1) of the Act.

It is submitted that the object of the conditions stipulated in the proviso to Section 32E(1) must be gathered from a total reading of that provision. It is submitted that the first condition of filing return showing production, clearance and Central Excise duty paid, is that the applicant must not be someone who has totally stayed away from the Revenue with the presumable intent of evading duty on its manufacture. Thus an applicant who has not at all disclosed his existence to the Revenue would no doubt be ineligible to invoke the assistance of this Hon’ble Commission. However, it is submitted that a person who has filed the annual declaration and disclosed his existence to the Revenue as also all the relevant particulars such as location of the factory, nature of goods manufactured, estimated clearance for the current year, and value of past clearances cannot be placed on the same footing as someone who has totally failed to disclose his existence and thereby escaped the liability to pay duty. It is submitted that when the law itself has provided that a person who opts for SSI exemption may file such a declaration annually, it must not be converted into a disability for approaching this Hon’ble Commission for settling the dispute. It is therefore submitted that the yearly declaration filed by SSI who are under total exemption is liable to be treated at par with periodic returns filed by the other assessees.

[II]      Whether consolidated return filed before or along with the application without obtaining registration of ECC be treated as valid returns?

It is submitted that a person who has not obtained C.E. registration or ECC would not have disclosed his existence or the nature of his activities to the Revenue. Even at the time of filing the application before this Hon’ble Commission, if the applicant has not obtained registration or ECC, it is a pointer to the lack of bona fide of the applicant. Such a person would not have discharged any duty liability whatsoever. It is, therefore, submitted that this factor is liable to be held against the applicant, where the case involves a commodity which is prima facie, an excisable goods as defined in Section 2(d) of the C.E. Act ’44 or the activity of the applicant is prima facie, a process of manufacture as defined in the Section Notes and Chapter Notes of the C.E. Tariff or the Third Schedule to the C.E. Act ’44. The required ‘prima facie’ satisfaction can be reached by the jurisdictional Bench of the Commission at the time of hearing of the application for admission.

However, it is submitted that a further important factor merits consideration in this context. If the applicant has entertained a bona fide belief that his activities, or goods produced, are not excisable, the fact that he did not obtain ECC or declare its existence to the Revenue must not be held against him.

It is submitted that the Hon’ble Settlement Commission has the discretion to look into the factual backdrop of each application and determine the bona fide nature of application at the time of admission of the application and before ordering the application to be proceeded with.

In this context, it is pleaded that the reference under clause (a) of the first proviso to Section 32E(1) that “the applicant has filed returns showing production, clearance and central excise duty paid in the prescribed manner” does not denote filed “within the specified” time and reliance for this is placed on the decision of the Apex Court in the case of Sales Tax Officer v. K.I. Aloraham [1967 (20) STC 367-SC].

[III]     The case of applicant filing consolidated return after obtaining registration and ECC.

It is submitted that the distinction between the issue addressed at 2 above and in this para is marginal. In a case arising under para 2 above, even at the time of making the application to this Hon’ble Commission, the applicant would not have obtained registration or obtained the ECC. In contradistinction, in a case arising under this para, at the time of filing consolidated return, the applicant has already obtained registration and ECC Code. Hence, it is submitted that the fact that he has obtained registration and ECC and has also disclosed all the past affairs by filing consolidated return, must be treated as bona fide act without any trace of malice. This would be in keeping with the spirit of settlement and making of full and true disclosure.

[IV]     A case where one Division of a company or firm discloses its affairs and another Division does not do so.

It is submitted that under Section 6 of the C.E. Act ’44, as well as under erstwhile Rule 174 of the C.E. Rules, 1944 as also Rule 9 of the C.E. Rules, 2002, the assessable entity under the Central Excise Act is either a ‘factory’ as defined under Section 2(e) of the said Act or a ‘warehouse’, or the place of ‘registered dealer’. The term ‘assessee’ as defined in Rule 2(c) of the C.E. Rules, 2002 applies to every person who carries on production or manufacture or trade in excisable goods. Further, a combined reading of these provisions with Rule 4 of the C.E. Rules, 2002 (or Rule 9 of the Rules of 1944) would show that the place of removal is the point at which the statute exercises control over a manufacturer or warehouse keeper or trader for collection of duty. In contradistinction with other laws, such as Income-tax, where the company or firm is a single assessee, under the Central Excise law, each Division or factory is an independent assessee, carrying on the act of manufacture or production at each location. It is, therefore, submitted that each factory or division is under a statutory obligation to register itself with the jurisdictional Central Excise Authority and pay duty or claim exemption as may be available to it.

It is submitted that if a company or firm discloses its activities and pays duty in one geographical location, but does not do so at another location before the jurisdictional C.E. authorities, to the extent of failure to disclose, in respect of the second location, it cannot be said that the company or the firm has complied with the provisions governing filing of returns for the said second location. It is submitted that the benefit of having filed the periodical returns would accrue only to that Division or Factory which has done so and not to another Division or Factory which has failed to do so. Therefore, it is submitted that to the extent the company or the firm has failed to register itself, failed to pay duty and file returns it would be disqualified from making an application to this Hon’ble Commission.

It is contended that a Division of a company is not recognized as a person in the eyes of law. Reliance is placed in support on a decision of Hon’ble Andhra Pradesh High Court in the case of KCP Ltd. v. State of Andhra Pradesh [1993 (88) STC 374(AP)]. Wherein, the High Court is claimed to have observed that ”…….The registration certificate obtained by each branch or unit may, at best show, that they are separate assessable entities. But it has no bearing on the question whether they are distinct and different legal entities capable of transferring property in goods from each other ………….separate registration certificates issued to the units or branches of an incorporated company have never been considered to be sufficient to confer the legal personality on such units and branches.”

[V]      The reason for introduction of the requirement of filing a return before approaching the Settlement Commission under the Income-tax Act.

Prior to 1987, filing of return was not a requirement for approaching Settlement Commission, in terms of proviso to Section 245C of the Income-tax Act, 1961. Therefore, a person who has been previously assessed under the Income-tax Act, 1961 would approach Settlement Commission without filing return for the previous year in dispute. Hon’ble Kerala High Court had held in the case Re : Thoppil Kutty Eroor v. CIT 1958 (34) ITR 850 (Ker.), that penalty for concealment of income cannot be imposed under Section 271(1)(c) of the Income-tax Act, 1961 or corresponding provision thereof in Income-tax Act, 1922 or other similar Acts, when the assessee had not furnished a return of income relevant for the previous year. Therefore, even if the Settlement Commission came to a finding that the assessee had concealed particulars of income and the Settlement Commission is desirous of imposing penalty, the Settlement Commission was not empowered to impose penalty under Explanation 3 to Section 27l(1)(c) of the Income-tax Act, 1961. In other words, the Settlement Commission was handicapped by non-filing of return for the previous year in dispute, by the applicant-assessee who has been previously assessed under Income-tax Act, 1961. Accordingly, the Finance Act, 1987 amended the proviso to Section 245C of the Income-tax Act, 1961 which required that the applicant assessee should have filed a return of income before approaching the Settlement Commission. It is, however, contended that the Customs & Central Excise Settlement Commission even in the absence of a return is empowered to impose penalty, if the Commission feels it is called for. The power of the CCESC to impose penalty is not restricted by filing or non-filing of return by the applicant-assessee. The counsel, accordingly contended that the provisions relating to Settlement Commission under Central Excise Act, 1944 have been borrowed from Income-tax Act, 1961. Hence, the applicants submit that the condition of filing return under proviso to Section 32E(1) has to be construed accordingly keeping in mind the legislative history explained above.

[VI]     Belated return is also a ‘return’.

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(i)         It has been held by the following case laws that return filed beyond the prescribed time limit is also a valid return.

(a)        CBEC Circular dated 15-1-1993

(b)        CIT v. Ranchhoddas Karsondas, 1959 (36) ITR 569 (S.C.)

(c)        State of Andhra Pradesh v. Donthala Rajaiah, 1960 (11) STC 819 (AP)

“It is open to the department to accept a return submitted by an assessee as the basis of assessment even after expiry of the period prescribed by the statutory rules. There is no legal bar to complete the assessment on the return so made.“

(d)       State of Andhra Pradesh v. Pyarelal Malhotra, 1962 (13) STC 946 (AP).

6.0Parawise comments of the respondent Commissioner under F. No. V-Adj(Misc.)30-06/05, dated 7-4-2005 w.r.t. the issues raised in the Annexure to letter No. SC/MZ/CEX/147/04, dated 7-4-2005.

(1)        The definition of the term ‘declaration’ and ‘return’ has not been given in the Central Excise Act, 1944 or rules made thereunder. However, the meaning of the above two words as given in the “Concise Oxford English Dictionary’ is as under –

            ‘Declaration’ – A formal or explicit statement or an announcement.

‘Return’ – An official report or statement submitted in response to formal demand.

            Plain reading of the above indicates that these two words have different meaning and are different from each other.

            Besides, the ‘declaration’ is required to be filed under erstwhile Rule 174 of C.E. Rules, 1944 and ‘return’ is required to be submitted under erstwhile Rule 53 of the C.E. Rules, 1944/and Rule 12 of the C.E. Rules, 2002.

            Since the provision of Section 35E(1) of C.E. Act ’44 speaks of the word ‘return’, and not ‘declaration’, declaration filed under the earlier Rule 174 of the C.E. Rules, 1944 cannot be treated as ‘return’ for the purpose of Section 35E(1).

(2)        No. As per the provisions of Rule 12 of the C.E. Rules, 2002 a ‘return’ is required to be filed by an ‘assessee’. The word ‘assessee’ is defined under Section 31 of the C.E. Act ’44 and in Rule 2(c) of the C.E. Rules, 2002 as ‘any person who is liable for payment of duty assessed or a producer or manufacturer of excisable goods or registered person of a private warehouse in which excisable goods are stored and includes an authorised agent of such person’.

            In view of the above explicit definition of the word ‘assessee’ in the C.E. Law, the person who is not registered with Central Excise and did not obtain ECC, cannot be called as ‘assessee’ and, therefore, he is not required to file a return under the Excise Law. Non-filing of ‘return’ by such person will not satisfy the conditions of Section 32E(1) of C.E. Act ’44.

(3)        After obtaining registration under C.E. Law, a person can be called as ‘assessee’. ‘Returns’ filed by such assessee after obtaining the requisite C.E. Registration can only be called as ‘returns’ filed under C.E. law. Therefore, the returns filed after obtaining the ECC, but for the period prior to obtaining such code number, cannot satisfy the mandate of Section 32E(1) of C.E. Act ’44.

(4)        Under the C.E. Law, registration is to be obtained by every person who produces. manufactures, carries on trade, holds private store room or warehouse or otherwise uses excisable goods and if there are more than one premises requiring registration, he shall obtain separate registration certificate for each of the premises. No registration is granted on the basis of status of a person like Limited Company or a Partnership Firm. Each ‘registrant’ has to discharge his obligations independently and, therefore, ‘return’ filed by one ‘Registrant’ cannot substitute for the return to be filed by another ‘Registrant’.

(5)        Additional Point – The provisions of Section 32E prescribes that a person has to file ‘return’ and not ‘declaration’. As brought about above, the terms ‘return’ and ‘declaration’ cannot be equated to each other. And, hence, applications filed by units which functioned as SSIs but each not even filed ‘declarations’ ‘during the material period would not be eligible for admission before Settlement Commission.

7.0Submission by Shri K. Kumar, Senior Advocate

(i)         Clause (a) to the 1st proviso to Section 32E(1) of the C.E. Act ‘44 reads as ‘the applicant has filed returns showing production, clearance and Central Excise duty paid in the prescribed manner’ (emphasis supplied). The phrase ‘filed returns’ was substituted for the phrase ‘filed monthly returns’ w.e.f. 12-5-2000 by virtue of Section 106 of the Finance Act, 2000.

(ii)        Before arriving at any conclusion the relevant provisions of Income-tax Act, 1961, Customs Act, 1962 and the Central Excise Act, 1944 have to be examined and compared……………………………………………….

            Clause (a) to 1st proviso to Section 127B of the Customs Act, 1962, which reads as ‘the applicant has filed a Bill of Entry, or a shipping bill ….’

(iii)       Though on a plain reading the provisions look similar, a careful analysis of the instances wherein the applicants approach the Hon’ble Settlement Commission, would throw more light on how to interpret the provisions and to give effect while dealing with cases.

(iv)       Under the Customs Law there are different types of importers/exporters. They may be one time individual importer/exporter or regular exporters/merchant exporters/star trading houses, export oriented units etc. Under the Customs law filing of Bill of Entry for import and Shipping Bill for export of goods is mandatory in terms of provisions of Section 46 and Section 50 of the Customs Act, 1962 respectively and no relaxation is permissible as in the case of the Central Excise law, which under certain circumstances exempts the assessees from obtaining registration/filing periodical returns.

(v)        Section 245C of the Income-tax Act, 1961 deals with application for settlement of cases. 1st proviso to Sec. 245C of the Act, reads as follows – “the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of the Act” (emphasis supplied).

            The above provision under the Income-tax Act is specific as to the point that an assessee who approaches the Settlement Commission has furnished the return of income, which he is or was required to furnish under any of the provision of the Act. In other words, filing of a return is mandatory under the provisions of the Act for an applicant who approaches the Settlement Commission and no option is available under the Central Excise Act, 1944.

(vi)       On the other hand the provisions of Central Excise law are entirely different. Rule 9(1) of C.E. Rules, 2002 provides that even person who produces, manufacturers, carries on trade, holds private store room or warehouse or otherwise uses excisable goods shall get registered (emphasis Supplied) Notification No. 35/2001 C.E. (N.T.), dt. 26-6-2001 as amended, prescribes for procedure to be followed under Rule 9(1). Rule 9(2) provides, for exemption from registration and Notification No. 36/2001 C.E. (N.T.), dated 26-6-2001 provides for exemption from registration. Filing of returns is not mandatory in all types of cases. Units availing value-based exemption need not even file a one time declaration in case their turnover falls below the ‘specified limit’. Specified limit shall mean full exemption limit minus ten lakh rupees (Notification No. 8/98, dated 2-6-1998, 8/2000, dated 1-3-2000, 8/2001, dated 1-3-2001.)

(vii)      Rule 12 stipulates that every assessee shall submit monthly return in proper format. However, proviso to Rule 12 provides that in certain circumstances an assessee shall file a quarter return. Rule 2(a) of C.E. Rules, 2002 defines ‘assessee’ as any person who is liable for payment of duty assessed or a producer or manufacturer of excisable goods or a registered person of a private warehouse in which excisable goods are stored and includes an authorised agent of such person” (emphasis supplied).

            However units producing goods which are not excisable goods which are wholly exempt from excise duty, neither get themselves registered with the department nor there be any need to file a declaration. Such units who do not manufacture excisable goods do not fall within the ambit of the definition of ‘assessee’. It has also been held in number of cases by CESTAT and High Courts that if a declaration is filed with the department suppression of fact/extended time limit u/s 11A could not be invoked.

(viii)            From the above it is evident that filing of bill of Entry/Shipping Bill is mandatory under the Customs Act. Similarly filing of a return, which has to be filed as per the provisions of the Income-tax Act is mandatory under the said Act. The provision of filing of return under the Central Excise Act, 1944 is not compulsory, but optional in terms of the notifications issued under Rule 9 of the CER ’02 which exempts units availing of the Notification No. 36/2001, dated 26-6-2001 from registration. When the statute exempts such unit from taking out a Central Excise Registration, and such units either come under the ambit of the definition of ‘assessee’ or under the control of the department, obviously no return need be filed by such units.

(ix)       In the backdrop of foregoing the queries to the issue raised are answered below :-

1.         Yes. The yearly declaration filed by SSI unit under Rule 174/rule 12 can be treated as a return under Section 32E(1) of the CEA ‘44 inasmuch as the fact that the said declaration is filed in terms of the provision of the C. Ex. law, which exempts such limit from taking out registration. When there is specific provision in law exempting a unit from taking out C.E. Registration/filing of periodical return, insisting for a return virtually excludes Application under Section 32E of the C.E. Act, which is not correct in law.

2.         Yes. Obtaining of ECC etc are procedural formalities. Periodical returns under C.E. law are simplified and are in fact e-filing is allowed. There is no assessment by department but a scrutiny and only a self-assessment by the assessee. The person in question obviously did not file returns due to exemption contained in law or on the presumption that his products are exempt from duty/not excisable. If such a person, who approaches the Settlement Commission with reference to a ‘case’ files a consolidated return the same may be treated as requirements of Sec. 32E of the CEA ‘44.

3.         Yes. Clause (a) of 1st proviso to Section 32E(1) of CEA ‘44 only stipulates that a return has to be filed. A reading of the said Section would reveal that nowhere it is stipulated that an applicant should file return for the entire period to which his application/case filed before the Settlement Commission pertains. The result would be that merely not obtaining of ECC code, or filing of returns after obtaining such code may not result in the proceedings before the Commission getting to be without jurisdiction. Such returns can still be treated as valid returns for the purpose of considering and admitting an application before the Commission.

4.         Notfn. No. 35/2001 C.E. (N.T.), dated 26-6-2001 issued under Rule 9 of CER, 2002 stipulates that if a person has more than one premises requiring registration, separate registration certificate shall be obtained for each of such premises (except for relaxation in as far as textile units are concerned). Further the Central Excise law recognises each unit in a jurisdiction as a separate ‘assessee’ for the purpose of the Act and is under the control of the concerned jurisdictional Central Excise officers. Hence, if the provisions are interpreted strictly the other division which neither files returns nor pays duty, shall not be deemed to have complied with Sec. 32E as in such case, the law does not exempt such division either from taking out Registration or filing of returns as in other cases stated earlier.

However there will be an anomaly, if for the same company the case is settled in a different jurisdiction and for the other jurisdiction the company has to go through the process of normal adjudication. There is every possibility that the grounds on which his case was settled by the Settlement Commission can be used against such units by adjudicating authority of different jurisdiction, which may not be the intent of the statutes. This is further complicated when the company maintains common records and has common accounts. Hence, considering the facts and circumstances of the matter, and taking into consideration the larger interest of Revenue the Settlement Forum is advised to carefully consider and may admit the issues for redressal before the Settlement Commission.

8.Submission by Shri C. Natarajan, Senior Advocate, Chennai

(i)         A right to apply to the Settlement Commission is a statutory right conferred upon an assessee by Section 32E of the C.E. Act ’44 (hereinafter referred to as the Act). An assessee does not have any right in common law, equity or an inherent right to seek a settlement of his case. Therefore, the right of the assessee is clearly subject to the satisfaction of conditions and limitations imposed by Section 32E of the Act. Re: AIR 1962 SC 1320 at 1323 (para 6) Burmah Construction Company v. State of Orissa.

            Therefore an assessee asking a settlement of his case must satisfy every condition or requirement of the statute in question. Thus, if a return is not filed, then an application for settlement cannot be made.

(ii)        The Settlement Commission being a statutory authority, exercises limited jurisdiction. When the jurisdiction is described in certain specified terms contained in the Act, those terms should be complied with in order to create and raise the jurisdiction. If they are not complied with, jurisdiction does not arise. Kindly see AIR 1965 SC 304 – Kothamasu Kanakarathamma v. State of Andhra Pradesh.

            The jurisdiction of the Settlement Commission is dependent on a properly preferred application by an assessee. The assessee cannot file an application unless the conditions contemplated by the first proviso to Section 32E(1) are satisfied. One of them being the applicant should have filed return, if any application be made by an assessee who has not filed returns, the Settlement Commission will not derive jurisdiction.

(iii)       It is a settled Rule of interpretation of a statute that when the words of the statute are precise and unambiguous no more is necessary than to expound those words in their natural and ordinary sense, the words themselves in such case best declaring the intention of the legislature. Kindly see 1983 (13) ELT 1337 (S.C.) = AIR 1961 SC 1549 at 1551 (Para- 4) Collector of Customs v. Digvijay Sinhji.

            The language of the first proviso to Section 32E(1) of the Act is precise and unambiguous. That plain language must therefore be given effect to.

(iv)       It is a settled law that where the words of a statute are clear and there is no room for applying any principles of interpretation which are merely presumptuous in cases of ambiguity in statute, the Court must interpret statute as it stands.

            The object and purpose of the statute must be gathered from the words themselves. Kindly see 1993 (66) E.L.T. 379 (S.C.) = AIR 1993 SC 2288 – M/s. Oswal Agro Mills Limited v. Collector of C. E.

            As the language of Section 32E is clear, there is no room to import any Rule of Construction based on any supposed object or intention of Parliament. When the language is clear, it is the duty of a Court to give full effect to the same without scanning the wisdom or policy of the law makers, more so when the statute is a taxing statute. Kindly see AIR 1975 SC 1039 at 1045 (Para-18) Commissioner of Sales Tax v. Parson Tools and Plants.

(v)        Therefore in the absence of a proper return required to be filed by Rule 12 of the Central Excise Rules, 2002, an application cannot be preferred before the Settlement Commission.

 C.Discussion and Order

9.The Special Bench has considered the oral and written submissions of the counsels and perused the relevant documents, including the citations referred to and relied upon.

10.The basic issues referred to the Special Bench appear to revolve around clause (a) of the first proviso to Section 32E(1) of the Central Excise Act, 1944. For easy reference, the provisions of Sub-section (1) of Section 32E with its first proviso is reproduced below :-

“SECTION 32E – Application for settlement of cases. (1) An assessee may, at any stage of a case relating to him make an application in such form and in such manner as may be prescribed and containing a full and true disclosure of his duty liability (which has not been disclosed before the Central Excise Officer having jurisdiction) the manner in which such liability has been derived, the additional amount of excise duty accepted to be payable by him and such other particular as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of misclassification or otherwise of such excisable goods, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided :

Provided that no such application shall be made unless —

(a)        The applicant has (filed returns) showing production, clearance and Central Excise duty paid in the prescribed manner;

(b)        A show cause notice for recovery of duty issued by the Central Excise Officer has been received by the applicant; and

(c)        The additional amount of duty accepted by the applicant in his application exceeds two lakh rupees:

Provided further that no application shall be entertained by the Settlement Commission under this sub-section in cases which are pending with the Appellate Tribunal or any Court:

Provided also that no application under this sub-section shall be made for the interpretation of the classification of excisable goods under the Central Excise Tariff Act, 1985 (5 of 1986)”.

10.1As per the above provision, one of the entry conditions, subject to which alone an application can be made before the Settlement Commission, is that the applicant had filed ‘returns’ showing production clearance and Central Excise Duty paid in the prescribed manner. The questions posed for consideration and decision by the Special Bench revoke around the maintainability of settlement applications from applicants who, as small scale manufacturers, had not filed such ‘returns’, either bona fidely or otherwise.

10.2Section 32E itself does not define the ‘returns’ envisaged to have been filed by the applicant, though the aforesaid Clause (a) of the first proviso to Sec. 32E(1) describes what the said ‘returns’ should have contained/reflected. During the hearing before the Special Bench, a reference has been drawn to the phrase “in the prescribed manner” contained at the end of the aforesaid Clause (a). It has been pleaded that filing returns in the prescribed manner would not refer to filing of returns within any specified/prescribed time limit, for which reliance has also been placed on a decision of Hon’ble Supreme Court. This presupposes that the words “in the prescribed manner” appearing at the end of aforesaid Clause (a) qualifies the condition of filing returns. However, a more appropriate view is that in the absence of any punctuation in the form of ’coma’ after the words “duty paid” and before the phrase ‘in the prescribed manner’, the words “in the prescribed manner” should qualify the act of payment of duty. That is, the duty paid in the prescribed manner should have been shown, amongst other things, in the said ‘returns’. This would be more relevant, considering the fact that according to the said proviso no application shall be made unless “the additional amount of duty accepted by the applicant in his application exceeds Rs. 2 lakhs”, thereby, implying that a payment in the ‘prescribed manner’ has already taken place and an additional amount of duty exceeding Rs. 2 lakhs over and above that is to be accepted in the settlement application. The Commission has already been taking a consistent view that the additional duty liability to be disclosed and accepted by an applicant is not a liability in addition to the proposed demand in the SCN, but a liability in excess of what had been disclosed before the proper officer and, therefore, would have been discharged also.

10.3Further, it is also observed by the Bench that the person eligible to apply to the Settlement Commission is an ‘assessee’. The word ‘assessee’ is defined under Section 31(a) for the purpose of Chapter V dealing with Settlement provisions. The word ‘assessee’ has been defined thereunder to mean “………..any person who is liable for payment of excise duty assessed under this Act or any other Act and includes any producer or manufacturer of excisable goods or a registered person under the Rules made under this Act, of a private warehouse in which excisable goods are stored;” – (emphasis applied). Thus, a manufacturer of excisable goods is an assessee, as also a person who is liable for payment of duty assessed. The term ‘excisable goods’ itself is defined under Sec. 2(d) of the Act as “……….goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (V of 1986) has been subject to a duty of excise and includes salt.” Further, though under Rule 9 of the Central Excise Rules, 2002 every person who manufactured excisable goods shall be registered with the Central Excise Department and under sub-rule (2) of the said Rules, Government has issued Notification 36/200l-C.E. (N.T.), dated 26-6-2001 as amended, providing that those persons manufacturing goods which are chargeable to nil rate of duty or remain fully exempt from the whole of the duty leviable thereon are exempt from the requirement of registration under the aforesaid Rule 9, subject to the conditions mentioned in the said Notification, one of which is that the manufacturer has to file a ‘declaration’ while claiming exemption from registration under the said Notification. But in case the goods manufactured by him are exempted based on the value of clearances in a financial year, such a declaration shall not be required if the aggregate value of such clearances is less than the full exemption limit minus Rs. 10 lakhs. Therefore, a small scale manufacturer, who avails value (of clearances) based exemption from duty can also avail the exemption from registration and need not file a declaration also if his clearances are less than the exempted limit of value of clearances by Rs. 10 lakhs. If the value of clearances exceeds the total exempted value minus Rs. 10 lakhs, then he has to file an annual declaration.

10.4 Reverting  to the term ‘return’, Section 32F(1) does not define the said ‘return’ contained therein and also does not refer to Rule 12 of the Central Excise Rule, 2002 which deals with, and, provides for filing of, monthly ‘returns’ in a specified form by every assessee about their production and removal of goods and other relevant particulars within ten days after the close of the month to which the return relates. The format of the ‘return’ is specified. In the case of a small scale manufacturer, availing (partial) exemption under a notification based on value of clearances in a financial year, he has to file the said return quarterly, and others on monthly basis, again in the specified form. Therefore, even if it is presumed that the requirement of filing returns showing production, clearance and Central Excise duty paid in the prescribed manner refers to filing returns in the prescribed manner, it can only mean filing in the prescribed format, monthly or quarterly, depending on the status of the manufacturer, as provided for under the aforesaid Rule 12.

10.5  Therefore, there can be no doubt on the entitlement of an assessee, which term includes producer or manufacturer of excisable goods, as also a person liable for payment of duty assessed, who is registered with the Department and files returns in terms of Rule 12 cited supra, to come before the Commission for settlement of disputes relating to levy, assessment and collection of duty pending before a proper officer of the Department (except which relates to specific exclusions under Sec. 32E). Problem has been faced about a person who has not been registered with the Department and has not been filing ‘returns’, claiming to be a small scale manufacturer availing total exemption based on value of clearances in a financial year. The said person, though assessee by virtue of being manufacturer of excisable goods specified in the 1st or 2nd Schedule to the Central Excise Tariff Act, is exempt from registration as well as a declaration if he is actually within the ‘specified value of clearances’ (i.e. totally exempted value of clearances minus Rs. 10 lakhs), and, therefore, from filing ‘return’ also even on quarterly basis (quarterly return is intended for SSI units availing partial exemption). The question before the Special Bench relates to the maintainability of applications from such bona fide or self-proclaimed small manufacturers who had availed total exemption based on value of clearances, but Revenue made out a case that their clearances had exceeded the said value, requiring them to pay duty.

10.6One of the frequent refrains on the maintainability of an application is that a court should stretch its jurisdiction to enable as many applicants as possible to enter its portal. Plea is made for interpreting the settlement provisions as liberally as possible, ostensibly, in tune with the spirit of settlement, by going behind the intention for such conditions. This plea itself is born out of the contention that, the main object of the Settlement Commission is to resolve disputes and expedite collection of duty. To advance this contention, reliance is also placed of the judicial pronouncement that Section 245C of the Income-tax Act, dealing with applications for settlement of Income-tax related disputes, and which is similar to that of the provisions on applications under the Customs and Central Excise Acts, is only a procedural Section. Accordingly, it is contended that the said provision has to be interpreted liberally.

10.7 The moot point for consideration in this regard is the philosophy and object of the Settlement Commission. The Wanchoo Committee Report, which formed the basis of the Income-tax Settlement provisions, the forerunner to the later Customs and Central Excise Settlement Commission, had proposed settlement as a means of compromise with errant tax payer in the administration of fiscal law whose primary objective (of the administration) is to raise revenue. He appears to have been influenced by the confession method in the U.K. and the compromise method available in the U.S.A. Thus, the settlement provisions are certainly intended to advance revenue collection, and resolve pending disputes, but more importantly, by giving room for an errant tax payer to come clean and get immunities in exchange for truthful admission of his duty liability. The Commission provides amnesty to the errant tax payers, who failed at the appropriate time to comply with the provisions of tax laws, so that they can get back to the mainstream after a candid admission of their lapse, admitting and accepting true duty liability and disclosing how it arose. This is a permanent amnesty scheme. In the words of the Wanchoo Committee Report “A provision of this type facilitating settlement in individual cases will have this advantage over general disclosure scheme that misuse thereof will be difficult and the disclosure will not normally breed further tax evasion. Each individual case can be considered on its merit and full disclosure not only of the income but also of the modus operandi. Its build up can be insisted on, thus sealing off chance of evasion through similar practices.” Thus, the Settlement machinery as a permanent body and the scheme has been preferred by the Committee, which was also accepted by the legislature, to periodical amnesty schemes.

10.8 But as a concept, the very basis of providing amnesty/immunity to an errant assessee defaulting in duty liability, in preference to recovery through regular enforcement procedure invoking penal provisions, has not been without its share of detractors. It was observed by Justice Krishna Ayer in the case of Commissioner of Income Tax v. B.N. Bhattacharyjee that “It is based on the debatable policy, fraught with dubious potentialities in the context of the third world conditions of political peculium and bureaucratic abatement that composition and collection of public revenue from tycoons is better than prosecution of the tax related crimes on litigation for total revenue recovery. However, as a creature under the law the Commission is not to go into the merits of, or the needs for, Settlement Commission but as only to implement the laws as in existence.” The above contents of the judgment in the case of Income Tax v. B.N. Bhattacharyjee is recalled and referred only to disassociate any notion that the Settlement Commission which is a body to resolve disputes and encourage compliance should go any far to admit all and sundry applications to promote revenue collection.

10.9 It is also  worth noticing that the Hon’ble Madras High Court had observed in the case of SPAM Krishnan Chetia and Sons v. Income Tax Settlement Commission [1993 (202) ITR 81-MAD] that “The remedy under Section 245C is in the nature of an independent remedy unconnected with the other remedies in the Act and even an assessee wants to avail of that remedy, he has necessarily to fulfil the requirements of Section 245C. Section 245C confers on the assessee a concession or option to settle the tax disputes and the availing of that can only be subject to fulfilment of conditions prescribed under this Section………” It is also worth noticing that a similar view has been shared by the Hon’ble Mumbai High Court in the case of Rasik Lal Ranga Kamami v. SI Tripati [1993 (202) ITR 74 (BOM)]. It was observed therein that ‘‘The proceeding before the Settlement Commission are in the nature of concession given to an assessee who has suppressed income and the Settlement Commission has been authorised to give immunity to such assessees.” [Emphasis Supplied]

10.10 The Bench, therefore, holds that unlike a court of law (even CESTAT and other Tribunals), which is concerned with rendering of justice and has to, therefore, ensure that no one is deprived from approaching it for relief, the Settlement Commission is intended to extend relief/concession to errant tax payers by way of amnesty or immunities in return for candid admission of commissions and omissions resulting in failure to discharge fully the duty liability.

Therefore this relief has to be extended only to the actually targeted persons i.e. persons intended to be so granted by the law, and in deserving cases. Particularly, settlement being a permanent amnesty scheme, the responsibility of the Commission is all the more grave to ensure that it is not perceived as an alternate revenue collecting machinery, which perception would only embolden persons liable to discharge duty to take a chance and avoid payment with a rear guard game plan to approach the Commission for amnesty, if and when caught. The Commission is therefore, to strike a delicate balance between shutting out everyone, and keeping a door open to persons intended to be covered by the scheme to walk in for availing the benefit in exchange for their true and full admission. The qualifying conditions for application laid down in law are intended to guide the Bench to achieve this purpose.

10.11 Sections 32E of the Central Excise Act, 1944 and 127B of the Customs Act, 1962 clearly lay down as to who can approach the Commission and the applications that can be entertained by the Commission for settlement. The Madras High Court in the aforesaid case of SPAM Krishnan Chetia and Sons v. Income Tax Settlement Commission has very specifically observed that “…….if an assessee want to avail of that remedy he has to necessarily fulfil the conditions prescribed as on the date on which the applications is made and as the section is the machinery section indicating the procedure to be followed, the appellant has to fulfil the requirements of Section 245C.” This ratio has been upheld by the Apex Court also in the case of Express Newspaper.

10.12As for the claim that the Settlement law would not have intended to keep out permanently small scale manufacturers who do not have to file returns, the Bench observes that even when the settlement provisions were introduced into the Central Excise Act in the year 1998, the exemption from registration subject to filing of declaration and consequent exemption from filing of return of production by small scale manufacturers availing total exemption based on value of clearances was already available in the statute. Therefore, one cannot ignore the fact that in spite of these provisions applicable to small scale units, the statute had chosen to place a qualifying condition of filing of return showing production, clearances, etc., for making application before the Commission. Accordingly, the Bench is not persuaded to agree that in spite of such restriction relating to filing of returns, the Commission can admit applications ignoring the requirement of returns specified under Section 32E(1). In this context, the Bench also recognises that being a creature under the Act, it is not empowered to ignore the requirements under the law. The Bench cannot also overlook the oft repeated principle of interpretation that in interpreting a fiscal statute, one can not go beyond the plain and simple words of the statute to ascertain the intention, when there is no ambiguity. The Bench also takes note in this context that one of the counsels Shri C. Natrajan, Sr. Advocate, Chennai, has referred in his written views filed before the Bench to the following two decisions and has stated that an assessee does not have any right in common law or equity or an inherent right to seek a settlement and the right of the assessee is clearly subject to the satisfaction of the conditions and limitations imposed by Sec. 32E of the Central Excise Act.

(1)        Jyoti Basu v. Debi Ghosal (AIR 1982 SC 1983)

(2)        Burmah Construction Co. v. State of Orissa (AIR 1962 SC 1320)

10.13 Therefore, the Commission is duty bound to examine whether the applicant satisfies statutory conditions laid down in Sec. 32E for filing an application, before admission of the application. Accordingly, filing of return being a statutory requirement in terms of Clause (a) of the first proviso to Section 32E(i) the same would have to be insisted upon. The Bench would also like to record that as already discussed above, the additional liability to be disclosed has to be compared with the base disclosure of the applicant before the proper officer to ascertain another requirement of law namely additional disclosure exceeds rupees two lakhs. Another Special Bench of the Commission has already held in the context of a Customs Settlement application that the base disclosure for comparison is the disclosure in the Bill of Entry before the proper officer. On the Excise side, the return of production, clearances and duty discharged would come nearest to the Bill of Entry filed in the case of imported goods. Under the self-removal procedure scheme, in terms of Rule 6 of the Central Excise Rules, 2002, the assessee himself assesses the duty payable on the excisable goods cleared, on the ER1 return to be filed under Rule 12 of the said Rules. Column 7 of the said ER1 return provides for “Self assessment memorandum”. Therefore, the said return contains disclosure of duty liability by an excise assessee, and hence the basis of assessment. If he is to approach the Commission for settlement, he has to make additional disclosure in the settlement application, over and above the disclosure referred to supra. In addition, just as the Bill of Entry is a mandatory document under the settlement provisions of Customs Act the ‘returns’ are also mandatory on excise front under otherwise exempt and cannot be ignored.

10.14 The Bench observes that in the case of small scale manufacturer availing total exemption based on the value of clearances, the format of the declaration to be filed is also prescribed by Notification No. 36 of 2001-C.E. (N.T.), 26-6-200l. The said format provides, inter alia, for value/quantity of goods cleared during the previous financial year, and estimated to be cleared in the current financial year. It only does not have a column for actuals of the current year and the excise duty paid in the prescribed manner. Since the declaration is envisaged in advance of the period to which it relates, and since the declarant is intending to avail total exemption, there is no relevance of the column duty paid in the declaration. However, it does contain the basic details of how much the applicant proposes to manufacture and clear, falling within the total exemption ceiling. To this extent, the Bench observes that the declaration can be taken to serve the purpose of a ‘return’ as the applicant has disclosed through his declaration that he is within the exemption limit and that his estimated manufacture and clearance are only to the extent mentioned therein. In any case, filing of a declaration keeps the declarant in the knowledge of the Department and his additional disclosure in the settlement application can be compared with the base disclosure of the estimated production and clearance furnished in the declaration.

10.15 Finally, the Bench also notes that in the case of M/s. Bharat Industrial Works, New Delhi, the Principal Bench had vide its order No. A-116/CE/2003-SC(PB), dated 4-6-2003 observed that “……….the Applicant’s submission to ignore the condition relating to filing of returns is not convincing. The proviso (a) of Section 32E(1) is categorical that no application is entertainable unless returns have been filed. There is no room for relaxing this condition. Hence, the Applicant’s request to take a broader view for admitting the case on the ground that the necessary documents regarding the production of goods is not admissible. The Hon’ble High Court of Delhi in its order dated 30-7-2004 in Civil Writ Petition No. 509/2003 had taken note of the petitioner’s plea that they will file the return and in view of that there will be compliance, and the respondent’s submission that the application will thereafter be considered in accordance with law. The Hon’ble High Court granted four weeks time for filing the said ‘return’. A verification at the Principal Bench indicates that till date the Bench does not appear to have received the returns filed by the applicant. Further, the Hon’ble High Court has also not directed that in their order that such ‘return’ should be deemed to be a compliance with settlement application requirement. It has only disposed off the petition on the basis of the submissions without any specific direction or finding.

11.Order

In the light of the above discussions and general views, and the statutory provisions, as a whole relating to the scheme of settlement, the Bench would answer the questions posed before it as under:

(a)        Whether the yearly ‘declaration’ filed, by a small scale manufacturer can be treated as a ‘return’ under Sec. 32E(1) of the Central Excise Act.

Answer :

            Yes. As discussed supra. A return of production, clearance and duty paid in the prescribed manner, is a statutory requirement. In the absence of a specific reference in Section 32E to ER1/ER3 i.e. monthly/quarterly returns prescribed under Rule 12 of the Central Excise Rules, since the ‘declaration’ filed by a small scale manufacturer also contains the basic particulars of estimated production and clearances though not the duty paid, as the product is totally exempt, and keeps the Department aware of the bona fide existence of the applicant, the yearly declaration can be deemed to serve the purpose of ‘return’, in so far as Sec. 32E(1) of the Central Excise Act is concerned.

(b)        Whether a consolidated return filed just before filing the application or along with the application by a person who is not registered with Central Excise and did not obtain ECC Number can be considered as satisfying the condition in Clause (a) of Sec. 32E(1) of the CEA, 1944.

Answer

            No. Though Section 32E(1) does not refer to Rule 12 of the C.E. Rules under which ER1/ER3 returns are prescribed, since the said returns contain details of excisable goods manufactured, cleared and duty paid in the prescribed manner, the said return can be deemed to be the ‘return’ referred to in Section 32E(1). Therefore, even if the views of the counsels that clause (a) of the first proviso to Section 32E(1) lays down for filing of returns in the prescribed manner are to be accepted, then too as per Rule 12 of the Central Excise Rules, 2002, ‘returns’ are to be filed by an assessee on a monthly/quarterly basis. There is no provision for filing of these ‘returns’ in a consolidated manner covering more than one month. Though there is no specific bar against filing of belated returns relating to a particular month, there is no provision for consolidating the returns for any number of months. But going by the earlier stated view that the said Section 32E(1) only refers to mention of the duty paid in the prescribed manner in the return, the Bench observes that if the applicant is to file a consolidated return belatedly without ECC Number, and covering more than one month, such return cannot, naturally, contain the details of any duty paid in the prescribed manner, as no duty would have been paid at nil till then. Further, if the assessee is to file a consolidated return before filing an application or along with the application, there would be questions even on the details of production and clearances shown therein. If the applicant is to furnish the quantum, which is to be reflected in the application for settlement, there will be no additional duty liability disclosure in the said settlement application over and above that in the consolidated return. He cannot also show at the belated stage any ad hoc quantum of production and clearances merely to be able to show extra disclosure in the application form, as the said ad hoc disclosure would not be truthful at that stage. As a result, a consolidated return filed just before filing the application or along with the application by a person, not registered with Central Excise and not having ECC Code Number, cannot be considered as satisfying the requirement of having filed returns as laid down in Clause (a) of the first proviso to Section 32E(1) of the Central Excise Act, 1944.

(c)        Can returns filed after obtaining ECC Code, but for the period prior to obtaining such Code Number, be treated as valid returns as per Sec. 32E(1) of the Central Excise Act, 1944.

Answer :

            No. The reply furnished to question (b) applies in toto to this also. The only difference in the instant question is that in the earlier point, reference was to the consolidated returns filed without obtaining ECC Code, whereas the present question is on the returns (without reference to consolidated or otherwise) filed after getting ECC Number. In this case also, the applicant would not be able to indicate ‘duty paid’ in the prescribed manner (or even in any manner) and question would continue to agitate about the details of production and clearance to be filled in such belated returns. However, in case the applicant had filed monthly/quarterly returns voluntarily, even if late, but before the commencement of any inquiry or at least issuance of a SCN, the position would be different. In the said belated returns filed after getting ECC Code the applicant would be able to indicate the duty paid by him in the prescribed manner atleast from the date of obtaining the ECC Code, along with production and clearance as desired by him. Such returns can be taken cognizance of for the purpose of Section 32E(1) of the Central Excise Act, 1944 to allow filing of settlement application.

(d)       Whether a limited company or partnership firm having two divisions at two different locations, one of which pays duty and files returns and another neither pays duty nor files returns, can be said to have complied with the conditions of filing the returns as per Sec. 32E(1) of the CEA, 1944.

Answer :

            No. Unlike direct taxes, in the case of excise levy, the registration by an assessee is premises – specific, i.e. a corporate or a firm or an individual having more than one premises for manufacturing excisable goods, is enjoined under Rule 9 of the C.E. Rules, 2002 to register each place of manufacture of the excisable goods and to maintain accounts and registers separately in respect of each premises. The said manufacturer is also to file return specifically for each of the said manufacturing premises registered separately, and as a corollary in case total exemption is to be availed declaration in lieu of registration is also required in respect of each premises. It may be a different issue that in the application for registration, or in the declaration form, the assessee is directed to furnish the details of all other manufacturing premises that they have and the addresses of such places. But this does not, and cannot, substitute the requirement of registration (and, therefore, returns) or declaration for each of the premises. This being the case, if a limited company or a partnership firm having two (or more) divisions at different locations, cannot be said to have complied with condition of filing return in respect of both (or all) the divisions for purpose of Section 32E(1) if one of the divisions pays duty and files returns. The said limited company or a partnership firm can be said to have complied with the requirement of Section 32E(1) only in respect of the premises for which required declaration has been filed.

Additional Points :

(e)        Whether applications filed by units, which had functioned as SSI units, but had not even filed declarations during the material period, would be eligible for admission.

Answer :

            No. Unless the SSI units, which did not have to file returns, had filed prescribed declaration before the intervention of Revenue authorities, they would not be eligible to apply for settlement.

(f)        The practice of filing declaration upon commencement of manufacturing operations in every financial year (by 15th April) was dispensed by Notification No. 52 of 98-C.E. (N.T.), dated 2-6-1998, whereby a declaration filed at the time of commencement would suffice. Whether such non-filing of declaration renders the applicant ineligible for filing application for settlement?

Answer :

            No. If declaration had been filed at the appropriate time as required under the above Notification, an application can be made for settlement.

12. The Additional Bench, Mumbai, is, accordingly, directed to dispose off the application of M/s. Emerson Electric Company (India) Private Ltd.

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