Service Tax - Is it a good option to settle case through Settlement Commission

The concept of Settlement Commission is fairly new in service tax. It is only in the year 2012, that the benefit of settlement through settlement commission was extended to the service tax assesses, which was earlier available under Central Excise and Customs Act. Legislature has set up settlement commissions to settle the tax disputes to avoid the lengthy litigation. The Settlement commission save a huge sum of amount spent on litigation plus it helps in speedy recovery of tax. So it’s a win-win situation for both government and assessee.

Vide Finance Act, 2012, the provisions of Settlement Commission provided under Central Excise Act, 1944 have been made applicable to Service Tax cases by including the said provisions of Central Excise Act, 1944 under Section 83 of the Finance Act, 1994. Therefore, Settlement of cases under service tax is governed by provisions specified under Central Excise Act.

Q. No. 1 - What is settlement commission.

Settlement Commission has been constituted under Section 32 of the Central Excise Act, 1944. It was established in year 1999 vide Notification No.40/99-CE (NT) & 41/99-CE (NT) dated 09.06.1999.

Q. No. 2 - Basic objective of Settlement Commission.

The basic objectives of setting up of the Settlement Commission are:-

(i) Providing an alternate dispute resolution mechanism for the assesses;

(ii) Speedy recovery of Customs, Central Excise duties and service tax blocked at various adjudication and appellate levels;

(iii) To avoid costly and time consuming litigation process;

(iv) To provide an opportunity to an assessee to disclose true and complete figures of their liability;

(v) To promote quick settlement of disputes.

Q. No. 3 – What is the constitution of Settlement Commission.

The Settlement Commission consists of one Chairman and two Members in the Principal Bench in New Delhi and one Vice Chairman and two Members in each of the three Additional Benches.

Q. No. 4 - What are benefits of settlement Commission.

Any person who wishes to apply for the settlement of its case through Settlement Commission can have following benefits

a) Savings on account of reduced penalty or no penalty,

b) Immunity from Prosecution,

c) Savings on litigation cost,

d) Peace of mind as the settlement order is conclusive and cannot be challenged by the department.

Q. No. 5 - Who cannot apply for Settlement Commission.

The following categories of cases cannot be taken up for settlement before the Settlement Commission:-

i) Any person who has not filed any half yearly service tax returns;

However settlement commission may dispense off with this condition if it is satisfied that the circumstances exists for not filing the returns.

ii) Any person who has not received any Show Cause Notice;

iii) Any person whose case is pending with Tribunal or any Court;

iv) Where the dispute relates to interpretation of classification of service under Finance Act, 1994;

v) Where the proceedings for the levy, assessment and collection of service tax is pending before an adjudicating authority as on the date of application;

vi) Where the additional amount of tax accepted by the applicant in his application exceeds three lakh rupees; and

(vii) Where the applicant has paid the additional amount of tax accepted by him along with interest due under section 75 of the Act.

Q. No. 6 - What is the jurisdiction of Settlement Commission.

The settlement applications made by the applicants falling within the jurisdiction of the Commissioner with headquarter located in the States specified in column (3), are processed and disposed of by the Benches specified in column 2 of the table given below:

Explanation: Ordinary jurisdiction of a Bench is determined not by the place of business or residence of the applicant but by the location of the headquarters of the Commissioner of Central Excise, the Commissioner of Service Tax or the Commissioner of Customs having jurisdiction over such applicant.

Q. No. 7 - What is the procedure of filing an application with Settlement Commission and procedure on receipt of application by Settlement Commission.

An applicant eligible to file an application before settlement commission shall

a) An applicant shall file the application in Form SC(ST)-1 in quintuplicate along with the fee of Rs. 1000/-. The application fee should be credited in a branch,

b) An applicant shall deposit the additional amount of tax liability admitted by it along with due interest before filing the application for Settlement. It shall attach all the challans in quintuplicate along with Form SC (ST)-1,

c) On receipt of application, Settlement commission shall within 7 days issue a notice to the applicant to explain in writing as to why the application made by him should be allowed to be proceeded with,

d) Settlement Commission shall within 14 days from the date of the notice shall by an order allow an application or reject the application,

However if no notice is issued or no order has been passed within the aforesaid period, then the application shall be deemed to be accepted.

e) On acceptance of application or deemed acceptance, settlement commission shall within 7 days call for a report from jurisdictional commissioner of service tax and commissioner shall within 30 days furnish the report,

However, if commissioner does not submit the report within 30 days, then settlement commission shall proceed with the application without the report of commissioner.

f) On receipt of report from commissioner, settlement commission may direct Commissioner (Investigation) within 15 days from the date of receipt of such report to initiate further inquiry or investigation if it is of opinion that it is necessary to do so. Commissioner (Investigation) shall furnish a report within a period of 90 days of the receipt of the communication from the Settlement Commission,

However, if commissioner does not submit the report within 90 days, then settlement commission shall proceed with the passing of the order without the report of commissioner.

g) After examination of records and report of Commissioner and Commissioner (investigations) and after giving an opportunity to applicant and commissioner of central excise having jurisdiction to be heard, pass such order as it may thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application,

h) No order of settlement commission shall be passed after 9 months from the last day of the month in which the application was made. After the expiry of such period, the proceedings before settlement commission shall come to an end and adjudicating authority before which case is pending, shall dispose of the case as if no application before the settlement commission was made,

However settlement commission may extend the period of 9 months to further period of 3 months by recording the reasons in writing.

Q. No. 8 - Who can sign an application.

The application before settlement commission can be signed by following person:

(a) In the case of an individual, by the individual himself or where the individual is absent from India, by the individual concerned or by some person duly authorised by him in this behalf; and where the individual is a minor or is mentally incapacitated from attending to his affairs, by his guardian or by any other person competent to act on his behalf;

(b) In the case of a Hindu undivided family, by the Karta of such family and, where the Karta  is absent from India or is mentally incapacitated from attending to his affairs, by  the senior most adult member of the family available;

(c) In the case of a company or local authority, by the principal officer thereof;

(d) In the case of a firm, by any partner thereof, not being a minor;

(e) In case of any other association, by any member of the association or the principal officer thereof; and

(f) In the case of any other person, by that person or some person competent to act on his behalf.  

Q. No. 9 – Whether a person is barred from making Subsequent Application for Settlement

No, it is a once in a lifetime opportunity and no person shall be allowed to make subsequent application for settlement in the following cases:

a) Where the order of settlement provide for imposition of penalty on the ground of concealment of particulars of its service tax liability; or

b) Where after the passing of order of settlement, such person is convicted of any offence under Finance Act, 1994 in relation to the case before settlement commission; or

c) Where the commission has sent back the application to the department as the applicant did not co-operated with the commission.

Q. No. 10 - Is the order of settlement commission appealable.

Every order passed by the Settlement Commission after accepting the application shall be conclusive as to the matters stated therein and any matter covered by such order save as otherwise provided in Chapter V of Central Excise Act, 1944 shall not be reopened in any proceedings under this act or under any other law. 

Q. No. 11 - Whether the settlement commission has power to send case back to the Service Tax officer.

Yes, if the settlement commission is satisfied that the applicant has not cooperated with the commission in the proceedings, it can send back the application. Further the department shall be entitle to use all the materials and information produced by application before settlement commission.

Q. No. 12 - Whether settlement commission can order provisional attachment of property.

Yes, Settlement Commission can provisionally attach any property belonging to the applicant if it is of the opinion that for the purpose of protecting the interests of revenue it is necessary so to attach the property. However such order of attachment shall cease to have effect from the date of payment of sums due to the government for which such attachment are made.

Q. No. 13 - Can an assessee withdraw an application before settlement commission.

No, application once made cannot be withdrawn.

Q. No. 14 - Is the proceedings before the Settlement Commission the judicial proceedings.

Yes, the proceedings before settlement commission shall be deemed to be judicial proceedings.

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