Settlement Commission admits Fashion Designer but throws Italia Out

AIT News Network

NEW DELHI. Customs & Excise Settlement Commission vide a recent ruling AIT-2007-257-Settlement Comsn has dismissed the Application of Italia Die Moulds which just before approaching the  Commission filed the returns for the past period and thus was held ineligible for Settlement ; but Rohit Bal Designers Pvt Ltd which filed the returns consequent to dismissal of Application was admitted as an eligible Applicant. 

T H E F A C T S  

• The settlement applications of the applicant and the co-applicant came up for admission on 5.6.2007 when Shri R.S. Sharma, Advocate represented the applicant.
• On a a pointed query from the Bench whether declaration/return was filed during the period under dispute or not, the ld advocate stated that no declaration or return was filed during the period of dispute but the return was filed on 14.4.2007. He further stated that for the purpose of the admissibility of the settlement application, the clauses (a) of the proviso to sub-section (1) of Section 32-E of the Act read as follows:  “ the applicant has filed returns  showing production, clearance, and Central Excise duty paid in the prescribed manner”. The ld. advocate pleaded that this means that if at the time of filing the settlement application the return stand filed, the requirement of the Clause (a) of the proviso as aforementioned is satisfied for the purpose of admission of the application irrespective of the fact, that no return was filed during the period of dispute. Ld advocate further stated that an assesses can file a return anytime, say, even after 2 years of the period covered by the return and this delay does not detract from the fact that return stands filed for the period of two years ago. He further argued that in the case of M/s Rohit Bal Designers P. Ltd. Vs Custom & Central Excise Settlement Commission  AIT-2007-133-HC, Hon’ble High Court of Delhi, had accorded liberty to the petitioner to file its returns for the period of dispute within a period of six weeks from the date of High Court’s order and directed that if it is so done, Settlement Commission would consider the application, As against this, applicant’s case was even stronger in as much as they have already filed the return before approaching the Settlement Commission. He also referred to the Hon’ble Delhi High Court’s decision in the case of Bharat Industrial Works Vs Customs & Central Excise Settlement Commission, New Delhi (WP (c ) 5091/2003 decided on 30^th July 2004 as referred to in this Order dated 22.01.2007 of Delhi High Court. He further stated that as neither the representative of Revenue is present during the hearing nor any report has been received from Commission or Central Excise, by virtue of the provision in second Proviso to Section 32F(1) of the Act, it can be presumed that Commissioner has no  objection to the admission of the application. He requested that the application may be admitted and allowed to be proceeded with under Section 32F(1) of the Act.

T H E   R U L I N G:

• Ld advocate for the applicant has referred to Hon’ble Delhi High Court’s Judgment in the case of Rohit Bal Designs Pvt. Ltd. AIT-2007-133-HC. Bench had queried whether Hon’ble High Court had laid down a law by giving its interpretation of the provisions of Section 32E(1) of the Act vide its judgment in Rohit Bal’s case. Ld Advocate had responded that Settlement Commission was respondent in that case and, therefore, Hon’ble High Court’s directions are applicable in this case also. Bench respectfully notes that the relevant part of the decision of Hon’ble High court is as under:

“On the facts of the present cases, it seems that returns for the period in dispute were not filed by the petitioner although it had filed its returns for the subsequent period. Learned counsel for the Petitioner states, relying on the decision in M/s Bharat Industries Works, that the petitioner will file the returns for the period in dispute within six weeks from today. If that is done, the application already filed by the Petitioner before the Settlement Commission will stand revived and should then be considered on merits.

                         Accordingly, liberty is granted to the Petitioner to file its returns for the period in dispute within six weeks from today. If that is done, the Settlement Commission will consider the application of the Petitioner on merits. With this, the writ petition is disposed of.”

• It would thus appear that Hon’ble Delhi High Court did not go into the statutory applicability of the relevant Section of the Act and its interpretation, but granted relief in terms of writ jurisdiction to the particular petitioner allowing it to file returns for the period in dispute so that its application can be taken up for consideration on merits by the Settlement Commission. It is also respectfully noted that the afore-said judgment relied upon the decision of the same Hon’ble High Court in the case of M/s Bharat Industrial Works V/s Customs & Central Excise Commission, New Delhi and another in CWP No. 509 of 2003. A perusal of the judgment in the  case of Bharat Industrial Works indicates that it also does not interpret the afore-said statutory provisions. The relevant part of the judgment is re-produced below:-

            “This writ petition has been filed against the order made by the settlement commission whereby the petitioner’s application was rejected by an order dated 12.06.2003 solely on the ground that conditions mentioned in Section 32E of Central Excise Act, 1944 had not been fulfilled in so much as no return was filed by the petitioner. 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. It is stated at bar that return will be filed within a period of four weeks.

            The petition is disposed of accordingly.”

• The basic question that arises for decision is whether the facts and circumstances of the case entitle the applications for settlements in this case to admission despite the bar in Clause (a) of the First Proviso to Section 32E(1) of the Act. The relevant portion of the aforementioned section is extracted below:

“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.”

• It is thus seen that the First Proviso to Section 32E (1) erects a bar against an application by use of a negative formulation, i.e. “No such application shall be made unless…….”. It is an accepted rule of interpretation that when a command is clothed in a negative form, it is to show a clear intention that the provision is mandatory and imperative. Srl No. 6 ( c) in Chapter 5 on page 222 of “Principles of Statutory Interpretation “ (4^th Edition) by Justice G.P. Singh published by Wadhwa & Co., Nagpur deals with the said aspect and it also re-produces the observation of SUBBARAO, J.: “Negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statue imperative.” Thus, the First Proviso to Section 32 E (1) mandatorily prohibited an application unless the conditions stipulated there-in are fulfilled.

This issue was also examined by the Special five member Bench of this Commission in the case of  Emerson Electric Company (India) Pvt. Ltd. AIT-2005-96-Settlement Comsn. The Commission had held as under:-

Question: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. 32 E (1) of the CEA, 1944?

Answer:No. Though Section 32E (1) does not refer to Rule 12 of the C.E. Rules under which ERI/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 counsels that clause (a) of the first proviso to Section 32E(1) lays down for filling 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 specific bar agonist filing or 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 can not, 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 there-in. 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 consolidated return. He can not also show at the belated stage any ad hoc quantum of production and clearances merely to be able to show extra 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, can not 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.

Question: 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.

Question: Whether a limited company or partnership firm having two divisions at tow       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 excise levy, the registration by an assessee is premises-specific, i.e. a corporate or an individual having more than one premises for manufacturing excisable goods, is enjoined under Rule 9 of the C.E. Rule, 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 address of such places. But this does not cannot, substitute the requirement of registration (and, therefore, returns) 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, can not be said to have complied with condition of filling 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.

Question: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.

• On reading of the above mentioned order or five member bench of Settlement Commission as a whole, it is clear unless a return has been filed in the prescribed manner, an application for settlement can not be entertained. This is clear conclusion in paras 11 (b) (c) & (d) of the said decision where-in to the question raised, the answer is an emphatic ‘NO’.
• The only decision available on the issue and which examines the statutory provision of clause (a) in the First Proviso to Section 32 E (1) of the Act, would then be the decision of the Special Bench of this Commission in the case of Emerson Electric Company (India) Pvt. Ltd. AIT-2005-96-Settlement Comsn.  It comes out that the applicant in this case does not satisfy the afore-said statutory condition of the Law for admissibility of the application.
• In view of the above, the contention of the applicant that even though he did not file the returns/declaration during the relevant period but the applications should still be admitted because just before approaching the Settlement Commission, they have filed the returns for the past period is not tenable. Requirements of Clause (a) in first Proviso to Section 32 E (1) of the Act are not at all met by the applicants.

(Click here for full text of ruling AIT-2007-257-Settlement Comsn)