TaxTMI 
TaxTMI 
2000 (10) TMI 961
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....e. 2.  M/s. Oriflame India Pvt. Ltd. (hereinafter referred to as Oriflame) was started as a joint venture between Oriflame International Ltd. and Rollscon (India) Private Ltd. with equity ratio of 85% and 15% respectively. In order to manufacture Oriflame brand products in India, Oriflame found a manufacturer in the name and style of Silver Oak Laboratories Pvt. Ltd. (hereinafter referred to as Silver Oak) for the manufacture of cosmetic items. Agreement was entered into between Oriflame and Silver Oak for the manufacture of Oriflame brand products by Silver Oak and for the sale of the products from Silver Oak to Oriflame. The factory initially set up by Oriflame for the manufacturing activity was transferred to Silver Oak and thereafter Silver Oak started the manufacturing activity and the sale of finished goods to Oriflame. Silver Oak are a registered assessee with the Central Excise Department. 3. The application was fixed for Admission Hearing on 21-8-2000. At the outset, the Bench raised the following specific issues and desired that the applicant and the authorised representative of the Jurisdictional Commissioner should address the Bench on these issues : ....
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....sion for compromise with the taxpayer as to his tax liabilities. A provision of this type facilitating settlement in individual cases will gave this advantage over general disclosure schemes that misuse thereof will be difficult and the disclosure will not normally breed further tax evasion. Each individual case can be considered on its merits and full disclosures not only of the income but of the modus operandi of its build-up can be insisted on, thus sealing off chances of continued evasion through similar practices." 5. Before addressing the 4 issues raised by the Bench, the learned Advocate submitted that the very rationale of setting up the machinery to settle cases was that a one time tax evader or an unintended defaulter should have an opportunity to come clean and willingly make good the taxes which were short-paid and this would require a flexible and broader view on the part of the Commission as a rigid attitude would not only inhibit him from making a clean breast of his affairs but would also unnecessarily strain the investigational resources of the Department in cases of doubtful benefit to revenue, while needlessly proliferating litigation and holding up colle....
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....equired to be filed under any provisions of the Rules are liable for payment of all duties and penalties which may be demanded from the company. The authorised signatories thus become assessees and are eligible to approach the Settlement Commission. The Advocate further emphasised that though the definition of the term "Case" in section 31(c) of the Act refers to assessment and collection of duty, charging of interest and imposition of penalty is a concomitant of any adjudication proceedings. He relied on the provisions of section 32F(9) which required that an order passed by the Commission under sub-section (7) shall provide for the terms of settlement including any demand by way of not only duty but penalty or interest also. Further section 32K empowers the Commission to give immunity from prosecution and also either wholly or in part from the imposition of any penalty, fine or interest with respect to the case covered by the Settlement. The Advocate, therefore, emphasised that the Commission had to deal with the entire gamut of a case including the liability of the co-noticees and therefore, all the co-noticees were liable to invoke the jurisdiction of the Commission. In support....
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....eling the imported goods was not eligible to be considered by the Commission. The learned representative opposed the admission of the case on this ground. 9. The learned Advocate, in reply, submitted that the return visualised in first proviso to section 32E(1) was not necessarily in respect of goods in question or all goods which formed subject matter of the case. The requirement stipulated in the proviso only made it obligatory that the applicant before the Commission should have filed prescribed returns and to that extent should have been an assessee before the Department. In the present case since Oriflame has to be construed as having filed the returns for the goods manufactured on their behalf by Silver Oak, the requirement of the first proviso to section 32E(1) are clearly complied with. 10. We have considered submission on both sides. 11. In the instant case, the question for consideration is whether each of the application made by the company and their Directors etc. can be considered to have satisfied the provisions of Section 32E of the Central Excise Act. It would be pertinent to mention the main ingredients of Section 32E ibid. 1. ....
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....t he was acting as an agent or servant on behalf, and for the benefit, of another; for contract of agency or service cannot impose any obligation on the agent or servant to commit, or assist in the committing of, fraud or any other wrong. The company may also be liable, but that does not exonerate the director. So, too, if, by the order of the directors, a trespass is committed, a patent infringed, or another wrongful act committed, the directors who are parties to it are personally liable. If more than one person is concerned in the commission of a wrong, the person wronged has his remedy against all, or any one or more of them at his choice; for every wrongdoer is jointly and severally liable for the whole damage, and it does not matter whether they acted as between themselves as equals, or one of them as agent or servant of another.' 13. In Pennigton's Company Law, 5th Edition, at Page 58, the topic of evasion of obligation imposed by is discussed. The Courts have disregarded separate legal personality of the company if it was formed or used to facilitate the evasion of legal obligations. The American Courts have disregarded a company separate legal personality when ....
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....e the inception of the Bank, were cognisant of the nature of the dealings by the Managing Director and the officers of the Bank. The evidence showed that they had been discussing matters relating to the management of the Company at the meetings of the Board where items of 'policy', which benefited the Directors at the expense of the depositors, must have been discussed. They could not have been ignorant of the fact that the Account Books contained fictitious entries showing payments for shares by them when they had not actually paid for them. Nor could they be so innocent as not to know of the window dressing and presentation of false balance-sheets so as to conceal the true state of affairs from the depositors for years." 16. Applicant - Section 32E refers to the term 'application' and 'applicant' but both the terms have not been defined. In the absence of such definition, it has to be construed in its ordinary dictionary parlance. According to Oxford Dictionary, application means "the action of bringing something into material or effective contact with something else........". It also includes the making of a request expressly of a formal nature. Similarly, the term "....
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....d the context. They are the basis of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place." 22. The scheme of the Act clearly visualises that the....
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....closed before the jurisdictional Central Excise officer, the manner in which such liability has been derived, the additional amount of excise duty accepted to be payable by him and such other particulars as may be necessary provided that the applicant has filed prescribed returns, a show cause notice for recovery of duty has been received by the applicant and the additional amount of duty accepted as payable exceeds Rs. 2 lakhs. Section 32F prescribes the procedure to be followed on receipt of an application. Sub-section (7) and sub-section (9) of section 32F may be relevant here. Sub-section (7) requires the Settlement Commission to pass an order on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Central Excise and Commissioner (Investigation) submitted under sub-section (1) or sub-section (6). This order is required to be passed by the Commission in accordance with the provisions of the Act and after full examination of the records of the case and the report submitted under sub-section (1) and sub-section (6) and after giving an opportunity to both sides to be hea....
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....nt Commission "Once an application made under Section 245C is admitted for consideration, the Commission shall have to withdraw the case relating to that Assessment year or years, as the case may be, from the Assessee's Appellate/Revising Authority and deal with the case, as a whole by itself, and the proceedings before it are not confined only to the income disclosed before it." (emphasises provided). It may be mentioned that section 245C for settlement of income tax cases is pari materia to section 32E in the Central Excise Act. It may also be useful to refer to the observations of the Special Bench of Income Tax Settlement Commission in the case of Jayalakshmi Leasing Company - (1997) 228 ITR (AT) 1. "The Act must be construed as it stands today and a harmonious construction of all the provisions in the Act is called for in this context. Any construction which renders any provisions of the Act nugatory and defeats the object of that provisions must, if it is possible, be avoided ............ Chapter XIXA is attracted only when an assessee wants to avail of the option of settlement. It is limited to those assessees who have been found wanting in voluntary compliance with tax ....