Case Law Details
Suresh Kumar Verma Vs Customs Central Excise And Service Tax (Delhi High Court)
Delhi High Court held that once the settlement commission concludes that there has been no true and fair disclosure of facts, the settlement commission cannot proceed to adjudicate the liability.
Facts-
The petitioners engaged in the manufacture of zarda and packing pouches, had their premises searched by the respondent/revenue. The search proceedings were triggered, it appears, based on intelligence gathered by the respondent/revenue that zarda was being manufactured by using six (6) pouch packing machines.
This led to the matter being investigated which culminated in the issuance of show cause notices. Insofar as petitioners nos.1, 2 and 5 are concerned, they were served with a show cause notice dated 14.08.2015.
It is not disputed by learned counsel for the parties that each of the petitioners filed applications before the Settlement Commission. Learned counsel for the parties say that these applications are dated 04.07.2017. The Settlement Commission, based on the applications, passed the impugned orders.
Conclusion-
Held that once the Settlement Commission concludes that there has been no true and fair disclosure of facts and the manner in which the liability has been derived, the Settlement Commission, in our opinion, cannot then proceed to adjudicate the liability.
This emerges upon a plain reading of Section 32E1 of the 1944 Act. Unless the twin conditions mentioned therein are fulfilled, the Settlement Commission cannot move further in the matter.
The petitioners have got practically no benefit in approaching the Settlement Commission, as the quantum of liability which was indicated in the aforementioned show cause notice(s) is practically what has been the thrust on them via impugned orders.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This writ petition is directed against the order dated 14.03.2018 and corrigendum dated 27.03.2018, passed by the Customs, Central Excise & Service Tax Settlement Commission, Principal Bench, New Delhi [in short “Settlement Commission”].
2. The impugned orders came to be passed by the Settlement Commission in the backdrop of the following broad facts:
2.1 The writ petitioners (which includes proprietorship concerns as well) who were engaged in manufacture of zarda and packing pouches, had their premises searched by the respondent/revenue.
2.2 The search proceedings were triggered, it appears, based on intelligence gathered by the respondent/revenue that zarda was being manufactured by using six (6) pouch packing machines.
2.3 This led to the matter being investigated which culminated in the issuance of show cause notices. Insofar as petitioner nos. 1, 2 and 5 are concerned, they were served with a show cause notice dated 14.08.2015. Likewise, the petitioner nos. 1, 3 and 4 were served with show cause notice dated 29.11.2016.
2.4 Insofar as the show cause notice dated 14.08.2015 was concerned, a corrigendum was issued on 27.03 .2017. The corrigendum was limited to the aspect of noticees‟ being required to file their response qua the aforementioned show cause notice(s), with the Assistant Commissioner, Central Excise, Division, Nayyer Colony, Civil Lines, Faizabad, U.P. as against the Commissioner, Central Excise Commissioner ate, Ashok Nagar, Lucknow.
2.5 It is not disputed by learned counsel for the parties that each of the petitioners filed applications before the Settlement Commission. Learned counsel for the parties say that these applications are dated 04.07.2017. The Settlement Commission, based on the applications, passed the impugned orders.
2.6 We may note that pursuant to the impugned orders being passed, the respondents raised a demand on the petitioners vide notice dated 06.04.2018. The details of the demands raised via the said notice are extracted hereafter:
| Sl.No. | Accounting Head | Amount (Rs.) |
| 1 | Central Excise Duty | 10,13,83,938/- |
| 2 | Penalty | 1,00,00,000/- |
| 3 | Interest | 5,88,15,372/- |
| 4 | Redemption Fine | 2,00,000/- |
| 5 | Redemption Fine | 20,000/- |
2.7 It appears that this demand, as would be evident from a perusal of the extract set forth above, has been embedded with interest component which appears to have been calculated till 10.04.2018.
3. It is in these circumstances that the petitioners have approached this court by way of a petition under Article 226 of the Constitution.
4. Mr Dhruv Surana, who appears on behalf of the petitioners, submits that the impugned orders passed by the Settlement Commission are flawed in law, for the reason that the Settlement Commission has clearly observed in paragraph 95 of the order dated 14.03.2018 that the petitioners have not made full and true disclosure and have not cooperated in the proceedings conducted by it.
4.1 It is, therefore, the submission of Mr Surana that given the said observation, the Settlement Commission should have remitted the matter to the concerned statutory authority under the Central Excise Act, 1944 [in short “1944 Act”] for adjudication in accordance with the law.
4.2 In support of this plea, Mr Surana has not only relied upon the provisions of Section 32L of the 1944 Act, but also placed reliance on the judgment of the Division Bench of this court rendered in SDL Auto Pvt. Ltd. v. Commissioner of Central Excise 2018 SCC OnLine Del 13925; 2019 (366) ELT 496.
5. Mr Aditya Singla, who appears on behalf of the respondents/revenue, cannot but accept the position that the issue raised in the appeal stands covered by the said judgment.
5.1 In fact, Mr Singla, in all fairness, has also drawn our attention to another judgment dated 19.11.2019 rendered by a coordinate bench of this court in W.P.(C)No.822/2015, titled Commissioner, Central Excise, Customs & Service Tax, Sonepat & Ors. v Amit Decorative Plywoods Pvt. Ltd. & Ors.
5.2 Although a Special Leave Petition (SLP) had been filed against the said judgement i.e., SLP (C) No.28615/2019, the same was dismissed in limine via order dated 09.12.2019.
6. We are in respectful agreement with the judgment rendered in SDL Auto Pvt. Ltd. The relevant observations made by the coordinate bench of this court in the said judgement are set forth hereafter:
“9. Out of the total duty demand of ₹ 11,80,12,105/-, along with interest, (being the sum total of the demands of ₹ 11,43,09,554/-, ₹ 10,32,559/- and ₹ 26,86,992/-) as demanded and proposed in the Show Cause Notice, the settlement application admitted duty liability of ₹ 1,56,11,930/- and interest of ₹ 44,17,956/-.
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10. At this stage itself, we may refer to Section 32-O which prohibits and bars a person from filing a second application for settlement where an order of settlement provides for imposition of penalty on the person who made the settlement application under Section 32-E; the applicant is subsequently convicted of any offence under the Act in relation to that case; or the applicant ‟s case has been sent back to the Central Excise Officer on the ground of concealment of particulars of his duty liability. It is, therefore, clear that the provisions of settlement can be invoked by the assessee/applicant by making „full and true‟ disclosure and not with the mala fide intent to defuse and obstruct impending prosecution and penalty proceedings by approaching the Settlement Commissions with incomplete disclosures. When a case has been sent back by the Settlement Commission to the Central Excise Officer, the assessee is barred and cannot apply for settlement in relation to any other matter. Thus, notwithstanding the prescription in Sub-Section (4) to Section 32-E that the applicant cannot withdraw the settlement application once filed, the Settlement Commission has to send the case to the Central Excise Officer where the disclosure of unpaid duty liability in[sic:is] not ‘full and true’ and concealed. Thereupon the assessee/applicant is barred and cannot again approach the Settlement Commission in another case.
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13. …Settlement Commission has the power while passing an order under Sub-Section (5) to Section 32-F to enhance the duty liability, but it has no power to dispense with and waive the preconditions of ‘full and true’ disclosure, the manner in which liability is derived and pre-payment of taxes/duty with interest on the disclosure made. Settlement Commission must record its satisfaction on the jurisdictional pre-conditions for only when the jurisdictional pre-conditions are satisfied that an order ‘settling’ the case can be passed. In-eligible cases, where jurisdictional pre-conditions are not satisfied, must be returned to the board of the Central Excise Officer for adjudication of the show cause notice on merits. An order under Sub-Section (5) to section 32-F can enhance the duty liability as declared in the application but only when condition of „full and true‟ disclosure of undisclosed duty liability and the manner in which the liability was derived are satisfied. Satisfaction of the jurisdictional preconditions cannot be waived by the Settlement Commission. The Act has not been conferred on the Settlement Commission the power to adjudicate and to pass an order-in-original as a Central Excise Officer in the form of a settlement order. Settlement Commission is not an adjudicating authority or an incognito Central Excise Officer. Settlement Commission does not pass an order on merits deciding duty as demanded in the show cause notice.
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22. Section 32-L states that if the Settlement Commission is of the opinion that if the applicant has not cooperated with the Settlement Commission in the proceedings before it, the case may be sent back to the Central Excise Officer having jurisdiction who shall thereupon dispose of the case in accordance with the provisions of the Act as if no application for settlement had been made. Thus, the provision states that the Settlement Commission has the power and authority to remit the case to the Central Excise Officer when the applicant has not cooperated. Sub-section (2) to Section 32-L is equally important for it states that the Central Excise Officer shall be entitled to use all materials and other information produced by the applicant/assessee before the Settlement Commission or the result of the inquiry held or the evidence so recorded in the course of the proceedings before it. Thus, the Central Excise Officer can use the material and information produced by the applicant/assessee before the Settlement Commission or the result of the inquiry held or the evidence recorded in the course of the proceedings before it as there is no bar or prohibition against use of the said material. Admission made by the applicant/assessee in the settlement application and evidence and details collected/ascertained can be used by the Assessing Officer when an order is passed remitting or sending the case back to the Central Excise Officer. The provision is another check on malevolent and devious applications with partial disclosure to deviate and prolong adjudication proceedings and recovery of duty and interest. These provisions of settlement reflect the vast powers given to the Settlement Commission when they verify and ascertain whether or not the applicant/assessee has made „true and full‟ disclosure of undisclosed income and decides the issues and lis that arise on the statements made in the settlement application, but they fall short and do not give jurisdiction to the Settlement Commission to reject the settlement application on the ground of lack of „full and true‟ disclosure of undisclosed income and then proceed to pass an order in original adjudicating the show cause notice on merits as a Central Excise Officer. This is impermissible and beyond jurisdiction of the Settlement Commission.
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27. The provisions, relating to settlement of cases, are contained in Chapter V of the Act, comprising Sections 31 to 32P. Clause (c) of Section 31 defines ―case‖ as meaning ―any proceeding under this Act or any other Act for the levy, assessment and collection of excise duty, pending before an adjudicating authority on the date on which an application under sub-section (1) of Section 32E is made. Sections 32 to 32D deal essentially with the constitution of the Settlement Commission, the Benches thereof, and the manner in which applications are to be distributed amongst Benches, etc., and are not of particular significance, insofar as the present proceedings are concerned. Section 32E deals with ―Application for settlement of cases‖. Sub-section (1), thereof, entitles an assessee to, in respect of a case relating to him, make an application, before adjudication, to the Settlement Commission, to have the case settled. The said subsection requires, further, that the application contains, inter alia, a full and true disclosure of the duty liability of the assessee, the manner in which such liability has been derived, and the additional amount of excise duty accepted to be payable by him.
28. Section 32F deals with the manner in which the Settlement Commission is to deal with the application, preferred under Section 32E. Sub-section (1) thereof, requires the Settlement Commission to issue a notice, to the applicant, requiring him to explain, in writing, as to why the application be allowed to be proceeded with and, after taking into consideration the explanation provided by the applicant, to pass an order, allowing the application to be proceeded with, or rejecting the application. Where the order, passed under sub-section (1) allows the application to be proceeded with, sub-section (3) requires the Settlement Commission to, within 7 days of the order passed under sub-section (1), call for a report from the Principal Commissioner, or the Commission of Central Excise. After examining the said report, the Settlement Commission is required, by sub-section (4) to, if necessary, direct further investigation by the Commissioner (Investigation) and, thereafter, proceed to pass an order, in terms of sub-section (5). Sub-sections (4) and (5) of Section 32F are reproduced herein below:
“32F. Procedure on receipt of an application under section 32E. —
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(4) Where a report of the Commissioner called for under subsection (3) has been furnished within the period specified in that sub-section, the Settlement Commission may, after examination of such report, if it is of the opinion that any further enquiry or investigation in the matter is necessary, direct, for reasons to be recorded in writing, the Commissioner (Investigation) within fifteen days of the receipt of the report, to make or cause to be made such further enquiry or investigation and furnish a report within a period of ninety days of the receipt of the communication from the Settlement Commission, on the matters covered by the application and any other matter relating to the case:
Provided that where the Commissioner (Investigation) does not furnish the report within the aforesaid period, the Settlement Commission shall proceed to pass an order under sub-section (5) without such report.
(5) After examination of the records of the report of the Principal Commissioner of Central Excise or Commissioner of Central Excise received under sub-section (3), and the report, if any, of the Commissioner (Investigation) of the Settlement Commission under sub-section (4), and after giving an opportunity to the applicant and to the Principal Commissioner of Central Excise or Commissioner of Central Excise having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, passed such order as it thinks fit 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 Principal Commissioner of Central Excise, or Commissioner of Central Excise and the Commissioner (Investigation) under subsection (3) or sub-section (4).”
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49. We are, therefore, unable to sustain the impugned Final Order, or the findings of the Settlement Commission, as reflected in the paras 24.1 to 24.4 thereof. In our opinion, the Settlement Commission fell into serious error of jurisdiction, in settling the case arising from the Show Cause Notice, dated 16th January, 2013 supra, for an amount of ₹ 11,80,12,105/-, along with interest, as it has chosen to do.”
[Emphasis is ours]
7. This position has not been disturbed in the other judgment which was placed before us by Mr Singla i.e., Amit Decorative Plywoods case (supra).
8. Although, Mr Singla‟s stand is that the provisions of Section 32F(5) of the 1944 Act will come to the aid of the respondents/revenue, that position, in our view, is not correct. Once the Settlement Commission comes to a conclusion that there has been no true and fair disclosure of facts and the manner in which the liability has been derived, the Settlement Commission, in our opinion, cannot then proceed to adjudicate the liability.
8.2 This emerges upon a plain reading of Section 32E1 of the 1944 Act. Unless the twin conditions mentioned therein are fulfilled, the Settlement Commission cannot move further in the matter. The Settlement Commission is, necessarily, then required to remit the matter to the concerned statutory authority.
9. We may note that, in this case, the petitioners have got practically no benefit in approaching the Settlement Commission, as the quantum of liability which was indicated in the aforementioned show cause notice(s) is practically what has been the thrust on them via impugned orders.
10. Having regard to the aforesaid, we are of the view that the impugned orders cannot be sustained. The impugned orders are, accordingly, set aside.
10.1 Consequently, the notice of demand dated 06.04.2018 would also collapse and is, accordingly, quashed.
11. In these circumstances, the matter is remitted to the concerned statutory authority for initiation of next steps, if any, as per the law.
12. The writ petition is disposed of in the aforesaid terms.
13. Consequently, the pending application shall stand closed.
Notes:
1 „Section 32E. Application for settlement of cases. – (1) An assessee may, in respect of a case relating to him, make an application, before adjudication, to the Settlement Commission to have the case settled, 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 particulars as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of misclassification, under-valuation, inapplicability of exemption notification or Cenvat credit or otherwise and any such application shall be disposed of in the manner hereinafter provided…’
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