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NEUTRAL CITATION NO : 2022/DHC/005362 W.P.(C)No.4337/2018
HIGH COURT OF DELHI
Decision delivered on: 16.11.2022
HIGH COURT OF DELHI
Decision delivered on: 16.11.2022
W.P.(C) 4337/2018 & CM No.16837/2018
SURESH KUMAR VERMA & ORS. ..... Petitioners
Through: Mr Dhruv Surana, Mr Madhav Bhatia and Mr Aditya Pandey, Advs.
SURESH KUMAR VERMA & ORS. ..... Petitioners
Through: Mr Dhruv Surana, Mr Madhav Bhatia and Mr Aditya Pandey, Advs.
VERSUS
CUSTOMS, CENTRAL EXCISE AND SERVICE TAX SETTLEMENT COMMISSION & ORS. ..... Respondents
Through: Mr Aditya Singla, Sr Standing Counsel with Mr Adhishwar Suri and
Mr Shobhit Jain, Advs.
Through: Mr Aditya Singla, Sr Standing Counsel with Mr Adhishwar Suri and
Mr Shobhit Jain, Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
HON'BLE MS. JUSTICE TARA VITASTA GANJU [Physical Hearing/Hybrid Hearing (as per request)]
RAJIV SHAKDHER, J. (ORAL):
HON'BLE MS. JUSTICE TARA VITASTA GANJU [Physical Hearing/Hybrid Hearing (as per request)]
RAJIV SHAKDHER, J. (ORAL):
JUDGMENT
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 Commissionerate, 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/- │ │ Signature Not Verified │ │ Digitally Signed By:PREM │ │ MOHAN CHOUDHARY │ │ W.P.(C)No.4337/2018 Page 2 of 10 │ │ NEUTRAL CITATION NO : 2022/DHC/005362 │ │ 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 13295; 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, │ │ Signature Not Verified │ │ Digitally Signed By:PREM │ │ MOHAN CHOUDHARY │ │ W.P.(C)No.4337/2018 Page 3 of 10 │ └────────────────────────────────────────────────────────────────────────────────────────────────────────────┘
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. Sub-Section (1) to Section 32-E of the Act states that an assessee may in respect of a case related to him make an application ‘before adjudication’ to the Settlement Commission to have the case ‘settled’. Sub-Section (1) uses the expression ‘adjudication’ with reference to proceedings pending before the Central Excise Officer on issue of show cause notice for recovery and ‘settled’ with reference to the application made by an assessee before the Settlement Commission. The settlement application, the provision postulates, must be filed in the form prescribed and contain a ‘full and true’ disclosure of the duty liability not hitherto disclosed before the Central Excise Officer and the manner in which the liability was derived. Additional amount of duty accepted as payable and such other particulars which the applicant admits regarding short levy on account of misclassification, under-valuation, inapplicability of exemption notification, CENVAT credit or otherwise have to be stated. As per proviso to section 32-E(1) of the Act the application would not be maintainable unless returns showing production, clearance and Central excise duty paid in the prescribed manner have been filed; a show cause notice for the recovery of duty has been issued by the Central Excise Officer and the same has been received by the applicant; the additional amount of duty accepted as payable by the applicant exceeds Rs. 3 lacs and the additional amount of excise duty accepted by the applicant along with interest due under Section 11-AA has been paid. We need not refer to sub- Section (3), but sub-Section (4) is important and states that an
application once made under sub-Section (1), shall not be allowed to be withdrawn.
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. xxx xxx xxx
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.
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.
27. Clearly, the Settlement Commission does not perform the adjudicatory functions as a Central Excise Officer when it deals with settlement of cases.
28. In Agson Global Pvt. Ltd. v. Income Tax Settlement Commission, 227 (2016) DLT 226(DB), it was held that the Settlement Commission has exclusive jurisdiction from the date the Settlement Commission steps into the shoes of the authority who was hitherto dealing with the case. The aforesaid ratio has to be read in the context in which they were made. The observations were not to hold that the Settlement Commission and Central Excise Officers perform same and identical functions. There could be cases where an assessee has made ‘full and true’ disclosure of the undisclosed duty liability and the manner in which such liability was derived, yet issues that arise would require finding and decision in respect of rate of tax, tariff entry applicable, scope of exemption notification, entitlement to CENVAT credit etc. Such issues have to be decided by the Settlement Commission to settle the case. It is in this sense that requisite power under various provisions of Chapter-V has conferred power on the Settlement Commission. However, the Settlement Commission is not a Central Excise Officer. It does not perform functions and duties and is not an alternative to the Central Excise Officer.
49. A reading of the impugned orders would show that the Settlement Commission did not accept the claim of the three petitioners that they had made ‘full and true’ disclosure of the duty liability. It had also opined on the petitioners' failure to disclose the manner in which the said duty liability was derived. Two essential pre-conditions for invoking jurisdiction of the Settlement Commission were therefore not satisfied. In the given facts, the Settlement Commission should have rejected the settlement applications and referred the case to the Central Excise Officer to decide the show cause notices issued to the parties on merits. However, notwithstanding the failure and non-satisfaction of the jurisdictional pre-conditions, the Settlement Commission proceeded to act as an adjudicating authority and has decided the show cause notice. This would be beyond the scope and power of the Settlement Commission, for the Settlement Commission is not an adjudicatory authority substituting the Central Excise Officer. The Settlement Commission must function under the four corners of the powers conferred under Chapter-V of the Act. The Settlement Commission, after expressing and recording the finding on the failure of the petitioners to make ‘full and true’ disclosure of the duty liability and the manner in which it was derived, should have rejected the settlement application. The petitioners should have been relegated to suffer and undergo adjudication mechanism and procedure as per the provisions of the Act [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.
8. Although, Mr Singla‟s stand is that the provisions ofSection 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 32E[1] of the 1944 Act. Unless the twin conditions mentioned therein are fulfilled, the Settlement Commission cannotmove 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 „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…' 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.
RAJIV SHAKDHER, J
TARA VITASTA GANJU, J
NOVEMBER 16, 2022
aj
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