HYDERABAD, DEC 27, 2012: THIS case had several twists and turns and had been through the portals of the Settlement Commission, the CESTAT , High Court and Supreme Court before reaching the High Court in the present appeal. It all started in 2003.

A show cause notice dated 01-11-2003 was served on the appellants contending

(a) that the clearance of all excisable goods i.e. veneer made by the appellants during the financial years 1998-99 to 2002-03 (up to November 2002) were under valued resulting in short payment of duty,

(b) that the amounts in excess of the invoice values were realized either through cash or through D.Ds ., which was in- turn utilized for unaccounted expenditure and

(c) the appellants in order to camouflage the excess amounts received through D.Ds . indulged in the fictitious sale of non-excisable goods like sawn timber door/window frames, trading etc.

It proposed to demand from the Truwood Group consisting of the appellants and three other companies, a sum of Rs . 21,48,55,018/- besides a penalty under Section 11-AC of the Central Excise Act, 1944 along with interest under Section 11 AB thereof.

A detailed reply dated 11-05-2004 was submitted rebutting the allegations made in the show cause notice by the appellants. On 11-05-2004, a personal hearing was provided to the appellants wherein the appellants also requested for permission to cross-examine the persons whose statements were recorded by the department.

The appellants also felt that it was appropriate to approach the Settlement Commission constituted under Section 32 of the Act and filed an application for settlement on 26-07-2004 under Section 32-E of the Act before the said Settlement Commission. On 28-07-2004, they informed the Commissioner of Central Excise, Visakhapatnam of filing of the above application before the Settlement Commission for settlement of the dispute and requested him not to adjudicate the matter.

Ignoring the said letter, the Commissioner of Central Excise proceeded to adjudicate the matter and passed the Order in Original No.14 /2004 dated 30-07- 2004 wherein, as regards the appellant in CEA 54 of 2008, he dropped the demand of Rs 7,54,75,798 /- and confirmed the demand of Rs.5,49,80,062 /- under Section 11A (1) of the Act apart from an equivalent amount of penalty under Section 11AC of the Act. By the same order, as regards the appellant in CEA 56 of 2008, he dropped demand of Rs.3 ,77,46,799 /- and confirmed the demand of Rs.2,67,20,666 /- under Section 11A (1) of the Act apart from an equivalent amount of penalty under Section 11AC of the Act. The total proposed demand in the show cause notice on the four group companies including the appellants was Rs.21 ,48,55,018 /-. The Commissioner had reduced the demand to Rs.16 ,43,99,648 /-.

The Settlement Commission, under Clause (1) of Section 32-F of the Act (as it stood then i.e. in 2003-04) called for a report from the Commissioner. He informed the Settlement Commission by letter dated 13-09-2004 that he had already adjudicated the matter and therefore the Settlement Commission had no jurisdiction to entertain the application.

Thereafter several hearings were held by the Settlement Commission in which the Revenue also participated. Vide admission order No.A -341-342/CE/05-SC ( PB ) dated 31-05-2005, the Settlement Commission admitted the application filed by the appellants in which the appellants had declared and admitted a sum of Rs.1 ,16,23,724 /- as duty payable in respect of the proceedings initiated by the show cause notice. It took note of the fact that the Commissioner of Central Excise, Visakhapatnam had passed an adjudication order even after the application for settlement was filed by the appellant and held that the said order was " non est " in the eye of law.

Challenging the same, the Revenue filed W.P .(C) No. 21055/2005 before the Delhi High Court only questioning the admission of the application filed by the appellants before the Settlement Commission but not challenging that portion of the order of the Settlement Commission wherein it had declared the Order dated 30-07-2004 in Order in Original No.14 /2004 of the Commissioner of Central Excise as non est in law. By order dated 10-11-2005, the Delhi High Court held that the Settlement Commission was correct in law in admitting the application of the appellants for settlement under clause (1) of Section 32-F of the Act and its order did not suffer from want of jurisdiction. This order was challenged in S.L.P.No.4715 /2006 by the Revenue before the Supreme Court of India. On 10-07-2006, the S.L.P . was dismissed.

The appellants and the Revenue participated in the final proceedings before the Settlement Commission. Several hearings were held and a final order No.F - 471-472/CE/07 SC( PB ) dated 17-01-2007 was passed by the Settlement Commission rejecting the application for settlement filed by the appellants and remitting the case back to the adjudicating authority for adjudication of the matter in terms of the show cause notice dated 01-11-2003. This order was not challenged by the Revenue.

Meanwhile, the Revenue filed an appeal against that portion of the Order in Original No.14 /2004 dated 30-07-2004 of the Commissioner of Customs and Central Excise, Visakhapatnam reducing the duty demand from Rs.21 ,48,55,018 /- to Rs.16,43,99,648 /-.

The Tribunal vide final order No.1080 -1083/07 dated 06-09-2007 impugned in these appeals held that there was no question of the Settlement Commission acquiring exclusive jurisdiction when an order of adjudication was passed before the admission of the application for settlement; that the appellate jurisdiction of the Tribunal cannot be taken away by the observation of the Settlement Commission that the adjudication order dated 30- 07-2004 was non est ; and that the Settlement Commission did not have the power to decide upon the validity of the adjudication order. It further held that since the Committee of the Chief Commissioners is a statutory creation for a specific purpose of deciding whether the appeals have to be filed or not, the appeals filed by the Revenue against the impugned order were maintainable.

The Parties are in appeal before the High Court.

The counsel for the appellants contended inter alia:

(a) that under Section 32E of the Act as it stood then, application for settlement can be filed once a show cause notice is issued and such an application would be entertained only if no appeal is pending before the Tribunal or any Court; that if an appeal is filed against an adjudication order, the Settlement Commission would not entertain an application for settlement; that in view of this, there is an embargo on an appeal being filed against any adjudication order that emanates in terms of the show cause notices which are the subject matter of the application for settlement before the Settlement Commission and therefore if an appeal cannot be filed, then an adjudication order also cannot be passed when the application for settlement is pending decision by the Settlement Commission. As on the date of the passing of the adjudication order in original by the Commissioner i.e. 30-07-2004, an application for settlement before the Settlement Commission had already been filed on 26-07-2004 and was pending and this was informed to the Commissioner by the appellants on 28-07-2004 itself. Therefore, the Commissioner should have deferred adjudication of the matter.

(b) that under Section 32-I (2) of the Act, where an application made under Section 32E has been allowed to be proceeded with under Section 32-F, the Settlement Commission (until an order is passed under sub section (7) of Section 32-F) has the exclusive jurisdiction to exercise the powers and perform the functions of any Central Excise Officer in relation to the "case" and it has all the powers which are vested in any Central Excise Officer under the Act. The admission by the Settlement Commission of the application for settlement vide its order dated 31-05-2005 took place after it took into account the letter dated 13-09-2004 of the Commissioner (informing the Settlement Commission about the passing of the adjudication order after the application for settlement was filed by the appellants). So the order of the Commissioner was non est in law having been passed after the application was filed for settlement. Therefore the view of the Tribunal (that the order of adjudication officer/Commissioner dated 30-07-2004 is correct), is perverse and unsustainable. It is also contended that the fact that the Delhi High Court and the Supreme Court have confirmed the order dated 31-05-2005 of the Settlement Commission admitting the application for settlement demonstrates that the Settlement Commission was correct in holding that the order of the Commissioner dated 30-07-2004 is non est in law.

The Senior Standing Counsel for the Revenue, supported the order of the Tribunal and contended inter alia:

(a) that there is no bar for the adjudicating officer/Commissioner to pass an adjudication order merely because an application for settlement was filed by an assessee before the Settlement Commission under Section 32E of the Act;

(b) that on a true construction of the provisions of Section 32F and 32-I of the Act, the adjudicating officer's jurisdiction to pass an adjudication order is ousted only after an application for settlement was allowed to be proceeded with i.e. admitted by the Settlement Commission under clause (1) of Section 32F till the passing of a final order under Clause (7) of Section 32F of the Act and not prior to the passing of the order of admission by the Settlement Commission.

(c) that the order of admission of the case by the Settlement Commission was passed on 31-05-2005, that only after 31-05-2005, there was a bar under Section 32-I (2) for the adjudication officer to pass an order once the application for settlement was admitted by the Settlement Commission (as exclusive jurisdiction is conferred on the Settlement Commission to exercise all the powers and perform all the functions of any Central Excise Officer under the Act until final order is passed under clause (7) of Section 32F of the Act). As the Commissioner passed the order on 30-07- 2004 prior to 31-05-2005, the bar under clause (2) of Section 32-I would not operate and invalidate the order passed on 30-07-2004 by the Commissioner.

The High Court Observed,

Under clause (7) of Section 32F of the Act, the Settlement Commission after considering the records and the reports of the Commissioner of Central Excise and Commissioner (Investigation) received under sub section (1) and under sub section (6) respectively and after hearing the parties may pass an order on ( i ) the matters covered by the application and (ii) any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of the Central Excise and the Commissioner (Investigation) under sub section (1) or sub section (6).

The admission of the application by the Settlement Commission alone was challenged before the Delhi High Court and the Supreme Court by the Revenue and the said challenge was negatived by order dated 10-11- 2005 in W.P.No.21055 /2005 and SLP No.4715 /2006 dated 10-07-2006.

In view of the language of clause (7) of Section 32F of the Act, the Settlement Commission was entitled to pass final orders not only in relation to matters covered by the application for settlement but also 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) under sub section (1) or sub section (6). The matter relating to the lack of jurisdiction of the Settlement Commission was specifically raised by the Commissioner of Central Excise in his report dated 13-09-2004 submitted to the Settlement Commission under clause (1) of Section 32F and the said issue has been decided by the Settlement Commission in its order of admission dated 31-05- 2005. Therefore its finding that the order of the Commissioner of Central Excise dated 30-07-2004 is non est in law is a finding given by it in exercise of jurisdiction conferred on it under Section 32F (7). Therefore, it cannot be said that the said finding given by the Settlement Commission is without jurisdiction. Therefore the said order of the Settlement Commission cannot be denuded of its efficacy by any collateral attack or in incidental proceedings.

As this portion of the order of the Settlement Commission dated 31-05-2005 was admittedly not challenged by the Revenue in W.P.No.21055 of 2005 or in S.L.P.No.4715 of 2006, the Revenue is barred by the principle of constructive res judicata from reagitating the said finding of the Settlement Commission before the Tribunal collaterally. The Tribunal therefore is bound to proceed on the footing that the order dated 30-07-2004 of the Commissioner is non est in law and therefore it ought to have held in the impugned orders that the Revenue could not have challenged the order dated 30-07-2004 of the Commissioner in the appeals E/888/2005 and E/890/2005 before it. It should have therefore rejected the said appeals filed by the Revenue as not maintainable.

As the Settlement Commission in its final order dated 17-01-2007 had rejected application for settlement and remitted the case back to the adjudicating authority for adjudication of the matter in terms of the show cause notice dated 01-11-2003, the said authority should consider the matter afresh uninfluenced by the order in original No.14 /2004 dated 30-07-2004 of the Commissioner of Central Excise, the order dated 17-01-2007 of the Settlement Commission or the impugned orders dated 06-09-2007 of the CESTAT .

The appeals are allowed and the impugned orders of the CESTAT are set aside.

(See 2012-TIOL-1050-HC-AP-CX)