By TIOL News Service

NEW DELHI, OCT 21, 2013: ASSISTANT Director, CEI , has no locus standi to challenge the order of the Settlement Commission : A preliminary point was raised in the course of the hearing of the writ petition to the effect that the Assistant Director (Investigation) who is petitioner No.2 , has no locus standi to challenge the order of the Settlement Commission as he is only an investigative authority without any power of assessment.

The Additional Solicitor General, purporting to meet the point filed a copy of the Circular No.44 /2011- CUS dated 23.09.2011 and submitted that the petitioner No.2 came within the scope of the circular and was authorised to file the writ petition jointly with the Union of India.

The High Court observed,

"A perusal of the circular shows that consequent to the judgment of the Supreme Court on 18.02.2011 in Civil Appeal Nos.4294 -4295/2002, 2603/2005 and 4604/2005 in the case of Sayed Ali - (2011-TIOL-20-SC- CUS ), an amendment to Section 28 of the Customs Act, 1962 was made w. e. f. 16.09.2011 by insertion of clause (11) which reads as follows: -

"( 11) Notwithstanding anything to the contrary contained in any judgment, decree or order of any court of law, tribunal or other authority all persons appointed as officers of Customs under subsection (1) of section 4 before the sixth day of July 2011 shall be deemed to have and always had the power of assessment under section 17 and shall be deemed to have been and always had been the proper officers for the purposes of this section."

The effect of the amendment is that the Assistant Director (Investigation) who is an officer of the DGCEI was retrospectively recognized w. e. f. 06.07.2011 as a 'proper officer' for the purposes of Sections 17 and 28 of the Customs Act, 1962. The circular in paragraph 5, however, goes on to say that the officers of the DRI and DGCEI "shall not exercise authority in terms of clause (8) of section 28; in other words, the circular says that there shall be no change in the present practice and officers of the DRI and DGCEI shall not adjudicate the show-cause notices issued under Section 28 of the said Act."

We do not think that the amendment or the circular meets the point raised. Section 28 provides for notice for payment of duties, interest, etc. The amendment referred to in the circular was made only to get over the situation arising out of the judgment cited supra and validated the show-cause notices issued prior to 06.07.2011 by Commissionerates of Customs (Preventive), DGCEI and DRI. This amendment does not have anything to do with the filing of petitions before the High Court. There is no authorisation produced before us in favour of the petitioner No.2 to challenge the order of the Settlement Commission before this Court by way of a writ petition. Even according to the hierarchy, petitioner No.2 is several levels below the Settlement Commission and the officers manning it . We do not, therefore, think that petitioner No.2 has any locus standi to challenge the order of the Settlement Commission. We, therefore, delete petitioner No.2 from the proceedings.

However, this does not mean that the writ petition has to be dismissed in limine . Petitioner No.1 , which is the Union of India, can by itself challenge the order of the Settlement Commission. We would, therefore, proceed to dispose of the writ petition as if it has been filed only by one petitioner, namely, the Union of India through Secretary, Ministry of Finance, Department of Revenue, North Block, New Delhi.

The ADG , DGCEI issued a Show Cause Notice to the assessee on 14.7.2009. They approached the Settlement Commission, but ADG ,CEI objected to the settlement application on the ground that there was no full and true disclosure of the duty liability, which is a condition precedent under Section 32E of the Central Excise Act for approaching the Settlement Commission. It was submitted that the applicant had disclosed liability in a paltry amount of Rs.81 ,75,625 /- as against liability of Rs.245,67,44,509 /- raised by the show-cause notice and this prima facie showed that the applicant had not made a full and true disclosure of its duty liability before the Settlement Commission.

The Settlement Commission passed the impugned order on 12.03.2012. The principal Bench of the Settlement Commission which heard the settlement applications consisted of the Chairman and two members. The Chairman and one of the members wrote the majority opinion whereas the minority opinion was written by the other member . The majority opinion narrated the facts leading up to the filing of the settlement applications and the arguments advanced before them as well as report of the Commissioner (Investigation) and the objections thereto as well as written submissions/ objections filed by the Central Excise Department.

In fine the majority of the Settlement Commission held as follows: -

a) The applicants have made full and true disclosure and have cooperated in the settlement proceedings;

b) The case is settled for a duty liability of Rs.81 ,75,625 /- in respect to of the 2000 kg of catechu and interest thereon of Rs.66,91,245 /-. These amounts have already been paid by the applicants and nothing further needs to be deposited, except that the Revenue was authorised to check the calculation of the interest and inform the applicant accordingly for any balance due.

c) This is not a fit case to grant full immunity from penalty. A penalty of Rs.5 ,00,000 /- is imposed on DSL. Immunity was granted for penalty in excess of the said amount. The amount of Rs.5 ,00,000 /- was to be paid within a period of 30 days from the receipt of the order.

d) The cash of Rs.61 ,50,000 /- was directed to be returned within 30 days from the date of the receipt of the order.

e) The applicant DSL and all the co-applicants are granted immunity from the prosecution under the Central Excise Act, 1944 and the rules thereunder.

The dissenting member joins issue with the majority opinion on the facts of the present case. It is his view that having regard to the amount of duty admitted in the application and the basis thereof and the statements made in the Annexure to the settlement application, it cannot be said that there was full and true disclosure of the duty liability. According to him, the applicant has not accepted any procurement of unaccounted catechu or any clandestine manufacture of excisable goods therefrom without payment of applicable duty. The applicant has also asserted that all the quantity of excisable goods have been duly reflected in the returns filed with the Central Excise Officer. According to the dissenting member this does not satisfy the requirement of a full and true disclosure. All that the applicant has stated is based on a presumption and even the admission of duty on the basis of 2000 kg of catechu is also a presumption by default and what has been stated by him is merely that the person who made the entry (S. N. Gupta) is no more and, therefore, a presumption could be drawn that the catechu relating to that entry have been procured and not accounted for and used in the clandestine manufacture and clearance of goods on which the duty liability comes to Rs.81 ,75,625 /-. The dissenting member found this to be unacceptable as a full and true disclosure of the duty liability. There was no admission by the applicant about the unaccounted purchase of 2000 kg of catechu or the clandestine manufacture of the goods out of the same.

The other reason which prompted the dissenting member who wrote the minority opinion to say that there was no full and true disclosure by the applicant is the fact that the applicant did not provide the correct addresses of 17 suppliers of catechu out of 35 suppliers.

The third reason which prompted the dissenting member to hold that the applicant had not made a full and true disclosure is that it raised a plea of weight loss due to pulverisation of the catechu cake into catechu powder to the extent of 9.91% during the entire period of the demand (April, 2004 to June, 2008) which involved substantial amount of duty. This point was never raised during the course of investigation, as found by the dissenting member.

The dissenting member has also taken the view that the question of weight loss which would involve a detailed inquiry by an expert committee, for which a request was made before the Settlement Commission by the applicants, would involve complicated issues and facts which are properly left to the adjudicating authorities for decision.

On a fair reading of both minority and majority opinions, it appeared to the High Court that the better view is the one taken by the minority. The High Court observed,

"We have earlier referred to judgments of this Court wherein it has been held that a case involving complexity of issues both of facts and law and disputed questions of fact for which detailed enquiry is necessary ought to be referred to the adjudicating officer by the Settlement Commission, to be taken up from the stage at which the matter was before the adjudicating officer, which is before the filing of applications before the Settlement Commission. The present case clearly appears to us to be eminently a case for adjudication and not for settlement. The decision making process adopted by the majority of the Settlement Commission is flawed; and to that extent interference under Article 226/227 is necessary and justified. We are not to be understood as having said anything on the merits or demerits of the case. That has to be examined by the adjudicating authority under the Central Excise Act in accordance with law and the provisions of the Act. We are quite aware of the limits of judicial review as contoured by the authorities to which we have referred earlier. The view taken by the majority in the present case appears to us, with respect, vitiated by irrationality, procedural impropriety and illegality. The majority clearly erred in holding that the applicant has made a full and true disclosure of the duty liability which was not admitted before the central excise authorities and the manner in which such liability was derived. They also erred in holding that the case was simple and did not involve any dispute or complex questions of fact or law which can only be decided by the adjudicating authority and therefore it was a case for settlement by the Settlement Commission. We accord our approval to the reasoning and conclusion arrived at by the dissenting member who constituted the minority. The opinion of the majority is accordingly, quashed and the minority opinion is upheld."

(See 2013-TIOL-827-HC-DEL-CX)