By TIOL News Service

ALLAHABAD, AUG 25, 2014: THE petitioner is a manufacturer of Plain Poly Films, Cast Poly Propylene Film and Flexible Laminated Rolls.

Based on a case booked by the DGCEI, demand notices were issued to the two units of the petitioner for recovery of Central Excise duty totaling Rs. 7,81,81,245/- on excisable goods clandestinely manufactured and removed without payment of duty.

In respect of the aforementioned SCNs dated 06.09.2011, the petitioner along with other co-noticees filed applications for settlement on 29.01.2013/March/April 2013.An amount of Rs.63,85,052/- was also deposited after claiming CENVAT credit of Rs.3,49,98,954/-. This deposit was in addition to the amount of Rs.30 lacsdeposited during investigation.

In the application filed for settlement of the dispute, it was asserted that the search and seizure operations had been conducted on the basis of information provided by an ex-employee and that the basis of the investigation was an outcome of the fabricated evidence created by DGCEI officers with the help of its ex-employee as five files were brought by the DGCEI officers with them and were planted in the premises during search operations and were shown to have been recovered from the premises of the petitioner. The evasion of duty except the differential duty between the finished goods and the duty already debited showing the clearance of plastic granules as cash sales was specifically denied.

After considering the material available on record and the submissions made by the applicant and the Revenue, the Settlement Commission concluded that since the applicants had not accepted substantial part of the duty liability and had not only alleged that the evidence had been fabricated and tampered with but had also disputed the very basis of the investigation, the disclosure cannot be said to be complete and true. The Settlement Commission, therefore, declined to settle the dispute as it felt that it would be better settled through adjudication. In fine, the Bench ordered to send the case back to the adjudicating authority in terms of section 32F(5) of the CEA, 1944.

Against this order, the petitioner is before the High Court.

The High Court after extracting the provisions of sections 32-E, 32-F and 35-L of the CEA, 1944 observed -

++ On a plain reading of the provisions of subsections (5) and (8) of section 32-F, it is clear that the Settlement Commission has to pass such order as it thinks fit and it has the power to not only provide for the terms of the settlement but also to reject the application in which eventuality, reasons have to be recorded.

++ The power conferred on the Settlement Commission under section 32-L to send the case back to the Central Excise Officer is in addition to the aforesaid powers of the Settlement Commission. Such a power is given to the Settlement Commission under section 32-L, if it finds that any person who has made an application for settlement under section 32-E, has not co-operated with the Settlement Commission in the proceedings before it. This power given to the Settlement Commission under section 32-L does not and cannot take away the powers conferred on the Settlement Commission under sub-sections (5) and (8) of section 32-F. It is, therefore, not possible for the Court to accept the first submission of learned counsel for the petitioners.

++ The submission of the petitioners that once the application filed under section 32-E has been allowed to be proceeded with under sub-section (1) of section 32-F, the Settlement Commission has to settle the case by passing an appropriate order under sub-sections (5) and (8) of section 32-F and it cannot reject the application even if it finds that the application does not contain a full and true disclosure of the duty liability or that the case involves complex questions of fact which require detailed appreciation of evidence cannot also be accepted.

++ Under sub-section (1) of section 32-E, the applicant is required to make a full and true disclosure of his duty liability and merely because the Settlement Commission has, after considering the explanation offered by the applicant, allowed the application to be proceeded with under sub-section (1) of section 32- F, will not mean that the Settlement Commission has accepted that the applicant has made full and true disclosure of his duty liability because that is not the stage to make such an inquiry.

++ It is clear from sub-section (3) of section 32-F that it is only when an application is allowed to be proceeded with that the Settlement Commission shall call for a report along with the records from the Commissioner of Central Excise having jurisdiction. It is after examination of the records and the report of the Commissioner of Central Excise that the Settlement Commission, after giving an opportunity to the applicant and to the Commissioner of Central Excise to be heard, is required to pass an order as it thinks fit under sub-section (5) on the matters covered by the application. It cannot, therefore, be asserted that once the application filed under sub-section (1) of section 32-E has been allowed to be proceeded with under sub-section (3) of section 32-F, the Settlement Commission has necessarily to make a settlement. If that was so, then in that event power would not have been conferred on the Settlement Commission under sub-section (8) of section 32-F to reject the application.

In the matter of the submission about the mala fides of the officers of the department, the High Court observed that officers have not been impleaded by name as party respondents and even otherwise the allegations are very vague and have not been substantiated.

As regards the submission that the Settlement Commission should have settled the dispute even if complex questions of facts were involved and should not have sent the matter back to the adjudicating authority, the High Court observed that the same cannot be accepted as -

++ The Settlement Commission has given good and cogent reasons for sending the case back to the adjudicating authority.

++ The Settlement Commission noticed that the applicants had not accepted a substantial part of the duty liability and had in fact contested the evidence collected by the Revenue as being fabricated and tampered with.

++ It also noticed that the Revenue had given reasons to substantiate its position regarding the investigation as well as the quantification of duty liability. In such a situation, the Settlement Commission thought it appropriate, particularly when the applicants had not made a full and true disclosure and that complex questions of fact, which required appreciation of evidence, were required to be settled through adjudication.

++ A fair amount of discretion has to be given to the Settlement Commission in cases where matters are placed before it for settlement keeping in mind the well settled principle that settlement is not akin to adjudication.

++ Unless it is established that the discretion has been exercised in an arbitrary or perverse manner or that it is not based on relevant considerations or has taken into consideration irrelevant matters, Courts will not interfere in the exercise of such discretion by the Settlement Commission under Article 226 of the Constitution.

Holding that there is no illegality in the order of the Settlement Commission which may call for any interference under Article 226 of the Constitution, the Writ Petition was dismissed.

(See 2014-TIOL-1427-HC-ALL-CX)