By TIOL News Service

MUMBAI, OCT 15, 2015: THE Writ Petition challenges the final orders passed by the Settlement Commission dated 29th January, 2014 and 31st January, 2014 respectively rejecting the applications filed for settlement.

The Settlement Commission held that the Petitioners had failed to fulfill the following two conditions of section 127B of the Customs Act, 1962, namely, (i) that no Appeal relating to the case was pending before the Appellate Tribunal; and (ii) the interest payable on the admitted duty liability had not been paid.

The petitioner submitted that though section 127B, as it stood on the date of filing of the Settlement Applications (i.e. on 26th August, 2013), inter alia provided that no Settlement Application shall be made unless the Applicant has paid the additional amount of customs duty accepted by him along with interest due under section 28AB of the Act, section 28AB was deleted from the Act with effect from 8th April, 2011 and was substituted by section 28AA(mandating payment of interest) only by the FA, 2014.

Inasmuch as despite section 28AB being deleted from the Act, reference to the said section erroneously continued in section 127B(1) and, therefore, the Petitioners were not required to statutorily deposit/pay any amount towards interest u/s 28AB before filing their Settlement Applications u/s 127B. And so, the applications could not have been rejected on the ground of non-payment of interest.

It is further submitted that the above was brought to the notice of the Settlement Commission by their letter dated 3rd September, 2013 and after considering this letter, the Settlement Commission, vide its letters dated 13th September, 2013 ordered that Settlement Application Nos. SA(C)559-560/2013 (arising out of the 2nd SCN) and Settlement Application Nos. SA(C)557-558/2013 (arising out of the 3rd SCN), be allowed to be proceeded with, without imposing any condition to pay/deposit any interest under sections 28AA or 28AB of the said Act.

Therefore, once having so ordered, the Settlement Commission could not have rejected the Applications on the ground that the Petitioners had not paid/deposited interest as required under section 127B of the said Act, was the submission of the petitioner.

Furthermore, even on date, if the Settlement Commission imposes a condition to pay interest as determined, the Petitioners would pay/deposit the same before their Settlement Applications are heard de novo by the Settlement Commission.

The petitioner pleaded that there has been a gross miscarriage of justice which ought to be rectified by the High Court.

As regards the rejection of the application on the additional ground, namely that the Petitioners had suppressed the fact that with reference to the 3rd SCN, an Appeal was pending before the CESTAT, the petitioner submitted that in the 3rd SCN, vide paragraph 25(xii) thereof, Respondent No.2 had sought to appropriate a sum of Rs.41,79,324/- (out of Rs.50,00,000/- paid by Petitioner No.1 during the course of investigations), towards alleged duty liabilities on the cranes imported and assessed more than five years before the date of the 3rd SCN and it was this ex-parte decision and not the 3rd SCN that was subjected to a challenge before CESTAT.

It is further informed that whilst this Appeal was pending, on 24th May, 2013, an Addendum to the 3rd SCN was issued under which Respondent No.2 himself recalled his erroneous ex-parte decision communicated vide the said 3rd SCN. So also, the Appeal before the CESTAT had become infructuous and in fact the said Appeal had been subsequently withdrawn. More importantly, it was only after the addendum dated 24th May, 2013 was issued, that the Petitioners (on 26th August, 2013) filed these Settlement Applications.

On the aforesaid factual background, the petitioner seeks setting aside of the orders passed by the Settlement Commission for a de novo consideration.

The Counsel for the Revenue tried to cover up the gap by submitting -

… merely because section 28AB of the said Act was not on the statute-book on the date when the above mentioned Settlement Applications were filed, makes no difference. He submitted that section 28AB, though deleted w.e.f. 08-04-2011, was substituted by section 28AA which also provides for payment of interest. He submitted that taking into consideration the spirit behind the provisions of section 28AB and section 28AA of the said Act, the Petitioners were bound to pay interest on the additional amount of duty accepted by them in the aforesaid Settlement Applications. Not having done so, the Petitioners had not complied with the mandatory provisions of section 127B and therefore, the Settlement Commission cannot be faulted in rejecting the above mentioned Settlement Applications.

The High Court after noting the provisions of Settlement and the genesis of the same through the Wanchoo Committee report inter alia observed -

+ Despite the fact that section 28AB was deleted and replaced with section 28AA w.e.f. 08.04.2011, no corresponding amendment was carried out in section 127B. In other words, even though section 28AB no longer remained on the statute book, a reference to the said section (28AB) continued in section 127B.

+ In fact, to bring it in line with the other provisions of the Act, section 127B was also thereafter amended by Finance (No.2) Act, 2014 (w.e.f 06.08.2014).

+ In the present case, admittedly the Settlement Applications were filed by the Petitioners in the year 2012-2013. On the date when these Applications were filed under section 127B, section 28AB no longer remained on the statute-book and, therefore, it was impossible for the Petitioners to comply with the condition as set out in clause (c) of the 1st proviso to section 127B(1) which continued to stipulate that no Settlement Application could be made unless the Applicant had paid the additional amount of customs duty accepted by him along with interest due under section 28AB.

+ Admittedly, the Settlement Commission, whilst ordering that the Settlement Applications (arising out of the 2nd and 3rd SCNs) are allowed to be proceeded with, did not impose any condition or direct the Petitioners to pay any interest.

+ In these circumstances, we are clearly of the view that the Settlement Commission was in error in rejecting these Settlement Applications of the Petitioners on the ground that the Petitioners had failed to pay the interest due under section 28AB as stipulated under section 127B. If section 28AB did not remain on the statute-book at all, there was no question of asking the Petitioners to pay interest under the aforesaid provision. This is more so in the peculiar facts of the present case inasmuch as the Petitioners had undertaken that they would pay interest under section 28AA, as and when determined by the Settlement Commission.

+ We think that it would just, fair and in the interest of justice if Settlement Application Nos.SA(C)559-560/2013 and SA(C)557-558/2013 (arising out of 2nd and 3rd SCNs) are remanded back to the Settlement Commission for a de novo consideration. It is accordingly so ordered.

+ Before the aforesaid applications are de novo heard by the Settlement Commission, it would be open to the Settlement Commission to impose a condition on the Petitioners for payment of interest determined by it under section 28AA of the Act.

As regards the second ground for rejection, the High Court after carefully perusing the papers and the proceedings in the writ petition observed that the 3rd SCN has not been adjudicated at all and in view of the facts culled by the petitioner the Settlement Commission was totally in error in coming to the conclusion that the Petitioners' Settlement Applications could not be entertained because an Appeal was pending before the CESTAT.

The High Court also examined in detail the case laws cited by the counsel for the Revenue and observed that reliance on the same were wholly misplaced.

Both the orders of the Settlement Commission were set aside and the applications were restored back to the file of the Settlement Commisison for a de novo consideration in the matter.

(See 2015-TIOL-2400-HC-MUM-CUS)