By TIOL News Service

MUMBAI, APRIL 07, 2017: INVESTIGATIONS were initiated against the Petitioners alleging that DVD parts were imported by the Petitioners using IEC obtained in the name of dummy firms. This led to evasion of duty by indulging in gross under valuation and mis-declaration of the description of the goods so imported, was the allegation.

SCN dated 31st October 2013 was issued demanding differential duty of Rs.5,66,05,713/- from the Petitioners u/s 28 of the CA, 1962 together with interest and imposition of penalty and confiscation of goods. The SCN further proposed to appropriate Rs.1,50,00,000/- deposited during investigation.

With a view to buy peace and not to litigate with the Department, the Petitioners filed applications before the CCESC for settlement of the case and by accepting the differential duty as proposed in the said SCN. The said Applications were filed on 27th May 2014. The Petitioners and other importers paid the entire differential duty without interest prior to and during the pendency of the Applications, in respect of the goods imported by them. Thereafter, the defects pointed out by the Registry of the Settlement Commission were also rectified.

On 1st August 2014, the Settlement Commission informed the petitioners the date of hearing as 28th August 2014 in the matter of the admissibility of the Applications. However, on that day, the matters were adjourned and new date was fixed on 28th October 2014.

In the meanwhile, a Corrigendum / Addendum dated 8th August, 2014 was issued by department (based on the alleged report dated 20th November, 2013 received from the Hong Kong Customs through the Consulate General of India allegedly giving the value of the imported goods declared at the port of shipment before the Chinese Customs) whereby the demand was sought to be revised from Rs.5,66,05,713/- to Rs.13,02,06,668/-.

On 28th October 2014, after hearing the Petitioners and Respondent, the Settlement Commission directed the Petitioners to remove the defects pointed out by the Secretariat.Next hearing was held on 4th March 2015. In its submissions, department contended that it was upon the Petitioners and others to revise their Applications accepting the full liability of Rs.13,02,06,668/- and in that event, the Revenue would have no objection to the case being settled. On the other hand, in its submission dated 10th March 2015, Petitioners contended that the importers had in fact paid the entire duty of Rs.5,70,91,449/- against the total demand of Rs.5,66,05,713/- after filing of the Settlement Applications and were under a bonafide impression that the Settlement Applications have been admitted and it would be proceeded with by the end of November, 2014. Furthermore, if they had any indication that the Settlement Commission was not going toproceed with the Application, no duty would have been paid and the Petitioners would have elected to proceed with the adjudication proceedings.

The Settlement Commission, by its impugned order dated 27th March 2015 rejected the Applications filed by all the Writ Petitioners as inadmissible under section 127B of the Customs Act, 1962 .

This order is assailed before the Bombay High Court.

After hearing both sides, the High Court narrated the genesis of the settlement machinery and after extracting the provisions of section 127B and 127C of the Customs Act, 1962 inter alia observed -

+ The first notice as contemplated under section 127C(1) was issued by the Settlement Commission on 10th June 2014 to remove the defects and to show cause why the Applications of the Petitioners should be allowed to proceed with. After this notice was issued, there was no order passed on the admissibility of the Settlement Applications filed by the Petitioners up and until the passing of the impugned order on 27th March 2015.

+ This alone was in violation of the statutory provisions as set out in section 127C(1) which contemplates that an order either allowing the Application to be proceeded with or rejecting the same ought to be passed within a period of 14 days from the date of issuance of the notice. If this is not done, then the Settlement Applications are deemed to be allowed to be proceeded with. We would, therefore, be justified in setting aside the impugned order on this ground alone, as the impugned order rejects the Settlement Applications of the Petitioners on the ground that they are inadmissible under section 127B.

+ As the record would indicate that thereafter the Settlement Commission also called for a report as contemplated under section 127C(3). The question of calling for a report only arises once the Settlement Application is allowed to be proceeded with. This is clear from the opening words of section 127C(3) which state "Where an application is allowed or deemed to have been allowed to be proceeded with under sub-section (1), the Settlement Commission shall, within seven days from the date of order under subsection (1), call for a report …".

+ If the Settlement Commission was of the opinion that the Settlement Application filed by the Petitioners ought not to be proceeded with, there was no question of calling for any report as contemplated under section 127C(3). The fact that the report was called for by the Settlement Commission under the provisions of section 127C(3) would itself show that the Settlement Applications of the Petitioners were deemed to be allowed to be proceeded with. It was then not open to the Settlement Commission to reject the Settlement Applications on the ground that they are not admissible.

+ If it wanted to dismiss or reject the Applications of the Petitioners, they ought to have done it on merits. However, the operative part of the impugned order states that the Settlement Applications filed by the Petitioners are all rejected as inadmissible under section 127B of the Customs Act, 1962. This, to our mind, could not have been the procedure adopted by the Settlement Commission. Another factor that one needs to take note of is that the impugned order itself records that it is an order passed under section 127C(5). As set out earlier by us, an order passed under section 127C(5) is the final order passed on the Settlement Applications. We fail to see how the Settlement Commission on the one hand records that this is an order passed under section 127C(5) and then rejects the Settlement Applications as being inadmissible under section 127B. This would then really be an order passed under section 127C(1).

+ In any event, if the Settlement Commission was to reject the Settlement Applications of the Petitioners on the ground that they are not admissible, there was absolutely no need to pass a detailed order on merits of the case and that too taking into account the Corrigendum / Addendum that was issued by the Revenue to the show cause notice even after the Settlement Applications were filed by the Petitioners.

+ Looking to the totality of the facts of the present case, we have no hesitation in holding that the impugned order passed by the Settlement Commission dated 27th March 2015 cannot be sustained.

The Settlement Applications were restored back to the file of the Settlement Commission for a de novo consideration in accordance with law. It is also clarified that before hearing the Petitioners de novo, the Settlement Commission shall be at liberty to impose a condition for payment of interest as determined by it under section 28AA of the Act which the Petitioners shall be obliged to pay before its Settlement Applications are de novo considered and in the event of non-compliance the applications would stand rejected.

Rule is made absolute in the aforesaid terms.

(See 2017-TIOL-667-HC-MUM-CUS)