By TIOL News Service

NEW DELHI, OCT 25, 2006 : THE Chief Commissioner is the highest officer of the Revenue field formation and the power to compound offence has been conferred on this highest officer. The whole idea of compounding was to reduce litigation and maybe salvage whatever revenue possible in the quickest possible time. But the first time a Chief Commissioner passes an order of compounding, the Revenue is in writ before the High Court. If the Board cannot believe its highest officer in the field, what is this law all about?

The Facts of this interesting case are as follows:

One Mr. ANIL CHANANA had gone to London on a business visit. On his return to India on 11th August 2004, he carried two pairs of diamond earrings and the allegation is that he tried to smuggle them by walking through the green channel when he was intercepted. He said that the earrings were given to him as a gift in connection with the marriage of his younger son and in view of the long journey undertaken by him, he was somewhat confused and through an oversight, he entered the green channel area.

DRI issued a Show Cause Notice for violating the provisions of the Customs Act and the matter is pending adjudication. A prosecution was also launched and a charge sheet was filed in the Court of the Additional Chief Metropolitan Magistrate, New Delhi.

The passenger made an application before the Customs and Central Excise Settlement Commission. He also made an application before the Chief Commissioner of Customs (DZ) on 18th January 2006 stating that he does not wish to contest the case against him and he would like the Chief Commissioner as the Compounding Authority to settle the case and grant him immunity from prosecution. (please note that the compounding provisions came into force on 30 th December 2005)

It appears on 12th July 2006, the Settlement Commission passed its order directing him pay the duty. Penalty and interest were waived. He paid the duty and redemption fine.

With regard to compounding, the Chief Commissioner accepted the application and allowed compounding on payment of a compounding fee which has since been paid.

Revenue in the form of DRI is aggrieved on three counts:-

•  The passenger did not make a true and full disclosure of facts relating to the case and, therefore, under Rule 6 of the Rules, the Compounding Authority ought not to have granted him immunity from prosecution.

•  No oral hearing was given before the application was allowed.

•  The Compounding Authority has not recorded any reasons for granting immunity from prosecution.

The High Court did not find merit in any of these pleas and observed that the Supreme Court had noted that the object of the legislature in introducing a procedure for settlement of cases is to see that protracted proceedings before the authorities or in courts are avoided by resorting to settlement of cases.

The High Court observed that according to the passenger, he was tired after a long journey and he wanted to declare the diamond earrings but due to an oversight he entered the green channel area when he was confronted by officers of the Customs Department, but according to the DRI, he had not entered the green channel area by an oversight but he was trying to smuggle the goods through the customs area and when he was confronted by the Customs official, he denied carrying any valuables and he made a confessional statement only when the officials conducted a search of his baggage and his personal search.

The High Court was of the view that

'the application filed by the Respondent has to be considered in the overall context, namely, as an admission of guilt. As long as an applicant admits that he has committed an offence, of which compounding is sought, he has broadly fulfilled the requirement of making a full and true disclosure. How the offence has been committed or how it has been detected is not of much consequence. What is of importance is whether any material or relevant fact pertaining to an admission of guilt has not been disclosed."

The High Court also noted that DRI was given an opportunity to contradict the   oversight theory propounded by Respondent and the DRI did so; but that did not convince the compounding authority to reject the application.

The High Court noted that in cases of this nature, there are bound to be some discrepancies in the version given by an applicant and the report given by the investigating agency but the existence of one or more discrepancies cannot be interpreted to mean that the applicant has not made a full and true disclosure of all material facts. That would depend on the nature of the fact which has not been disclosed and the impact that it may have on the exercise of judicial discretion by the Compounding Authority. If there is a discrepancy between the version given by the applicant and the report of the investigating agency and the discrepancy is of a serious nature, the Compounding Authority is, of course, entitled to reject the application and the applicant cannot claim, as a matter of right, that his offence should be compounded. Even if, later on, it is brought to the notice of the Compounding Authority that the applicant had concealed any particulars, material or had given false evidence, then the Compounding Authority may withdraw the immunity granted to the applicant and thereupon the applicant may be tried for the substantive offence committed by him as well as for any other offence that may have been committed by him in connection with the compounding proceedings,

The High Court further observed that

•  the Compounding Authority was obviously of the view that the applicant had made a full and true disclosure of facts and that is why his application was accepted.

•  DRI was given an opportunity to have its say before the Compounding Authority and, in fact, it filed its report but notwithstanding this, the application was allowed.

•  If DRI had any grievance, it could have again approached the Compounding Authority under Rule 7(2) of the Rules.

•  But it chose to approach the High Court.

Scope of Judicial review:

The High Court noted that in a case such as this, the scope of judicial review is clearly quite limited.

•  We cannot go into the nitty-gritty of the details but have to look at the meat of the matter and ask ourselves the question whether the applicant has admitted to the offence through a full and correct disclosure of facts.

•  If there is some discrepancy here or there in the version given by him and the report of the investigating agency, we cannot make that a basis for coming to the conclusion that the applicant has not fully or truly disclosed all the facts.

•  Of course, if a specific fact which would have a bearing on the exercise of discretion of the Compounding Authority is not disclosed, we may be entitled to interfere in the matter but that is not the problem that we are faced with because the discrepancies pointed out to us are not at all substantive.

On the question of giving a hearing to the DRI, the High Court observed,

•  the Rules do not postulate an oral hearing being given to either of the parties when an application for compounding is intended to be allowed.

•  However, the proviso to Rule 4(3) of the Rules provides that where the Compounding Authority intends to reject the compounding application, then the applicant should be heard in the matter and the grounds of rejection shall be mentioned in the order.

•  There is no requirement in any provision of the Rules which mandates the Compounding Authority to orally hear the investigating agency in the event the compounding application is allowed.

•  the facts of the present case are not at all complicated and, therefore, no personal hearing was necessary.

•  But, in an appropriate case where the facts are complicated, the Compounding Authority may be well advised to hear both the parties before taking a decision on the compounding application.

•  This is because there are several cases where all sorts of complicated transactions are involved and in such a situation, it may not be appropriate for the Compounding Authority to take a view without a personal hearing to any of the parties. Of course, this would depend on the facts of each case and we do not propose to lay down any general principles in this regard.

Regarding not giving reasons, the High Court observed,

•  The Chief Commissioner has examined all aspects of the case and has given his reasons for arriving at the conclusion that he did.

•  The Compounding Authority discussed the market value of the goods, the nature of the offence and whether it falls within the scope of the Rules for the purposes of compounding and also the basis on which the compounding fee is levied.

•  The Compounding Authority then gave his decision on the merits of the case.

•  Needless to say, the Compounding Authority is not a judicial officer and is not expected to write a judgement as we would understand it.

•  All that his order is required to show is that there has been an application of mind and that the conclusions arrived at by him are supported by reasons which show such application of mind.

•  The purpose of reasons being made a part of the order is that they can be judicially reviewed, if necessary. Once that requirement is met by the Compounding Authority in his order, it will serve the needs of law.

•  In so far as the present case is concerned, we have examined the order passed by the Compounding Authority and it meets the requirements that we are concerned with.

So all the three counts the High Court did not agree with the petition and so dismissed the writ.

Before parting:-

The High Court however made certain observations which should be read by every Revenue officer.

•  The Customs (Compounding of Offence) Rules, 2005 appear to have been framed keeping in view the Statement of Objects and Reasons for the introduction of 'plea bargaining' as well as the view expressed by the Supreme Court in Om Prakash Mittal to the effect that settlement procedures are intended to see that protracted proceedings before the authorities or in courts are avoided by resorting to settlement of cases. Consequently, the interpretation of rules of settlement, such as the Rules with which we are concerned with, need to be liberally construed and resort to a challenge to a decision taken by the Compounding Authority should not be made as a matter or rule but as an exception.

Incidentally this writ petition could be filed because the case was booked by DRI and compounding was done by the jurisdictional Chief Commissioner. Could this have been done if a jurisdictional Commissioner had booked the case? Can he dare to file a writ petition against his own Chief Commissioner? May be one more reason why the DRI should start adjudicating its own cases.

(See 2006-TIOL-307-HC-DEL-CUS in 'Customs' + 2006-TIOL-307-HC-DEL-CUS in 'Legal Corner')