(PRAYER: This writ petition is filed under Article 226 of the Constitution of India with a prayer to issue a writ of certiorarified mandamus calling for the records of the impugned order No.36/2005-Cus, dated 9.12.2005 passed by the first respondent Commission and quash the same as arbitrary and against law and further direct the first respondent Commission to take the settlement application filed by the petitioner on file and settle the issue at the rate of admitted duty liability of Rs.17,53,447/-.)
1. The prayer in the writ petition is to quash the order dated 9.12.2005 passed by the first respondent Settlement Commission and direct the first respondent to take settlement application on its file and settle the issue at the rate of admitted duty liability of Rs.17,53,447/-.
2. The brief facts necessary for disposal of the writ petition are as follows:
(a)The petitioner imported capital goods valued at Rs.80,33,368/- under EPCG licence issued on 17.8.2009 through seven bills of entry. The EPCG licence was issued by the Joint Director General of Foreign Trade, Chennai for the import of capital goods worth Rs.1,17,21,770/- and the original obligation was Rs.5,86,08,850/- within six years as per the Customs notification No.29/97 dated 1.4.1997.
(b)The petitioner imported goods worth Rs.81 lakhs as he could export readymade garments worth Rs.2.80 crores. Petitioner executed bank guarantee for an amount of Rs.30 lakhs. Though the petitioner faced shortage of working capital and approached the bank and financiers, he could not arrange for the additional working capital.
(c)Petitioner started a private limited Company under the name and style of M/s. Perfect Stitch Garments Private Ltd in September, 2001 along with one P. Elango to take over the petitioner's business. Even after taking over, the business could not be continued to fulfil the export obligation. The EPCG licence period was also extended upto 19.8.2005. The petitioner resigned from the Board of Directors and allowed one Raj Guru to join in his place to run the Company. Petitioner continued as a holder of 50% share in the new company.
(d)The third respondent investigated the performance of the Company in September, 2004 and issued a show cause notice on 31.12.2004 to the petitioner in his capacity as proprietor of M/s. Muthuraman Exports and M/s. Perfect Stitch Garments Private Limited. The show cause notice alleged violation of the conditions of EPCG licence for having deployed one machine in the premises of M/s. Muthuraman Exports for carrying out some job work for some other exporters. The said show cause notice proposed denial of benefit to zero duty exemption availed to the imported capital goods valued at Rs.80,34,368/- and proposed to recover customs duty amount of Rs.29,32,363/-. The amount of Rs.30 lakhs furnished by way of bank guarantee was sought to be adjusted against the said duty liability interest and other adjudication proceedings. The notice further proposed to confiscate the imported capital goods valued at Rs.51,69,628/- and the embroidery machine with accessories valued at Rs.28,27,200/-. There was a proposal to impose penalty along with M/s. Perfect Stitch Garments Private Limited.
(d)According to the petitioner, he could not fulfil the export obligation and he desired for settling the matter with the first respondent under Section 127B of the Customs Act, 1962, and accordingly filed an application by admitting the liability of Rs.8,11,471/- as against the customs duty demanded to the tune of Rs.29,32,362/- through the show cause notice issued by the third respondent. The petitioner stated the details about how the said Rs.8,11,471/- was arrived at.
(e)The first respondent fixed the hearing of the settlement application on 10.5.2005. Petitioners consultant appeared and argued the matter. The first respondent directed the petitioner's consultant to file an application stating the amount of additional duty liability accepted and detailed submission was filed before the first respondent on 16.5.2005 with prayer that the additional duty liability may be settled at Rs.17,53,447/- and also stated that due to calculation error correct amount was not stated in the settlement application. The representative of the petitioner also claimed to have cited the judgment rendered by the Customs, Excise and Service Tax Appellate Tribunal for its consideration. The first respondent fixed the date of personal hearing for admission of the case on 1.12.2005.
(f)According to the petitioner, during the hearing the third respondent also admitted that there is an error in calculation of the amount mentioned in the show cause notice and the actual amount to be demanded is Rs.25,02,435/- and not Rs.29,32,363/-. The said amount was also disputed by the petitioner and reiterated his contention that the liability would be only Rs.17,11,165 and requested the first respondent to settle the issue by fixing the liability at Rs.17,11,165/-. The same having been rejected and the first respondent permitted the revenue to adjudicate the matter in terms of section 127C(1) of the Customs Act, 1962, stating that there is want of full and true disclosure, the petitioner has filed this writ petition with the above said prayer.
3. The respondents have filed counter affidavit by stating that based on the investigation conducted, the statements recorded and the documents produced, the show cause notice was issued on 31.12.2004 under section 124 of the Customs Act, 1962, calling upon the petitioner to show cause as to why,
(i)the benefit of zero duty exemption extended on the capital goods valued at Rs.80,34,368/-, imported by them under EPCG Licence No.04500575 dated 17.8.99 should not be denied as they failed to fulfill the condition of import of capital goods worth minimum Rs.1 crore within the stipulated period;
(ii)duty of Rs.29,32,363/- (as per annexure to SCN) should not be demanded together with interest @ 15% p.a. in terms of the bonds executed by them and as per the conditions of Notification No.29/97-Cus, dated 01.04.97 as amended.
(iii) an amount of Rs.30 lakhs recovered by enforcing the bank guarantees furnished by M/s.Muthuraman Exports should not be adjusted towards the duty/interest and other adjudication liabilities.
(iv)The seized capital goods valued at Rs.51,69,628/- (CIF) from the premises of M/s.Muthuraman Exports (M/s.Perfect Stitch Garments PVT. Ltd.) should not be confiscated under section 111(o) of the Customs Act, 1962.
(v)The seized "Barudan Multi head embroidery machine with all accessories" valued at Rs.28,27,200/- (CIF) which were diverted and utilized at the premises of M/s.MNR Exports, violating the conditions of EPCG scheme should not be confiscated under section 111(o) of the Customs Act, 1962.
(vi)The machinery (two sets of end cutter machine), for which Shri A.Muthuraman and Shri P.Elango could to offer explanation for the whereabouts of the same valued at Rs.37540/- (CIF) should not be held liable for confiscation under section 111(o) of the Customs Act, 1962.
(vii) Penalty should not be imposed on Shri.A.Muthuraman, sole Proprietor of Muthuraman Exports and M/s.Perfect Stitch Garments Pvt.Ltd., which had taken over the assets and liabilities of M/s.Muthuraman Exports, under section 112(a) of the Customs Act, 1962 for rendering the said imported goods liable for confiscation.
The copies of documents referred to and relied upon in the show cause were appended to the show cause notice as Annexures and the petitioner was granted 30 days time from the date of receipt of the notice to submit their reply. Petitioner, instead of giving reply to the show cause notice submitted an application before the first respondent which was taken up for admission on 18.2.2005 and the revenue re-worked the duty liability as Rs.25,02,435/- as against the earlier determination of Rs.29,32,363/-. Petitioner had accepted the additional duty liability during the hearing on 10.5.2005 as Rs.21,54,465/-. However, subsequently he refused the said amount by submitting a representation dated 1.12.2005. The Judgment of the Tribunal cited by the representative of the petitioner was considered and a finding was given that there was no full and true disclosure and consequently rejected the application for settlement with direction to come for adjudication. There is no illegality in the said order as the petitioner is not willing to pay the said revised amount.
4. The learned counsel for the petitioner submitted that in cases where there is discrepancy in the amount payable, the Settlement Commission can adjudicate the matter and arrive at a correct figure.
5. The learned counsel for the respondents submitted that there is no full and true disclosure in the settlement application filed by the petitioner and unless and until there is full and true disclosure, the settlement application before the Commission is not maintainable as per the judgment of the Division Bench of this Court, which was rendered considering the rejection of settlement claim under section 245D of the Income Tax Act, 1961.
6.I have considered the rival submissions of the learned counsel for the petitioner as well as the learned Senior Standing Counsel for the respondents.
7. The point for consideration in this writ petition is whether the application filed for settlement without full and true disclosure on the part of the petitioner is entertainable and the first respondent has got any power of adjudication ?
8. The petitioner has filed application for settlement before the first respondent in terms of Section 127B of the Customs Act, 1962. The said application was processed in terms of Section 127C and the first respondent came to the conclusion that the petitioner has not made full and true disclosure. The said order was passed under Section 127B(1).
9. Whether a person approaching the Settlement Commission is bound to make full and true disclosure in the settlement application is the issue to be decided at the first instance.
10. The petitioner has applied for settlement under Section 127-B of the Customs Act, 1962 and the relevant portion of the said section reads as follows:
"127-B.Application for settlement of cases.- (1) Any importer, exporter or any other person (hereinafter referred to as the applicant in this Chapter) may, in respect of a case, relating to him make an application, before adjudication to the Settlement Commission to have the case settled, in such form and in such manner as may be specified by rules, and containing a full and true disclosure of his duty liability which has not been disclosed before the proper officer, the manner in which such liability has been incurred, the additional amount of customs duty accepted to be payable by him and such other particulars as may be specified by rules including the particulars of such dutiable goods in respect of which he admits short levy on account of misclassification, under-valuation or inapplicability of exemption notification or otherwise and such application shall be disposed of in the manner hereinafter provided."
From the reading of the above referred statutory provision it is evident that full and true disclosure of duty liability, which has not been disclosed before the Settlement Commission, is a mandatory requirement to submit an application for settlement, apart from satisfying other requirements.
11. The petitioner's disclosure of an amount of Rs.8,11,471/- is without any basis. Merely because the revenue has reduced the amount to Rs.25,02,435/- as against the amount of Rs.29,32,363/- in the show cause notice the petitioner cannot contend that he cannot be blamed for not disclosing the correct amount. Even after arriving at a revised amount payable as Rs.25,02,435/-, petitioner is not willing to pay the amount, though he has not disclosed the correct amount in the settlement application due to any reason.
12. In the decision reported in 2010 (253) E.L.T. 722 (Mad) (Optigrab International v. Government of India) the Division Bench of this Court considered the very same provision and held that full and true disclosure is a mandatory requirement. In paragraph 26 it is held thus,
"26. Chapter XIV A of the Customs Act, being an exemption to the normal procedure contemplated under the Act and occurring in a fiscal statute, has to be necessarily construed strictly, in our considered view, the scope of the proceedings cannot be unduly enlarged. In cases where there was no deliberate or intended desire on the part of importer to evade or avoid payment of customs duty, to provide immunity and protection of such class of people, Legislature has incorporated Chapter XIV A. As a matter of fact, Chapter XIV A was introduced by parliament by relying on similar provisions under the Income Tax Act with a view to introduce remedial measure by way of Settlement Commission, such provision cannot be interpreted to enlarge the scope of settlement where there was deliberate evasion of duty. Cases of mis-declaration and improper availing of benefits entail in confiscation, penal proceedings and others. Settlement Applications under Section 127-B are filed admitting the duty liability. The Settlement Commission has power to award interest and penalty as per decision Commissioner of Customs, Bangalore v. A. Mahesh Raj, 2006 (195) E.L.T. 261, 265 (Kar). Also it has jurisdiction to reject the application at the preliminary stage as per decision Union of India v. Hoganas India Ltd., 2006 (199) E.L.T. 8 at page 31, 32 (Bombay). Allowing of settlement applications means there may not be any penal proceedings and confiscation, in such circumstances, when the Applicant seeks to avail benefit of settlement, the provisions of Section 127-A and 127-B are to be strictly construed. There is no force in the contention of the learned counsel for the appellant that the provisions are to be liberally construed."
13. The Settlement Commission has no power to decide questions on assessment or not under the Central Excise Act, 1944, was considered by the Division Bench of this Court in the decision reported in 2010 (254) E.L.T. 392 (Mad) (Australian Foods Ltd. v. Commissioner of Central Excise, Chennai-II), wherein I was also a party. In the said case settlement under section 32-E of the Central Excise Act, 1944, which is pari materia to Section 127-B of the Customs Act, 1962, was the issue. In para 20 it is held thus,
"20......... we have no hesitation to hold that the second respondent/Commission has proceeded to decide a question without there being any jurisdiction conferred on it and thus, the order passed by the second respondent/Commission is bad in law. ..........."
14. In the decision reported in 2005 (183) ELT 134 (Kashish Silk Mills Pvt. Ltd. v. Union of India), a Division Bench of the Gujarat High Court considered similar issue and held that rejection order passed by the Settlement Commission under Section 32F of the Central Excise Act, 1944, cannot be interfered with by the High Court in a proceeding under Article 226/227 of the Constitution of India. Same was the view taken by the Division Bench of Punjab & Haryana High Court in the decision reported in 2007 (207) ELT 40 (Light Engg. Corporation v. Union of India).
15. In 2008 (229) ELT 502 (New Bharat Rice Mill v. Union of India), a Division Bench of the same High Court (Punjab & Haryana) considered similar order passed by the Settlement Commission under Section 127C of the Customs Act, 1962, and upheld the same. In para 4 it is held thus,
"4............ The statute has bestowed Settlement Commission with discretionary powers and if such powers have been exercised diligently and reasonably, the same cannot be faulted with. Each order of settlement is based on the facts and circumstances of each case which may be peculiar to itself and, therefore, cannot be made the basis for terming an order discriminatory unless violative of the Statute."
16. In an income tax matter similar issue arose before this Court in 2009 (310) ITR 0010 : (2008) 1 MLJ 214 (Commissioner of Income-tax v. Income-tax Settlement Commission) and a Division Bench of this Court, wherein I was also a party, upheld the order of the Settlement Commission, which was passed under Section 245D of the Income Tax Act, 1961, on the ground that voluntary disclosure made by the assessee was not in terms of section 245C of the Income Tax Act, 1961, and allowed the assessee to face the normal channels of assessment/appeals, etc. In the said judgment, the Division Bench relied on the decision of the Supreme Court reported in (2005) 2 SCC 751: (2005) 3 MLJ 48 (Commissioner of Income Tax, Jalpaiguri v. Om Prakash Mittal) wherein the Supreme Court in paragraphs 16 to 18 held thus,
"16. The foundation for settlement is an application which the assessee can file at any stage of a case relating to him in such form and in such manner as is prescribed. The statutory mandate is that the application shall contain ?full and true disclosure? of the income which has not been disclosed before the assessing officer, the manner in which such income has been derived. The fundamental requirement of the application under Section 245-C is that full and true disclosure of the income has to be made, along with the manner in which such income was derived. On receipt of the application, the Commission calls for report from the Commissioner and on the basis of the material contained in the report and having regard to the nature and circumstances of the case or complexity of the investigation involved therein, it can either reject the application or allow the application to be proceeded with as provided in Section 245-D(1).
17. It has to be noted that the Commission exercises power in respect of income which was not disclosed before the authorities in any proceeding, but is disclosed in the petition under Section 245-C. It is not that any amount of undisclosed income can be brought to the notice of the Commission in the said petition. The Commission exercises jurisdiction if the additional amount of tax on such undisclosed income is more than a particular figure (which at different points of time exceeded rupees fifty thousand or rupees one hundred thousand, as the case may be). The assessee must have in addition furnished the return of income which he is or was required to furnish under any of the provisions of the Act. In essence the requirement is that there must be an income disclosed in a return furnished and undisclosed income disclosed to the Commission by a petition under Section 245-C.
18. There is a purpose why the legislature has prescribed the condition relating to declaration of the order void when it is obtained by fraud or misrepresentation of facts.
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It cannot be said that there has been a true and fair declaration of income which is the prerequisite for settlement by the Commission. If an order is obtained by fraud or misrepresentation of facts, it cannot be said that there was true and fair disclosure. It was noted here that unlike Section 139 of the Act which provides for filing of revised return, there is no provision for revision of an application made in terms of Section 245-C. That shows clear legislative intent that the applicant for settlement has to make a true and fair declaration from the threshold. It is on the basis of the application received that the Commission calls for report to decide whether the application is to be rejected or permitted to be continued. The declaration contemplated in Section 245-C is in the nature of voluntary disclosure of concealed income, but as noted above it must be true and fair disclosure. Voluntary disclosure and making a full and true disclosure of the income are necessary preconditions for invoking the Commission?s jurisdiction."(Emphasis Supplied) 17. Same is the view taken by the Division Bench in the decision reported in 2008 (306) ITR 0403 (Dr. C.M.K. Reddy v. Settlement Commission (IT/WT)) under Section 245C of the Income Tax Act, 1961. 18. Applying the above cited judgments to the facts of this case and as the petitioner is not willing to pay the amount arrived at by the Settlement Commission and disputing the same even though he has not made full and true disclosure in the settlement application, the first respondent cannot be directed by this Court to accept the settlement or go into the claim, which is in dispute. In the impugned order itself it is stated that the Revenue should take up the adjudication as if no application has been filed for settlement. There is no perversity in the said order warranting interference by this Court under Article 226 of the Constitution of India. The writ petition is dismissed. The Revenue is directed to finalise the adjudication proceedings within a period of three months from the date of receipt of copy of this order. No costs.