C.P. Re-Rollers Ltd. vs Union of India

Soumitra Pal, J.—Though this appeal was heard along with APO No. 187 of 2015 and APO No. 236 of 2015 as common questions of law are involved, for clarity, this judgment is delivered separately.

This appeal has been preferred by the writ petitioner against the judgment dated 4th May, 2015 passed in W.P. No. 3043 (W) of 2015 (M/s. C.P. Re-Rollers Ltd. and Another v. Union of India and Others) 2015 (322) E.L.T. 824 (Cal.)], whereby the learned Single Judge while dismissing the writ petition had upheld the order dated 27th August, 2014 passed by the Customs, Central Excise Settlement Commission (for short ''the Commission''). The Commission had dismissed the application for settlement filed under Section 32F by the appellant by holding, inter alia, as under :-

"9. The applicant has been penalised in an earlier case under an order issued under Section 32F(5) for concealing his duty liability.

The provisions of Section 32-O(1)(i) are absolutely clear. It categorically provides that where a penalty has been imposed on a person under Section 32F(5), on the ground of concealment of particulars of his duty liability such a person is not entitled to apply for settlement under Section 32F in relation to any other matter. Further, as per the clarification added to Section 32-O in the Union Budget 2014, concealment referred in Section 32-O(1) is with reference to the concealment from Central Excise Officer and not from the Settlement Commission.

The Bench has no jurisdiction to entertain such an application as it is barred by Section 32-O(1)(i) of the Central Excise Act, 1944 and is liable to dismissal, without going into the merits of the case. The application of the co-applicant cannot also be settled when the main applicant is not eligible to come before the Settlement Commission. In terms of Section 32-O(1)(i) of the Central Excise Act, 1944, without going into the merits of the case, both the application are out rightly rejected and dismissed."

(Emphasis supplied)

Mr. J.P. Khaitan, learned senior advocate appearing for the appellant submitted that the Commission erred in rejecting the application for settlement holding it being barred by the provisions contained in Section 32-O(1)(i) of the Central Excise Act, 1944 ("Act" for short) as in earlier proceedings penalty was not imposed for concealment of particulars of liability duty. Hence, as the bar under Section 32-O(1)(i) of the Act has no application, the application for settlement should not have been rejected. Earlier, in the final order of settlement dated 4th January, 2011, penalty was imposed on the appellants under the provisions invoked in the show cause notice and the same cannot be inferred as imposition of penalty under Section 32F(5) of the Act. Submission was the ''Explanation'' added to Section 32-O(1)(i) cannot alter the situation. Neither the Commission found that the appellants did not fully and truly disclose facts regarding the issues to be settled in their application before the Commission nor the Commission discovered any additional duty liability. In short, as no concealment could be found and as repeated applications before the Commission is not a bar, the order of the Commission is illegal. Though there is a bar under Section 32-O(1)(i) of the Act, the case of the appellant does not fall within its mischief. Since Section 32-O(1)(i) stipulates ouster of jurisdiction, strict construction of the statute is necessary. Therefore, the Commission in its order should have specifically held that in the earlier proceedings penalty was imposed for concealment of particulars of duty liability. If imposition of penalty of any kind would have been a disqualification, then the words "concealment of particulars of his duty liability" in Section 32-O(1)(i) would not have been incorporated. In the case of the appellant there was no finding that there was concealment of particulars of duty liability. Submission was the bar under Section 32-O(1)(i) got diluted with the introduction of sub-section (2) to Section 32-O with effect from 1st June, 2007 which was omitted from the statute book on 8th May, 2010. Alternatively, since the application for settlement was rejected by the Commission, under Section 32F(1) of the Act, the proceedings before the Commission have abated. As there was no adjudication pursuant to the show cause notice dated 6th February, 2014, the adjudication proceedings stand revived. Hence, the appellant may be granted liberty to pursue the adjudication proceedings before the appropriate authority under the Act. Since the Commission refused to entertain the application for settlement on the ground of lack of jurisdiction and as there was no occasion for the Commission to pass an order of settlement under Section 32F(5), the question of applicability of Section 32M does not arise at all. Mr. Khaitan has relied on the following judgments in support of his submission :- Hoosein Kasam Dada (India) Limited v. State of Madhya Pradesh : 1983 (13) E.L.T. 1277 (S.C.); Jyotendrasinjhi v. S.I. Tripathi : 1993 ITR (201) 611; Cosmic Dey Chemical v. Collector of Central Excise, Bombay : 1995 (75) E.L.T. 721 (S.C.); K.C. Builders v. Assistant Commissioner of Income-Tax : 265 ITR 562(SC); Amrit Foods v. Commissioner of Central Excise, U.P. : 2005 (190) E.L.T. 433 (S.C.); LIC v. R. Suresh : (2008) 11 SCC 319; Jai Jagdamba Malleable (P) Ltd. v. Union of India : 2009 (237) E.L.T. 240 (S.C.); Union of India v. Rajasthan Spinning & Weaving Mills : 2009 (238) E.L.T. 3 (S.C.) and Union of India v. Asahi India Safety Glass Ltd. : 2015 (320) E.L.T. 179 (S.C.).

Mr. Pradip Kumar Ray, learned advocate for the respondent, submitted that in 2005 the appellant was found to have indulged in clandestine removal of goods. The appellant while applying for settlement stated that corrective measures had been taken and undertook such irregularities would not occur in future. Thereafter, the matter was settled at Rs. 8,05,019/- being the Central Excise duty equivalent to the demanded amount and full immunity was granted from penalty and prosecution. In 2011 the appellants were found indulging in clandestine removal of goods. The appellants again filed application for settlement. The Commission finding that the offence was repetitive in nature passed an order, inter alia, granting immunity from penalty to the company and the co-applicant in excess of Rs. 5,00,000/- and Rs. 1,00,000/- respectively besides granting immunity from prosecution. Submission was as it is evident from the show cause notice dated 24th June,/7th July, 2010, particularly to the answers by the applicant No. 2 to questions Nos. 2, 3, 4 and 5, that the applicants did not disown clearances of goods without payment of duty and accordingly order was passed on 4th January, 2011 imposing penalty for evasion of duty, the order of the Settlement Commission dated 27th August, 2014 that it had no jurisdiction to entertain the applications for settlement as it is barred by Section 32-O(1)(i) of the Act, is just and proper. Therefore, the learned Single Judge was justified in dismissing the writ petition by upholding the order passed by the Commission. Moreover, the argument of the appellant with regard to the introduction of sub-section (2) to Section 32-O with effect from 1st June, 2007 and its omission with effect from 8th May, 2010 by the legislature do not help the case of the appellant as the bar under the said Section 32-O(1)(i) was always in vogue.

The issues which require consideration are :- (i) Whether in the earlier proceedings penalty was imposed on the appellants for concealment of particulars of their duty liability, (ii) Whether in view of the order dated 27th August, 2014, rejecting the application for settlement, the settlement proceedings stood abated under Section 32F(1) and (iii). If so, whether the appellants are entitled to have their case adjudicated before the appropriate authority.

Before dealing with the issues, it is appropriate to refer to Section 32-O(1)(i) and sub-section (2) of Section 32 which are as under :-

"32-O. Bar on subsequent application for settlement in certain cases. - (1) Where, [***]] -

(i) an order of settlement passed under sub-section (7) of section 32F [, as it stood immediately before the commencement of section 122 of the Finance Act, 2007 (22 of 2007) or sub-section (5) of section 32F,] provides for the imposition of a penalty on the person who made the application under section 32E for settlement, on the ground of concealment of particulars of his duty liability; or

Explanation. - In this clause, the concealment of particulars of duty liability relates to any such concealment made from the Central Excise Officer.

then, he shall not be entitled to apply for settlement under section 32E in relation to any other matter.

Sub-section (2) to Section 32-O, inserted with effect from 1st June, 2007 and omitted with effect 8th May, 2010 is as under :-

"(2) Where an assessee has made an application under sub-section (1) of section 32E, on or after the 1st day of June, 2007 and if such application has been allowed to be proceeded with under sub-section (1) of section 32F, such assessee shall not be entitled to apply for settlement under section 32E in relation to any other matter :

Provided that such assessee shall not be prevented from filing an application for settlement if the issue in the subsequent application is, but for the period of dispute and amount, identical to the issue in respect of which the earlier application is pending before the Settlement Commission."

So far as the first issue is concerned it is evident from facts as revealed from the show cause notice that on 22nd August, 2012 that acting on a specific information that the appellant was engaged in unaccounted manufacture and surreptitious removal of finished excisable products without discharging Central Excise duty and without adhering to the requisite statutory provisions, a search was conducted in the factory, office and related premises. On completion of investigation show cause notice dated 6th February, 2014 was issued demanding excise duty of Rs. 8,94,200/- for removal of finished goods and the appellant was directed to show cause why penalty should not be imposed. The show cause notice proposed imposition of penalty under Section 11AC of the Act read with Rule 25 of Central Excise Rules and interest. The appellants, as evident from Paragraph 4 of the writ petition, accepting the liability decided to approach the Commission in respect of the said show cause notice dated 6th February, 2014 and accepting the liability demanded in the notice, filed applications for settlement before the Commission. After filing the applications the appellants received notice dated 3rd July, 2014 calling upon them to reply as to why the applications should not be rejected since they were ineligible to apply under Section 32-O(1)(i) of the Act as by order dated 4th January, 2011 passed by the Commission, on an earlier application filed by the appellants, penalty was imposed on them for clandestine removal of finished goods. Though the appellants did not submit written reply, they appeared and submitted that earlier penalty was not imposed on them for concealment of duty liability and thus the bar under Section 32-O(1)(i) was not applicable and the applications be not rejected. Thereafter, on 27th August, 2014 the Commission dismissed the application holding it had no jurisdiction to entertain the same since it was barred under Section 32-O(1)(i) as in an earlier case the applicants were penalised and order was passed under Section 32F(5) for concealing particulars of duty liability.

It appears that earlier the appellants, after being served with show cause notice, had applied for settlement and the Commission had passed an order dated 4th January, 2011, the relevant portion of which is an under :-

"11. The Bench notes that in the earlier case settled under order no. F-28/CEX/2005-SC(KOL), dated 21-11-2005, Shri Chawla, the co-applicant in that case and the co-applicant in this case as well, had informed the Bench that corrective measures had already been taken while assuring that such type of irregularity would not occur in future. The said case was settled at C.E. duty Rs. 8,05,019, being equivalent to the demanded amount, granting full immunity from fine, penalty and prosecution to both the applicants. Thus the applicants appear to be habitual in committing offence and thus they cannot deserve full immunity any further.

12��Taking the above into account and in the facts and circumstances of the case, the Bench settles the case under Section 32F of the Act on the following terms and conditions :-

ORDER

Central Excise Duty : The Central Excise Duty in this case is settled at Rs. 33,44,227. This amount is ordered to be appropriated by the Commissioner from the amount of Rs. 35 lakh lying in deposit, within 30 days from the date of receipt of this order.

Interest : The amount of interest Rs. 62,876 should also be appropriated by the Commissioner from the balance of Rs. 35 lakh lying in deposit after appropriating the amount of C.E. duty mentioned above, within 30 days from the date of receipt of this order.

Penalty - Taking into account of facts and circumstances of the case and repetitive nature of offence, the Bench grants immunity from penalty as is in excess of Rs. 5,00,000 ( Rs. five lakhs only) on the applicant (M/s. C.P. Re-Rollers Ltd.,) under the provisions invoked in the SCN and grants immunity from penalty as is in excess of Rs. 1,00,000 (` one lakh only) on the co applicant (Shri Kumar Chand Chawla, Director) under the provisions invoked in the SCN. The amount of Rs. 92,897 lying in balance after the above mentioned appropriation of C.E. duty and interest should be appropriated by the Commissioner within 30 days from the date of receipt of this order towards penalty against the applicant. Payment of the remaining amount of penalties by the applicants and appropriation thereof should be done by the Commissioner within 30 days from the date of receipt of this order.

Prosecution - The Bench grants immunity to the applicants from prosecution under the Act and Rules made hereunder in so far as this case is concerned."

The point for consideration is whether by order dated 4th January, 2011 passed in the earlier proceedings, penalty was imposed for concealment of particulars of duty liability. The answer can be found from the replies by Kumar Chand Chawla, a Director of the appellant company, to the questions with which he was confronted, as noted in the show cause notice dated 24th June/7th July, 2010 which are as under :-

"Q.5 Mr. Chawla, please state the reason behind such shortages as reflected in the point physical stock taking report dated 26-9-08 supported by documentary evidence.

A.5 I have to check my records before giving any proper reason for the same. I admit that some clearances of our finished goods have been done in the past by my staff without my knowledge, without cover any duty paying documents, without payment of duty. However, being one of the Directors of the company, I am not disowning the responsibility of such clearances and the same may be considered to have been done under my instruction. Admitting our Central Excise duty liability on the same, I hereby deposit Rs. Thirty five lakhs as ad hoc payment towards payment of Central Excise duty liability. (pages 10-11 of the supplementary affidavit)

Q.2 Mr. Chawla in reply to question No. 5 you stated that you will check your records and state the reasons for stock taking shortage detected. Mr. Chawla what reasons you like to submit.

Ans : There are many reasons for which shortages might have occurred due to burning loss, wrong recording of stock entries, scrap cutting, pilferages, etc.

Q.3 Mr. Chawla against the restriction imposed under the Notification No. 32/2006-C.E. (N.T.), dated 30-12-2006 where in the grounds of appeal you have solemnly affirmed in the writ preferred what you have stated in your answer to question no. 2

Do you stand by this?

Ans : Yes, whatever we have stated earlier today and in the writ we on behalf of the company stand by what I have stated.

Q.4 Mr. Chawla do you have anything more to say?

Ans : I have nothing more to add." (page 15 of the supplementary affidavit)

(Emphasis supplied)

Thus it is clear from the admission of the appellant No. 2 in the 2010 proceedings that there was concealment of particulars of duty liability which, by order dated 4th January, 2011 passed under Section 32F(5), led to the imposition of penalty for concealment of duty liability as noted in Paragraph 9.0 of the order dated 27th August, 2014. Since it is evident from the order dated 4th January, 2011 that penalty was imposed on the appellants for concealment of particulars of their duty liability which had been taken note of and discussed exhaustively in the order dated 27th August, 2014 passed by the Commission, we are of the view that the learned Single Judge was justified in holding that "An element of mens rea was fastened to this petitioner company upon the order of the Settlement Commission being passed on January, 4, 2011." In this regard it is noteworthy that the "Explanation" to Section 32-O(1)(i), inserted by Finance (No. 2) Act, 2014, laying down that "concealment of particulars of duty liability relates to any such concealment made from the Central Excise Officer" is in aid to and is evidently in consonance with the provisions contained in Section 32-E(1) which provides "An assessee 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 prescribed and containing a full and true disclosure of his duty liability which has not been disclosed before the Central Excise Officer having jurisdiction,...." (Emphasis supplied). Thus as the "Explanation" to Section 32-O(1)(i) is consistent with the statutory intent in Section 32-E(1) and is clarificatory in nature, it cannot be interpreted to be not in tune with Section 32-E(1). Therefore, as the bar under Section 32-O(1)(i) was always in vogue, the submission in this regard on behalf of the respondent/writ petitioner cannot be accepted. The proviso to sub-section (2) to Section 32-O which was inserted on 1st June, 2007 and was in the statute book till 8th May, 2010, when it was omitted, does not at all help the appellant as no application for settlement "identical to the issue" was "pending" before the Commission when each of the applications were considered. To put the facts in proper perspective be it noted that the Commission had disposed of the first application for settlement in 2005. Subsequently, after notices to show cause dated 24th June, 2010/7th July, 2010 was issued, the appellant on 16th August, 2010 had filed an application for settlement of the dispute relating to duty for the period 20th September, 2008 to 25th September, 2008 which was disposed of by order dated 4th January, 2011, as noted. Again for the dispute relating to the period July, 2012 to April, 2013 which is covered by show cause notice dated 6th February, 2014, applications were filed on 27th June, 2014 which was rejected by the Commission on the ground of lack of jurisdiction. Therefore, as and when the Commission took up applications for hearing no other application on the "identical" issue was "pending" before it. As it is explicit, that in the earlier proceedings penalty was imposed for concealment of particulars of duty liability, the Commission was justified in passing the order dated 27th August, 2014 which was rightly upheld by the learned Single Judge. Apart from the discussion, as noted hereinbefore, there is an important aspect which cannot be lost sight of. It appears from the order dated 4th January, 2011 that in 2005 proceedings were initiated against the appellants for clandestine removal of goods. The appellants admitted about such clandestine removal and informed "the Bench that corrective measures had already been taken while assuring that such type of irregularity would not occur in future." On such assurance, though duty was settled at Rs. 8,05,019/-, immunity was granted to the appellants from fine, penalty and prosecution. Thereafter, as the appellants were again found to be indulging in clandestine despatch of finished goods without payment of duty, show cause notice was issued. The appellants filed applications for settlement. Ultimately the Commission passed an order dated 4th January, 2011 imposing penalty in addition to Central Excise duty and interest as the appellants were "habitual in committing offence" and for the "repetitive nature of offence". Evidently even after the assurance given in 2005, the appellants were found to be indulging in clandestine removal of goods without payment of duty. Even thereafter, it appears as the appellants indulged in manufacture and surreptitious removal of goods, notice to show cause dated 6th February, 2014 was issued and thereafter applications for settlement were filed which were dismissed by order dated 27th August, 2014. It is apparent from the conduct of the appellants that they have neither any regard to the provisions of law nor any regard to the assurances or undertaking admittedly given by them in 2005 proceedings under the Act from which they have gone back. The conduct of the appellants is reprehensible. Hence the appeal is without merit. In view of the admission by the appellants, as noted and the order dated 4th January, 2011 passed in the earlier proceedings imposing penalty for concealment of particulars of duty liability, the judgments in Amrit Foods (supra), in Union of India v. Rajasthan Spinning & Weaving Mills, in Jai Jagadamba Malleable (P) Ltd. (supra), and in Union of India v. Asahi India Safety Glass (supra), are not applicable. Since it has not been brought to the notice of the Court that the order of the Commission is vitiated by bias, fraud and malice and as the learned Single Judge has rightly passed the impugned judgment, the principles of law laid down in Jyotendrasinjhi (supra), are not applicable to the facts of the case. As we find that the learned Single Judge was justified in holding that "The Settlement Commission adjudicates on the quantum of the demand made by the central excise officer in the light of the quantum admitted and accepted by the assessee to be due from it in respect of the relevant transaction." Implicit in an assessee approaching the Settlement Commission is the admission of the assessee that it had underpaid and that it was liable to pay an additional amount of duty, though the assessee need not submit to the entire amount contained in the demand and may contend that a lesser amount of additional duty is payable than demanded." (page 194 of the stay application) and as the ''Explanation'' to Section 32-O(1)(i) introduced clarifies the law, the judgments in Hoosein Kasam Dada (supra), and in the Life Insurance Corporation v. R. Suresh (supra), are not relevant. As the appellants after having undertaken not to indulge in irregularities, had subsequently had gone back and indulged in concealing particulars of duty liability and as it is evident from the proceedings which culminated in passing the order dated 4th January, 2011 imposing penalty for evasion of duty, as the appellant had admitted clearances of goods without payment of duty and did not disown the responsibility, the principles of law laid down in Cosmic Dye Chemical (supra) and in K.C. Builders (supra) are not applicable.

So far as the second and third issues are concerned it is evident that by order dated 27th August, 2014 the Commission had rejected that application for settlement for lack of jurisdiction. Hence, on 27th August, 2014, under Section 32F(1) the proceedings stood abated. Since the appellants cannot be without a remedy, the show cause notice dated 6th February, 2014 has to be adjudicated under the Act.

Hence, the appeal is dismissed. The judgment of the learned Single Judge is hereby affirmed. Accordingly, no order is passed on the application and the same is disposed of. However, since the proceedings before the Commission have abated, as submitted on behalf of the appellants, they are at liberty to pursue the adjudication proceedings before the appropriate authority by filing reply to the show cause notice dated 6th February, 2014. If reply is filed, the adjudicatory authority shall proceed expeditiously in accordance with law after complying with the principles of natural justice. It is made clear that we have not gone into the merits of the show cause notice dated 6th February, 2014.

In the facts and circumstances the respondent No. 3 is entitled to costs of Rs. 10,200/-.

Urgent certified photostat copy of this judgment, if applied for, be furnished to the appearing parties on priority basis.

[Per : Mir Dara Sheko, J.] - I agree.