(Per : HONOURABLE MR. JUSTICE AKIL KURESHI) 1. These writ petitions involve similar questions. Though there are certain factual differences, central legal issues are common. The petitions have been filed by two companies registered under the Companies Act having common Directors and are, therefore, referred to as companies belonging to same group. The petitions call in question legality and validity of two separate orders passed by the Settlement Commission on applications made by the respective companies under the provisions of the Customs Act, 1962.
2. The facts may be noted at the outset.
2.1 In Special Civil Application No.13397/2006, the petitioner No.1 Saurashtra Cement Ltd., is a company registered under the Companies Act. The petitioners No.2 and 3 are the Managing Director and President respectively of the said company. Saurashtra Cement is engaged in the business of manufacturing cement and also produces “Clinker”. Such product the company sells not only in the domestic market but also in the international market through exports. The Government of India with intent to boost the exports has been framing various incentive schemes. One of them was Duty Exemption Entitlement Certificate ('DEEC', for short). Under such scheme, an exporter could import certain inputs required for its export product without payment of duty on the condition that within the time specified, the importer shall discharge its export obligation. Such imports, of course, were permitted subject to conditions provided in the DEEC scheme.
2.2 With the intention of exporting “Clinker”, Saurashtra Cement imported certain raw material namely, steam coal during the period between June, 1997 to November, 1997. Details of such imports and the duty foregone on such imports under the DEEC scheme are as under:-
2.3 It is not in dispute that the company was required to export agreed quantity of Clinker against such imports of raw material within 18 months from the import.
2.4 It is not in dispute that Saurashtra Cement did not fulfil the full export obligation against such imports. The export obligation of clinker against the imports of raw material allowed in terms of quantity and FOB value of exports were as under:-
2.5 Against such export obligation, the company could fulfil only part of the obligation, details of which are as under:-
2.6 From the above, it emerges that against the commitment of export of 1,00,000 metric tonnes of clinker in respect of Advance Licence No.19993, the company exported only 71347 metric tonnes of Clinker. It further emerges that against the export obligation of 1,20,000 metric tonnes of Clinker related to Advance Licence No.20037, the company made no exports at all.
2.7 When such irregularities were unearthed by the Customs Department, a show-cause notice came to be issued on 26-3-2001 by the Commissioner of Customs, Ahmedabad. In such show-cause notice, it was pointed out that Saurashtra Cement Ltd. had been granted licence to import steam coal and MR Bricks without payment of duty on the condition that the final product namely, Clinker to the extent specified in such licences would be exported within the time permitted. It was further alleged that against such export obligation of 1,00,000 metric tonnes of Clinker, the company exported only 71,347 metric tonnes and against separate obligation of 1,20,000 metric tonnes export of Clinker under another licence, the company made no exports at all. Under the scheme, the company had imported the raw material without payment of duty. It was alleged that the company utilised such raw material for manufacture and sale of final product in the local market.
2.8 The show-cause notice referred to statements of the Directors and employees of the petitioner No.1 company including the present petitioners No.2 and 3 and called upon the petitioners to show cause why
1. 44000 MI's of Steam Coal imported by M/s. SCL under Duty free advance Licences 20037 of dated 29.08.97 and 19993 dated 3.6.97 and valued at Rs.6,67,55,251.00 should not be held liable for confiscation under Section 111(d) and Section 111(o) of the Customs Act, 1962 and since the goods have been cleared and not available for confiscation, why a fine in lieu of confiscation should not be imposed upon them.
II. Custom Duty amounting to Rs.92,51,600.00 (Rupees: Ninty two lakhs fifty one thousand six hundred only) under licences no.20037 dated 29.8.97 and 19993 dated 3.6.97 along with the interest @ 24% p.a. should not be recovered from M/s SCL under provision of Notification No.30/97 dated 1.4.97 read with proviso to the Section 28 and Section 143 A of the Customs Act, 1962.
III. A penalty should not be imposed on M/s Saurashtra Cements Limited, under Section 112 & Section 114A of the Customs Act, 1962 for violation of conditions of the Notification No.30/97 dated 1.4.97 and foreign trade (Development & Regulation) Act, 1992.
IV. A personal penalty should not be imposed on Shri M.S. Gilotra, Managing Director and Shri B.L.Kalwar, President of M/s. Saurashtra Cements Ltd., Ranavav under section 112 read with Section 140 of the Customs Act, 1962 for willfully and knowingly abetting and abetting the violations of the conditions of the advance licences and misuse of the DEEC Scheme. Notification No.30/97 dated 1.4.97, foreign trade (Development & Regulation) Act, 1992.
V. A Voluntary partial payment of Government Dues made by M/s. Saurashtra Cement Ltd., Ranavav so far vide TR-6 Challan No.1 dated 29-07-2000 for Rs.5,00,000/-, No.2 dated 29.7.2000 for Rs.5,00,000/-, No.1 dated 31.8.2000/01.09.2000 for Rs.5,50,000/-, No.1 dated 29.9.2000 for Rs.5,00,000/-, No.3 dated 27.10.2000 for Rs.5,00,000/-, No.6 dated 1.11.2000 for Rs.5,00,000/-,No.1 dated 22.11.2000 for Rs.5,00,000/-, No.1 dated 24.11.2000 for Rs.5,00,000/-, No.12 dated 29.12.2000 for Rs.10,00,000/-, No.6 dated 31.1.2001 for Rs.10,00,000/- and No.4 dated 26.2.2001 for Rs.10,00,000/-, totaling Rs.70,00,000/- should not be adjusted towards recovery of duty, interest, fine and penalty.
2.9 The petitioner No.1 filed a detailed reply to such show-cause notice under its communication dated 15-5-2001. Several contentions were raised. The basic factual aspects, however, were not disputed. The company did not dispute that the imports were made without payment of duty under export obligation and that such obligation was not fully discharged. The company, however, submitted that on account of certain unanticipated developments in the international market, the company could not export the product as expected. It was submitted that the company had undertaken major expansion for fulfilling such export obligations. Since such obligations could not be discharged within the prescribed time, the company had also addressed a letter dated 11-11-1998 to the Deputy DGFT, Rajkot requesting that due to changed international conditions, the company be permitted to export cement instead of Clinker. The company had also written a letter to the licensing authority in February, 1999 and 4-6-1999 requesting for extension of six months for discharge of its export obligation.
2.10 In short, the defence of the petitioner No.1 company was not on any factual dispute but on the ground that there was no malafide on part of the company in not fulfilling the export obligation and that failure on part of the company to meet with such obligation was on account of reasons entirely beyond its control. In addition to above defence taken in the reply to the show-cause notice, the petitioner No.1 company also pointed out that against the import of 20000 metric tonnes of steam coal under licence No.19993 dated 3-6-97 containing export obligation of 1,00,000 metric tonnes of Clinker, the company has already discharged its obligation to the tune of 71.35% in terms of quantity and 72.56% in terms of value. Any recovery of unpaid duty, therefore, must co-relate to the undischarged portion of the obligation and not for the entire imports made. The company, therefore, contended that against such licence, the correct value of duty foregone on the steam coal imported comes to Rs.66,64,222/-.
2.11 The petitioners No.2 and 3 i.e. the Director and the President of the company also filed replies opposing the show- cause notice proceedings. It is not necessary to take detailed note of the contents thereof.
2.12 Upon completion of the hearing arising out of the said show-cause notice dated 26-3-2001, the adjudicating officer passed his order-in-original on 31-10-2001. The Commissioner held that the company had failed to discharge its export obligation and thereby breached the conditions of DEEC licence. He also held that the Directors of the company, the other two noticees, were also responsible for such acts of the company and, therefore, liable for penal action under section 112 of the Customs Act, 1962.
2.13 In the result, the Commissioner passed the following order:-
60. In view of the above findings, and in the facts and circumstances of the case, I pass the following order :
i) 44000 MTs of Steam Coal imported by M/s. Saurashtra Cement Ltd. Under Duty free Advance Licences 20037 dated 29.8.97 and 19993 dated 3.6.97 and valued at Rs.6,66,55,251/- is confiscated under Section 111(d) and 111(o) of the Customs Act, 1962. The goods are not available for confiscation, I impose a penalty of Rs.10,00,000/- (Rupees Ten Lakhs only) upon M/s. SCL in lieu of confiscation of goods under Section 112 of Customs Act, 1962.
ii) 55989 MTs Steam Coal imported by M/s. Gujarat Sidhee Cement Ltd. Under various Duty Free Advance Licences valued at Rs.8,69,52,414/- is confiscated under Section 111(d) and 111(o) of the Customs Act, 1962. Since the goods are not available for confiscation, I impose a penalty of Rs.10,00,000/- (Rupees Ten Lakhs only) upon M/s GSCL in lieu of confiscation of goods under Section 112 of the Customs Act, 1962.
I confirm the demand of Customs duty amounting to Rs.92,51,600/- on M/s SCL under the provision to Section 28 of the Customs Act, 1962 and order to recover the same from them alongwith interest amount at the appropriate rate as per provisions of Section 28 AB of the Customs Act, 1962.
The amount of Rs.70,00,000/- already paid as mentioned in SCN and there after by M/s Saurashtra Cement Ltd. should be adjusted against the Customs duty, interest thereof an penalty imposed vide this order.
iii) I confirm the demand of Customs duty amounting to Rs.1,31,74,972/- on M/s GSCL under the provision to Section 28 of the Customs Act, 1962 and order to cover the same from them alongwith interest amount at the appropriate rate as per provision of Section 28AB of the Customs Act, 1962.
The amount of Rs.70,48,593/- already paid as mentioned in SCN and there after by M/s. Gujarat Sidhee Cement Ltd., should be adjusted against the Customs duty, interest thereof and penalty imposed vide this order.
The Deputy Commissioner, Customs, Porbandar should verify the duty amount paid so far an payable and also calculate the interest amount thereon at the rate as prescribed by the Government.
iv) I also impose penalty under Section 112(a) read with 140 of the Customs Act, 1962 on the following persons
1. Shri B.L. Kalwar, President Rs.50,000/-
(Rupees Fifty Thousand only)
2. Shri M.S. Gilotra, M.D. Rs.50,000/-
(Rupees Fifty Thousand only)
2.14 Saurashtra Cement and the Directors filed separate appeals challenging such order of the adjudicating officer before the Customs, Excise and Service Tax Appellate Tribunal ('the Tribunal', for short). The Tribunal in its order dated 30-11- 2004 noticed that though substantial portion of export obligation in one of the licences was discharged by the company, duty demand was based on the full amount of duty foregone. The Tribunal, therefore, remanded the proceedings to the Commissioner observing that the proposal to confirm the duty on the entire quantity of raw material imported cannot be upheld. The Tribunal was of the opinion that the demand shall have to be worked out denovo. The Tribunal further observed that “the consequent penalties, if any, required to be imposed, would need redetermination in view of the demands to be reworked in light of the order of redetermination of duty”. The Tribunal did not give any decision as regards section 143A of the Customs Act, 1962 and whether or not the bond was to be enforced with interest. Such issues were left open for both sides to agitate in the denovo proceedings. In the result, the Tribunal set aside the order of the Commissioner and remitted the proceedings back to the Commissioner for redetermining the matter afresh.
2.15 When such proceedings were placed back before the Commissioner and were pending, the petitioners approached the Settlement Commission for settlement of the entire demand. The petitioner No.1 made an application in prescribed proforma to the Settlement Commissioner on 28-4- 2005. Alongwith such application, necessary details were also provided. Separate applications were also filed by the petitioners No.2 and 3 before the Settlement Commission.
2.16 The Settlement Commissioner granted hearing to all the applicants as well as to the Department. During the course of such proceedings, the Settlement Commission noted that the company had made application for settlement in relation to import of coal only and under the same licence had also imported MR Bricks through Mumbai port and with respect to such imports, the Commissioner of Customs, Mumbai had issued a show-cause notice dated 24-8-2001 demanding customs duty of Rs.7,03,637/-. In that view of the matter, the company amended its application before the Settlement Commission and admitted the duty liability of a total of Rs.73,67,859/- (i.e. Rs.66,64,222/- originally admitted + Rs.7,03,637/- relatable to import of MR Bricks at Mumbai Port).
2.17 The Commission disposed of the applications of the petitioners by common order dated 24-5-2006. The Commission confirmed the customs duty demand of Rs.73,67,859/- which was already previously paid. The Commission reduced the interest from 24% to 15% on account of retrospective amendment in law. With respect to penalty, the Commission imposed separate penalties of Rs.7,00,000/- each on Saurashtra Cement as well on its two Directors. The Commission granted immunity from prosecution to all the applicants under sub-section (1) of section 127H of the Customs Act, 1962. The Commission in its operative portion of the order stated as under:-
Customs Duty: The Customs duty in this case is settled at Rs.73,67,859/-. This amount stands paid.
Interest: The Bench observes that consequently the rate of interest prescribed in Notification No.30/97-Cus dated 1.4.97 was @ 24% which was modified and reduced to 15% with retrospective effect vide clause 127 of the Finance Act, 2003. As a result the interest payable by the applicant is @ 15% and not 24%. The interest shall be charged from the date it was due till the date(s) of payment of the duties. The Revenue shall calculate the interest liability at simple rate of 15% under intimation to the applicant and adjust the same against the interest amount already paid. After adjustment balance amount, if any, shall be dealt with as provided hereunder.
Penalty: The Bench observes that the applicant has been a habitual offender. Against the SCN issued on 15.01.01 by DRI, a penalty of Rs.3 lakhs was imposed on it by this Bench (2003-156 ELT (307) Sett.Comm) vide order dated 01.10.2002 as it had been a party to a high sea sale for import of 'Steam Coal' under DEEC Scheme, though the Advance Licence under which the imports were effected had expired. Against for misuse of conditions of Notifn. No. 30/97-Cus, dated 01.04.1997 in importing Coal, MR Bricks and Paper bags penalties were imposed not only on it's sister concerns, namely M/s.Gujarat Sidhee Cements Ltd. but also on the co-applicants therein, namely S/Shri B.L.Kalwar and M.S.Gilotra who are also co-applicants in the present case. Accordingly, for the repeat offence, the Bench imposes a penalty of Rs.7 lakhs each on the applicant and S/Shri B.L.Kalwar and M.S.Gilotra (the co- applicants) for their active involvement. The balance, if any left from the deposit made towards interest after adjusting the interest due as ordered supra, may be adjusted towards penalty imposed on the applicant.
Prosecution: The Bench would, however, grant immunity under sub Section (1) of Section 127 H to the applicant and the co-applicants from prosecution under the Customs Act, 1962.
13. The above immunities are granted under sub-section (1) of Section 127H of the Act. Attention of the applicant is also invited to the provisions of sub-section (2) and (3) of Section 127H ibid.
14. This order of settlement shall be void in terms of sub-section (9) of Section 127C of the Act, if the Settlement Commission subsequently finds that it has been obtained by fraud or misrepresentation of facts.
3. The facts in Special Civil Application No.13399/2006 are similar. In this case, the petitioner No.1 – Gujarat Sidhee Cement Ltd. is also a company registered under the Companies Act and is engaged in manufacture of cement and clinker. It also exports its products in the international market. For export of clinker, the company imported coal and MR Bricks under different licences without payment of duty undertaking to export agreed quantity of clinker within 18 months of the import. Details of such imports are as under:-
3.1 The details of export obligation in terms of quantity and value of the finished product are as under:-
3.2 It is not in dispute that Gujarat Sidhee Cement failed to discharge any obligation at all of export of the cement/clinker against the duty free imports made by it of the raw materials namely, coal and MR Bricks.
3.3 For such defaults, the Commissioner of Customs, Ahmedabad issued a show-cause notice dated 26-3-2001 to the petitioner No.1 company as well as to petitioners No.2 and 3 - its Directors at the relevant time. Gujarat Sidhee Cement filed a detailed reply dated 22-5-2001 in reply to such show- cause notice and raised several contentions which are similar to those taken by the group company i.e. Saurashtra Cement.
3.4 The Commissioner of Customs disposed of the proceedings by an order dated 31-10-2001. He passed following operative order:-
60. In view of the above findings, and in the facts and circumstances of the case, I pass the following order :
i) 44000 MTs of Steam Coal imported by M/s. Saurashtra Cement Ltd. Under Duty free Advance Licences 20037 dated 29.8.97 and 19993 dated 3.6.97 and valued at Rs.6,66,55,251/- is confiscated under Section 111(d) and 111(o) of the Customs Act, 1962. The goods are not available for confiscation, I impose a penalty of Rs.10,00,000/- (Rupees Ten Lakhs only) upon M/s. SCL in lieu of confiscation of goods under Section 112 of Customs Act, 1962.
ii) 55989 MTs Steam Coal imported by M/s. Gujarat Sidhee Cement Ltd. under various Duty Free Advance Licences valued at Rs.8,69,52,414/- is confiscated under Section 111(d) and 111(o) of the Customs Act, 1962. Since the goods are not available for confiscation, I impose a penalty of Rs.10,00,000/- (Rupees Ten Lakhs only) upon M/s GSCL in lieu of confiscation of goods under Section 112 of the Customs Act, 1962.
I confirm the demand of Customs duty amounting to Rs.92,51,600/- on M/s SCL under the provision to Section 28 of the Customs Act, 1962 and order to recover the same from them alongwith interest amount at the appropriate rate as per provisions of Section 28 AB of the Customs Act, 1962.
The amount of Rs.70,00,000/- already paid as mentioned in SCN and there after by M/s Saurashtra Cement Ltd. should be adjusted against the Customs duty, interest thereof an penalty imposed vide this order.
iii) I confirm the demand of Customs duty amounting to Rs.1,31,74,972/- on M/s GSCL under the provision to Section 28 of the Customs Act, 1962 and order to cover the same from them alongwith interest amount at the appropriate rate as per provision of Section 28 AB of the Customs Act, 1962.
The amount of Rs.70,48,593/- already paid as mentioned in SCN and there after by M/s. Gujarat Sidhee Cement Ltd., should be adjusted against the Customs duty, interest thereof and penalty imposed vide this order.
The Deputy Commissioner, Customs, Porbandar should verify the duty amount paid so far an payable and also calculate the interest amount thereon at the rate as prescribed by the Government.
iv) I also impose penalty under Section 112(a) read with 140 of the Customs Act, 1962 on the following persons
1. Shri B.L. Kalwar, President Rs.50,000/-
(Rupees Fifty Thousand only)
2. Shri M.S. Gilotra, M.D. Rs.50,000/-
(Rupees Fifty Thousand only)
3.5 Such order was challenged by the company and its Directors by filing separate appeals before the Tribunal. The Tribunal by its common order (by virtue of which it disposed of the appeals of Saurashtra Cement and its Directors) also partially allowed the appeals and remanded the proceedings for fresh consideration by the Commissioner.
3.6 When such proceedings were pending before the Commissioner, Gujarat Sidhee Cement filed an application before the Settlement Commission on 18-4-2005 and requested for settlement of the disputes. Alongwith such application, necessary details in prescribed format were also provided. The Directors had also filed separate applications for the same purpose.
3.7 The Settlement Commission by its impugned order passed in March, 2006 disposed of all the applications and provided as under:-
Interest: The Bench observes that the rate of interest prescribed in Notification No.30/97-Cus dated 1.4.97 was modified and reduced to 15% with effect from 1.4.97 as per clause 127 of the Finance Act, 2003. Thus the correct rate of interest payable by the applicant is 15% and not 24%. The Revenue shall accordingly calculate the interest liability @ 15% simple interest from the date due till the amount of duty, liability has been paid by the applicant and adjust the same against the interest amount already paid.
Penalty & Prosecution: So far as penalty is concerned, this case relates to improper imports made in October, 1997 and January, 1998 involving huge duty liability of Rs.1.24 crores. It is noticed that M/s Saurashtra Cement had filed another application which also related to illegal import of coal on 14.12.1998 involving a duty of Rs.27,84,814/-. In the said case the Bench imposed a penalty of Rs.3,00,000/- was imposed vide its Final Order No.44/2002-Cus dated 01.10.2002 (2003(156) ELT 307) (Sett.Comm). Furthermore, M/s. Saurashtra Cement has filed another application on 26.04.2005 again involving illegal import of coal, in which additional duty admitted is Rs.92,51,600/- and which is pending settlement. The co- applicants therein are also S/Shri B.L.Kalwar and M.S.Gilotra as in the present case. The present case of the applicant which is a sister concern of M/s. Saurashtra Cement Ltd and the same co-applicants as in the other pending case is also relating to illegal imports of coal and the duty liability settled in this case is Rs.1,24,15,822/-. It appears that the applicant and co-applicants are habitual offenders and importing the same goods adopting similar modus operandi to evade the payment of duty and in the light of the same, their conduct is not clean and needs to be taken cognizance of.
Accordingly, the Bench imposes penalty of Rs.12.50 lakh on the applicant. For the same reasons, penalty of Rs.12.50 lakhs each is also imposed on S/Shri B.L.Kalwar and M.S.Gilotra respectively (the co-applicants). The Bench grants immunity both to the applicant and the co- applicants from prosecution.
This order of settlement shall be void in terms of sub- section(9) of Section 127C of the Act, if the Settlement Commission subsequently finds that it has been obtained by fraud or misrepresentation of facts.
3.8 It is this order the petitioners have challenged before us in the present petition.
4. On the basis of our documents on record, learned senior counsel Shri Mihir Thakore for the petitioners submitted that the Settlement Commissioner committed a grave error in enhancing the personal penalties against the companies as well as its Directors manifold. He submitted that in case of Saurashtra Cement and its Directors, the Commissioner had imposed penalty of Rs.50,000/- each only on the two Directors and no penalty was imposed against the company. Against such penalty, the Settlement Commission imposed a penalty of Rs.7,00,000/- each on the company as well as separately on its two Directors. He, of course, conceded that the Commissioner had imposed a penalty of Rs.10 lakhs against the company in lieu of confiscation of the goods. He, however, submitted that against the total penalty of Rs.11,00,000/- (i.e. Rs.10,00,000/- on the company + Rs.50,000/- each on the two Directors), the Settlement Commission enhanced the penalty to a total of Rs.21,00,000/- (i.e. Rs.7,00,000/- each on the company and the two Directors). He submitted that even these penalties imposed by the Commissioner were not confirmed by the Tribunal and the entire proceedings were remanded for fresh consideration. He submitted that when the Tribunal directed reduction of the duty demand, necessarily it also required that the penalties be proportionately reduced. With respect to Gujarat Sidhee Cement, the counsel pointed out that the Commissioner had, in his order-in-original, provided for penalty of Rs.10,00,000/- against the company in lieu of confiscation of goods and separately imposed penalty of Rs.50,000/- each on the two Directors. As against this, the Settlement Commission imposed a penalty of Rs.12,50,000/- on the company and its two Directors each. Thus, against a demand of Rs.11,00,000/- raised by the Commissioner, the Settlement Commission increased the total demand to Rs.37,50,000/-. He submitted that such revision was wholly unjust.
4.1 The counsel submitted that the Commissioner committed a serious error in enhancing the penalties on the ground that there were series of defaults committed by the company and the Directors. He pointed out that against Saurashtra Cement, there was an isolated case of irregular imports for which a penalty of Rs.3,00,000/- was imposed by the Settlement Commission vide order dated 1-10-2002. There was no other default by either Saurashtra Cement or its Directors. The present Directors were not proceeded against in the earlier default. He, therefore, submitted that the Settlement Commission committed an error in making substantial enhancement in the penalty against the petitioners.
4.2 With respect to Gujarat Sidhee Cement and its Directors, the counsel submitted that this was the first default on part of the company. There was no previous instance and the Commission committed a grave error in taking note of the earlier defaults of Saurashtra Cement and the present parallel proceedings in case of the other company to enhance the penalties.
4.3 With respect to the scope of judicial review against a decision of the Settlement Commission, the counsel relied on the following decisions:-
(1) Jyotendrasinhji vs. S.I. Tripathi and Others reported in 1993 Supp (3) SCC 389
(2) M/s R.B. Shreeram Durga Prasad and Fatehchand Nursing Das vs. Settlement Commission (IT & WT) and Another reported in (1989) 1 SCC 628
(3) Kuldeep Industrial Corporation and Others vs. Income Tax Officer and Others reported in (1997) 3 SCC 377
(4) Sanchit Bansal and Another vs. Joint Admission Board and Others reported in (2012) 1 SCC 157 We would advert to these decisions at a later stage.
5. On the other hand, learned senior counsel Shri R.J. Oza for the Department opposed the petitions. He submitted that the scope of judicial review against a decision of the Settlement Commission is extremely narrow. The decision on Saurashtra Cement has a certain finality attached to it. This court in exercise of writ jurisdiction, therefore, would not interfere with the decision of the Settlement Commission unless it is pointed out that the Commission has breached any of the provisions of the Act. In this respect, the counsel relied on the decision of the Apex Court in the case of Union of India vs. Ind-Swift Laboratories Ltd. reported in 2011 (265) E.L.T. 3 (S.C.)
6. Having thus heard learned counsel for the parties and having perused the documents on record, we may first examine the scope of judicial review against a decision of Settlement Commission. Provisions in relation to settlement of cases arising out of Customs Act are contained in Chapter XIV A of the Customs Act inserted in the year 1998. Section 127B of the Act pertains to application for settlement of cases and permits any importer, exporter or any other person at any stage of a case relating to him to make an application to the Settlement Commission. Section 127C of the Act lays down the procedure for the Settlement Commission to follow on receipt of an application under section 127B. Section 127H of the Act empowers the Settlement Commission to grant immunity from prosecution for any offence under the Act or the Indian Penal Code or any other Central Act if the Commission is satisfied that the applicant has co-operated with the Settlement Commission and also has made full and true disclosure of his duty liability.
7. Section 127J of the Act provides that order of Settlement Commission shall be conclusive. It reads as under:-
“SECTION 127J. Order of settlement to be conclusive. - Every order of settlement passed under sub- section (7) of section 127C shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.”
8. From the above statutory provisions, it may be noticed that the Settlement Commission in addition to having wide powers for settlement of the duty demand on an application by any person subject of course to conditions laid down in section 127D of the Act, also has special power of granting immunity from prosecution under the Customs Act, the Indian Penal Code or any other Central Act provided of course the Commission is satisfied that such person has co- operated with the proceedings and has also made full and true disclosure about his duty liability. Secondly, the provisions do not provide that the Settlement Commission while considering an application for settlement, must confine itself to the duty demand or the monetary penalties imposed by the departmental authorities. It would, thus, appear that it is always open for the Settlement Commission to suitably modify the duty demand and monetary penalties imposable under the Act, of course, subject to the limits provided in the Act itself.
9. The Settlement Commission is a special body constituted for the purpose of settlement of revenue cases. It is well-recognised that the order that the Settlement Commission passes would be effective only for that particular case and would not bind the department in later years. The Settlement Commission is not even obliged to give reasons. It thus does not lay down any law of binding nature. It, of course, passes an order which would be effective and binding between the parties of that case.
10. The nature of scope of judicial review of a High Court under Article 226 of the Constitution or of the Supreme Court under Article 32 or 136 of the Constitution calling in question an order of Settlement Commission came up for consideration before the Apex Court in the case of Jyotendrasinhji (supra). The Apex Court while recognising that the finality clause contained in section 245-I of the Income Tax Act under which the Settlement Commission in the said case had passed the order, would not bar the jurisdiction of the High court under Article 226 or of the Supreme Court under Article 32 or 136 of the Constitution still opined that the scope of judicial review would be extremely narrow. The Apex Court held as under:-
“16. It is true that the finality clause contained in Section 245-I does not and cannot bar the jurisdiction of the High Court under Article 226 or the jurisdiction of this court under Article 32 or under Article 136, as the case may be. But that does not mean that the jurisdiction of this Court in the appeal preferred directly in this court is any different than what it would be if the assessee had first approached the High Court under Article 226 and then come up in appeal to this court under Article 136. A party does not and cannot gain any advantage by approaching this Court directly under Article 136, instead of approaching the High Court under Article 226. This is not a limitation inherent in Article 136; it is a limitation which this court imposes on itself having regard to the nature of the function performed by the Commission and keeping in view the principles of judicial review. Maybe, there is also some force in what Dr. Gauri Shankar says viz., that the order of the Commission is in the nature of a package deal and that it may not be possible, ordinarily speaking, to dissect its order and that the assessee should not be permitted to accept what is favourable to him and reject what is not. According to learned counsel, the Commission is not even required or obligated to pass a reasoned order. Be that as it may, the fact remains that it is open to the Commission to accept an amount of tax by way of settlement and to prescribe the manner in which the said amount shall be paid. It may condone the defaults and lapses on the part of the assessee and may waive interest, penalties or prosecution, where it thinks appropriate. Indeed, it would be difficult to predicate the reasons and considerations which induce the Commission to make a particular order, unless of course the Commission itself chooses to give reasons for its order. Even if it gives reasons in a given case, the scope of enquiry in the appeal remains the same as indicated above viz., whether it is contrary to any of the provisions of the Act. In this context, it is relevant to note that the principle of natural justice (audi alteram partem) has been incorporated in Section 245-D itself. The sole overall limitation upon the Commission thus appears to be that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by High Court under Article 226 or by this Court under Article 136 is also the same - whether the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the petitioner/appellant apart from ground of bias, fraud & malice which, of course, constitute a separate and independent category. Reference in this behalf may be had to the decision of this Court in R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (IT and WT) which too was an appeal against the orders of the Settlement Commission. Sabyasachi Mukharji, J., speaking for the Bench comprising himself and S.R. Pandian, J. observed that in such a case this Court is “concerned with the legality of procedure followed and not with the validity of the order”. The learned Judge added “judicial review is concerned not with the decision but with the decision- making process”. Reliance was placed upon the decision of the House of Lords in Chief Constable of the N.W. Police v. Evans. Thus, the appellate power under Article 136 was equated to power of judicial review, where the appeal is directed against the orders of the Settlement Commission. For all the above reasons, we are of the opinion that the only ground upon which this Court can interfere in these appeals is that the order of the Commission is contrary to the provisions of the Act and that such contravention has prejudiced the appellant. The main controversy in these appeals relates to the interpretation of the settlement deeds - though it is true, some contentions of law are also raised. The commission has interpreted the trust deeds in a particular manner. Even if the interpretation placed by the Commission on the said deeds is not correct, it would not be a ground for interference in these appeals, since a wrong interpretation of a deed of trust cannot be a violation of the provisions of the Income Tax Act. It is equally clear that the interpretation placed upon the said deeds by the Commission does not bind the authorities under the Act in proceedings relating to other assessment years.”
11. In case of M/s R.B. Shreeram Durga Prasad (supra), the Apex Court recognised the requirement of procedural fairness in the proceedings before the Settlement Commission. In the said case, since the order passed by the Settlement Commission suffered from breach of natural justice, the Apex Court held that the order was a nullity and remanded the proceedings to the Settlement Commission for fresh consideration. It was observed that the judicial review is concerned not with the decision but with the decision-making process. The Apex Court held and observed as under:-
“7. We are definitely of the opinion that on the relevant date when the order was passed, that is to say, August 24, 1977 the order was a nullity because it was in violation of principles of natural justice. See in this connection, the principles enunciated by this Court in State of Orissa v. Dr (Miss) Binapani Dei as also the observations in Administrative Law by H.W.R. Wade, 5th edn., pages 310-
311 that the act in violation of the principles of natural justice or a quasi-judicial act in violation of the principles of natural justice is void or of no value. In Ridge v. Baldwin and Anisminic Ltd. v. Foreign Compensation Commission the House of Lords in England has made it clear that breach of natural justice nullifies the order made in breach. If that is so then the order made in violation of the principles of natural justice was of no value. If that is so then the application made for the settlement under section 245-C was still pending before the Commission when the amendment made by Finance Act of 1979 came into effect and the said amendment being procedural, it would govern the pending proceedings and the Commission would have the power to overrule the objections of the Commissioner. Dr. V. Gauri Shankar, appearing for the revenue, did not seriously contest that position. He accepted the position that the law as it is, after the amendment authorises the Commission to consider and overrule the Commissioner's objection. He also very fairly, in our opinion and rightly accepted the position that the appellant was entitled to be heard on the Commissioner's objections. It appears to us, therefore, if that is the position then, in our opinion, the appellant was entitled to be heard on the objections of the Commissioner.”
12. In case of Kuldeep Industrial Corporation (supra), the Apex Court observing that the nature of jurisdiction exercised by the court over the orders of Settlement Commission is in the nature of judicial review, quashed the orders passed by the Settlement Commission as the court found that the orders were vitiated by several misdirections in law. The Apex Court held and observed as under:-
“15. It has been held by this Court that the nature of jurisdiction exercised by this Court over the orders of the Settlement Commission is in the nature of judicial review. [See R.B. Shreeram Durga Prasad and Fatehchand Nursing Das v. Settlement Commission (IT & WT) and Jyotendrasinhji v. S.I. Tripathi.) In these cases, we find that the impugned orders of the Commission are vitiated by more than one misdirection in law. Firstly, the Commission held, wrongly, that the Income Tax Officer had no power to proceed with or collect any material after the date of submission of the application under Section 245-C. Secondly, having rightly rejected to admit the case relating to Assessment Year 1977-78 for settlement, it (the majority) made out a new case for the assessee by creating a distinction between 1977-78 and 1978-79 and 1979-80, when no such distinction was suggested even by the assessee; indeed such a distinction is contrary to the case put forward by the assessee in its application under Section 245-C. The Commission (the majority) also ignored the several statements, admissions and averments made by the assessee before the Commission while admitting the case relating to Assessment Years 1978-79 and 1979-80 for settlement.”
13. The counsel had also relied on the decision in the case of Sanchit Bansal and another (supra) in which in the context of admission and selection process of candidates by an educational institution, the Apex Court observed that the role of court in such cases would be very limited and interference would be permissible only when there is violation of any enactment or on the ground of malafide or ulterior motive or where the procedure adopted is arbitrary and capricious.
14. We may also notice that in the case of Ajmera Housing Corporation and Another vs. Commissioner of Income Tax reported in (2010) 8 SCC 739, the Apex Court confirmed the decision of the High Court setting aside the order passed by the Settlement Commission when it was found that the assessee had not made full and true disclosure before the Commission. The Apex Court rejected the assessee's objection to the interference made by the High Court in exercise of writ jurisdiction making the following observations:-
“47. As regards the argument of the learned counsel for the assessee that the scope of judicial review being limited, the High Court should not have interfered with the order of the Settlement Commission in exercise of its power under Article 226 of the Constitution, in our opinion, the argument is stated to be rejected. Having conceded before the High Court that the assessee was not pressing the point of maintainability of the writ petition before the High Court, the assessee cannot be now permitted to resile from its earlier stand and raise the same issue before us. Even otherwise, as stated above, we have no hesitation in observing that the manner in which the assessee's disclosures of additional income at different stages of proceedings were entertained by the Settlement Commission, rubbishing the objection of the Commissioner that the assessee had not made a full and true disclosure of their income in the application under Section 245-C(1) of the Act, leaves much to be desired.”
15. It is well settled that no finality clause in a statute would oust the jurisdiction of the High Court under Article 226 of the Constitution or that of the Supreme court under Article 32 or 136 of the Constitution. Nevertheless, the parameters of judicial intervention in a decision rendered by an administrative tribunal are well recognised and well laid down. Ordinarily, the court would interfere if the Tribunal has acted without jurisdiction or failed to exercise jurisdiction vested in it or the decision of the Tribunal is wholly arbitrary or perverse or malafide or is against the principles of natural justice or when such decision is ultra vires the Act or the same is based on irrelevant considerations.
16. When examining the scope of judicial review in relation to a decision of Settlement Commission, we must further bear in mind that the Settlement Commission is set up under the statute for settlement of revenue claims. Its decision is given finality and it also has power to grant immunity from prosecution, of course, subject to satisfaction of certain conditions. The scope of court's inquiry against the decision of the Settlement Commission, therefore, is necessarily very narrow. The Apex Court in the case of State of U.P. and Another vs. Johri Mal reported in (2004) 4 SCC 714 observed that the scope and extent of power of judicial review of the High Court under Article 226 of the Constitution of India would vary from case to case, the nature of the order, the relevant statute as also other relevant factors including the nature of power exercised by the public authorities, namely, whether the power is statutory, quasi-judicial or administrative. It was observed that the power of judicial review is not intended to assume a supervisory role. The power is not intended either to review governance under the rule of law nor for the courts to step into the areas exclusively reserved by the suprema lex to the other organs of the State. The court observed that the limited scope of judicial review is
(i) Courts, while exercising the power of judicial review, do not sit in appeal over the decisions of administrative bodies;
(ii) A petition for a judicial review would lie only on certain well-defined grounds .
(iii) An order passed by an administrative authority exercising discretion vested in it, cannot be interfered in judicial review unless it is shown that exercise of discretion itself is perverse or illegal.
(iv) A mere wrong decision without anything more is not enough to attract the power of judicial review; the supervisory jurisdiction conferred on a Court is limited to seeing that the Tribunal functions within the limits of its authority and that its decisions do not occasion miscarriage of justice.
(v) The courts cannot be called upon to undertake the government duties and functions. The court shall not ordinarily interfere with a policy decision of the State. Social and economic belief of a judge should not be invoked as a substitute for the judgment of the legislative bodies. (See Ira Munn v. State of Illinois.)
17. Despite such narrow confines of judicial review of the decision of the Settlement Commission, it is undeniable that the jurisdiction under Article 226 of the Constitution is not totally ousted. In a given situation if the Settlement Commission has taken into consideration irrelevant facts and such consideration has gone into its decision-making process resulting into grave injustice and prejudice to the party then within the narrow confines of the judicial review, interference would still be open.
18. With this background in mind, if we revert back to the facts of the case, insofar as the case of Saurashtra Cement is concerned, the Settlement Commission gave full opportunity to both sides to produce materials on record. The Tribunal upon completion of the hearing noted that this was not the first case where the company was involved in the breach of the provisions of the Customs Act. On earlier occasion, the company was visited with a penalty of Rs.3,00,000/- imposed by the Settlement Commission for irregularity in imports. Bearing in mind these facts and other relevant data, the Commission while still granting immunity to the company and its Directors from prosecution, imposed separate penalty of Rs.7,00,000/- each. We may recall that originally the Commission had imposed a penalty of Rs.10,00,000/- in lieu of confiscation of goods and of Rs.50,000/- each on the two Directors. It is true that such order was set aside by the Tribunal and proceedings were remanded for fresh consideration. Nevertheless, we do not see any irregularity in the Commission's order in imposing such penalties on the company and the two Directors. As noted earlier, the provisions of Chapter XIV A nowhere provided that the Commission cannot increase the penalty from what was originally imposed when a party might file an application for settlement. Secondly, the Commission has a special power to waive prosecution under certain circumstances. In the present case, the Commission while exercising such powers, granted total immunity from prosecution to the company as well as to the two Directors. With the narrow scope of judicial review available in a writ petition, we do not find any reason to interfere.
19. The case of the other company namely Gujarat Sidhee Cement, however, would stand on a somewhat different footing. In case of this company, the Commissioner had originally imposed penalty of Rs.10,00,000/- in lieu of confiscation of goods and had separately imposed penalty of Rs.50,000/- each on the two Directors. Even this order was quashed by the Tribunal and the proceedings were remanded before the Commissioner. Ultimately, on an application filed by the company and its Directors, the Settlement Commission imposed penalty of Rs.12.50,000/- each. Thus, the Commission revised the total penalty to Rs.37,50,000/-, all put together. In doing so, the Commission took into consideration the separate application filed by Saurashtra Cement Ltd. as also penalty of Rs.3,00,000/- imposed on Saurashtra Cement with respect to its earlier default which order was passed in October, 2002. The Commission noted that in addition to Saurashtra Cement filing its settlement application, the present company i.e. Gujarat Sidhee Cement had also applied for settlement. The Commission noted that the two Directors are common in both the companies. The Commission, therefore, recorded that the company and the Directors are habitual offenders and are importing the same goods adopting similar modus operandi to evade payment of duty. The Settlement Commission taking cognizance of such facts imposed heavy penalties.
20. To our mind, the Commission took into consideration irrelevant and extraneous materials. It is not in dispute that insofar as Gujarat Sidhee Cement is concerned, this was the first default. It is not in dispute that the imports made by Saurashtra Cement and Gujarat Sidhee Cement were in close proximity and both companies had pleaded that due to adverse international markets, they failed to discharge their export obligations despite their best intentions. They had also applied for extension to the licensing authority. It is also not in dispute that the present Directors were not, in any manner, connected with the earlier default of Saurashtra Cement for which in the year 2002, a penalty of Rs.3,00,000/- was imposed.
21. The conclusion of the Commission, therefore, that Gujarat Sidhee Cement and its two Directors were habitual offenders is not based on any material on record. In fact, such conclusion is based on consideration of defaults made by Saurashtra Cement in the past. The decision of the Tribunal to impose heavy penalty and enhance the penalty imposed by the Commissioner by more than three times was based solely on this factor. Under the circumstances, we are of the opinion that the decision of the Commission in this respect is required to be reconsidered. As is well-settled, the court is not concerned with the ultimate decision but the decision-making process. We find that the process is vitiated on account of irrelevant considerations having weighed with the Commission.
22. In the result, Special Civil Application No.13397/2006 is dismissed. Special Civil Application No.13399/2006 is partially allowed. The impugned order of the Commission dated 31-3-2006 is set aside. It is however clarified that if the petitioners have already deposited entire or part of the penalties provided by the Settlement Commissioner no refund shall be claimed till the Settlement Commissioner decides the issue afresh. The proceedings are remanded to the Settlement Commission for fresh consideration and disposal after hearing both sides. Both the petitions are disposed of accordingly.
( Akil Kureshi, J. ) ( Harsha Devani, J. ) hki