(Per : HONOURABLE MR.JUSTICE V. M. SAHAI) 1. The short question which arises for consideration in this writ petition is that if the applications filed by the petitioners under section 32E(1) of the Central Excise Act, 1944 are dismissed for non-deposit of additional amount of excise duty along with interest due, as required by clause (d) of proviso to section 32E(1) and proceedings are abated by the Customs and Central Excise Commission, thereafter, whether a second application filed by the petitioners under section 32E(1), after payment of additional excise duty along with interest is maintainable?
2. The brief facts are that the petitioner no.1, Vadilal Gases Limited (for short the ‘VGL’), is a Company engaged in the business of manufacturing industrial gases like argon gas, hydrogen gas, nitrogen gas and also various mixtures of gases, which were excisable goods falling under Chapter 28 of the 1st schedule of the Central Excise Tariff Act, 1985. VGL had been selling and supplying in tankers gases manufactured by them, after payment of excise duty, to the petitioner no.2, Vadilal Chemicals Limited. The Vadilal Chemicals Limited filled these gases in cylinders and affixed labels on the cylinders which mentioned the details like grade of gas, composition, purity of gas, etc.
3. The Director General of Central Excise (Intelligence) (for short `DGCEI') conducted inquiries with regard to the transactions of VGL and Vadilal Chemicals Limited, and thereafter, the Joint Director, DGCEI issued a show cause notice F.No.DGCEI/AZU/36-52/2011-12 dated 08.06.2011 demanding Central Excise Duty of Rs.23,76,942/- from VGL, on the ground that the processes of purification, grading and labeling carried out by VGL on gases like commercial hydrogen gas constituted manufacture attracting levy of excise duty. Proposals for recovering interest from VGL and also for imposing penalties on all three petitioners were made in the show cause notice.
4. The Central Excise Act, 1944 (for short `the Act') under section 32E lays down a procedure before adjudication. In addition to normal procedure prescribed for adjudication of any show cause notice, an alternative scheme for settling cases under Chapter V of the Act had been provided. A Customs and Central Excise Settlement Commission had been constituted by the Central Government in exercise of powers under section 32 of the Act, for deciding and settling cases specified under the scheme. A bench of Settlement Commission under section 32A had been constituted at Mumbai under the notification of the Central Government, the bench also has jurisdiction to decide cases of State of Gujarat.
5. All the three petitioners decided to get their cases settled with regard to excise duty, interest and penalty mentioned in the show cause notice dated 08.06.2011, and therefore, they filed three separate applications on 23.01.2012 before the Customs and Central Excise Settlement Commission, Western Region, Mumbai (for short `the Settlement Commission'). Since an amount of Rs.15.00 lakhs was deposited by Vadilal Chemicals Limited during inquiry by the DGCEI and the Excise Department had mentioned in the show cause notice that Vadilal Gases Limited and Vadilal Chemicals Limited were related persons, therefore, VGL prayed that Rs.15.00 lakhs deposited by Vadilal Chemicals Limited be adjusted towards admitted duty liabilities of VGL and be treated as valid deposit under clause (d) of the proviso to section 32E(1) of the Act.
6. The Settlement Commission, issued a notice dated 27.01.2012 which was received by the petitioners on 01.02.2012, pointing out various discrepancies. The main objection was that VGL had not paid the excise duty and interest. It was also pointed out that all pages of applications have not been signed, and the enclosures to the applications have not been certified as true copies. Reply was sought within seven days of the receipt of the notice. Seven days period, according to the Settlement Commission, expired on 08.02.2012. However, the petitioners submitted their replies dated 08.02.2012 by Registered Post Acknowledgement Due, dispatched on 10.02.2012, which was received in the office of the Settlement Commission on 13.02.2012. Since the reply of the petitioners was not received by the Settlement Commission within 7 days time from the date of receipt of notice, the Settlement Commission did not consider the replies of the petitioners.
7. The Settlement Commission passed an ex-parte order on 2.3.2012 and rejected the applications filed under section 32E(1) of the Act on the ground that the petitioners have not deposited the additional excise duty liability and interest as required by clause (d) of proviso to section 32E(1), The Settlement Commission further held that there was no legal provision under which adjustment of the amount deposited by Vadilal Chemicals Limited could be adjusted against the pre-deposit of duty liability and interest required to be deposited by VGL. The Settlement Commission was of the opinion that since Vadilal Chemicals Limited has already filed refund claim for the amount of Rs.15.00 lakhs, which was in deposit with the Excise Department, and the claim of refund had been rejected, against which an appeal had been filed by Vadilal Chemicals Limited, which is pending, the amount of Rs.15 lakhs cannot be adjusted. Since the applications did not fulfill the criteria laid down under clause (d) of proviso to section 32E(1) of the Act, therefore, all the applications were rejected under sub-section (1) of section 32F of the Act and the proceedings were abated.
8. After the rejection of the petitioners' applications on 2.3.2012 by the Settlement Commission, the VGL on 15.03.2012 deposited the additional amount of excise duty, and on 31.03.2012 deposited the interest due under section 11AB of the Act, and thereafter all the three petitioners filed fresh separate applications before the Settlement Commission on 17.04.2012 under section 32E(1) of the Act, requesting the Settlement Commission to settle their cases in pursuance of show cause notices dated 08.06.2011 issued by the DGCEI. These fresh applications filed by the petitioners have been returned by the Settlement Commission by order dated 18.05.2012 on the ground that since earlier the Settlement Commission had passed a final order on 02.03.2012 rejecting the applications filed by the petitioners, and ordered abatement of proceedings before it. Since the petitioners had not deposited the accepted excise duty and interest, therefore, in the absence of any provision under Chapter V of the Act and the Rules and procedures made there under for entertaining another application for the same case, which is already rejected and abated to the adjudicating authority under section 32F(1) of the Act, the Settlement Commission directed that the applications dated 17.4.2012 be returned to the petitioners. Accordingly, the petitioners have received back the applications.
9. We have heard Mr. Paresh M. Dave, learned counsel for the petitioner, Mr. P.S. Champaneri, learned Assistant Solicitor General of India for respondent No.1 and Mr. Gaurang H. Bhatt, learned counsel for respondent No.3. The respondent No.2 had been served but it has chosen not to put in appearance. Though the writ petition is listed for admission, however, with the consent of learned counsel for the parties, we have taken up this petition today itself for final disposal.
10. Mr. Paresh Dave, learned counsel for the petitioner has urged that since initially the applications filed by the petitioners were rejected by the Settlement Commission on 02.03.2012 on the ground that the petitioners did not comply with the provisions of clause (d) of proviso to section 32E(1), therefore, the applications have to be treated as dismissed being not maintainable. He urged that after the petitioners complied with the provisions of clause (d) of proviso to section 32E(1) of the Act and had deposited the additional duty and interest, their second applications filed soon after the rejection of first applications would be maintainable. The learned counsel for the petitioner has further urged that the amount of excise duty and interest was liable to be deposited by VGL only because so far as petitioners Nos.2 and 3 are concerned, there was no demand of excise duty was raised by the Department against them in the show cause notice dated 08.06.2011, therefore, so far as the applications of petitioners Nos.2 and 3 are concerned, their applications were maintainable, and the Settlement Commission committed an error in rejecting applications of petitioners Nos.2 and 3. He lastly urged that since fresh second applications have been filed by all the three petitioners, after complying with clause (d) of proviso to section 32E(1) of the Act the Settlement Commission ought to have decided the same afresh and the applications were illegally returned.
11. On the other hand, Mr. Gaurang H. Bhatt appearing for respondent No.3 and Mr. P.S. Chhapaneri appearing for respondent no.1 have urged that since clause (d) of proviso to section 32E(1) had not been complied by the petitioners, therefore, the Settlement Commission has rightly rejected the applications filed by the petitioners by order dated 02.03.2012 as the admitted amount of additional duty and interest was not deposited by VGL.
In the show cause notice no excise duty or interest was demanded from the petitioners Nos.2 and 3. So far as petitioners Nos.2 and 3 are concerned, Mr. Gaurang Bhatt has urged that petitioners Nos.2 and 3 were not required to deposit any amount as there was no demand against them for payment additional excise duty or interest, but according to him, petitioners Nos.2 and 3 have preferred applications before the Settlement Commission for adjustment of the amount of Vadilal Chemicals Limited against the excise duty and interest dues of VGL, therefore, the Settlement Commission rightly rejected their applications by order dated 02.03.2012 and the second applications filed on 17.04.2012 by the petitioners on the same cause would not be maintainable.
12. The question that arises before us is whether the Settlement Commission on the first applications dated 23.1.2012 filed by the petitioners, could have passed final order rejecting it and abating the proceedings before it by order dated 2.3.2012. For better understanding of the case, it will be useful to extract section 32E(1) of the Act as under:
“Section 32E. Application for settlement of cases. - (1) 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, the manner in which such liability has been derived, the additional amount of excise duty accepted to be payable by him and such other particulars as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of misclassification, under-valuation, inapplicability of exemption notification or Cenvat credit or otherwise and any such application shall be disposed of in the manner hereinafter provided:
Provided that no such application shall be made unless, —
(a) the applicant has filed returns showing production, clearance and Central excise duty paid in the prescribed manner;
(b) a show cause notice for recovery of duty issued by the Central Excise Officer has been received by the applicant;
(c) the additional amount of duty accepted by the applicant in his application exceeds three lakh rupees; and
(d) the applicant has paid the additional amount of excise duty accepted by him along with interest due under section 11AB :
Provided further that no application shall be entertained by the Settlement Commission under this sub-section in cases which are pending with the Appellate Tribunal or any court:
Provided also that no application under this sub-section shall be made for the interpretation of the classification of excisable goods under the Central Excise Tariff Act, 1985 (5 of 1986).
13. Clause (d) of the first proviso to sub-section (1) of section 32E of the Act clearly lays down that no application under section 32E(1) shall be made unless, the applicant has paid the additional amount of excise duty accepted by him along with interest due under section 11AB. Therefore, the mandate of the first proviso appended to section 32E(1), if is not followed by an applicant he cannot make a valid application. However, without complying with the first proviso if an application is made then it would be defective and not maintainable. The Settlement Commission in its discretion may allow time to the applicants to remove the defects or may direct that the applications be returned. Such discretionary power must be deemed to have been conferred on the Settlement Commission. In our opinion, the Settlement Commission should be considered to be possessed with such ancillary or incidental power that are necessary to discharge its function effectively for the purpose of doing justice between the parties. But the applications which are not maintainable or entertainable because of the embargo created by the first proviso to sub-section (1) of section 32E cannot, in any case, be considered and decided or rejected by the Settlement Commission under section 32F(1) of the Act. The scope of section 32F is limited to valid applications which do not suffer from any bar created by the first proviso to sub-section (1) of section 32E.
14. In the order dated 2.3.2012 the Settlement Commission had mentioned that the order is being passed under section 32F(1), however, while returning the second application filed by the petitioners, the Settlement Commission in its order dated 18.5.2012 had stated that the earlier applications had been rejected and abated to the adjudicating authority under section 32F(1) of the Act. It is relevant to point out over here that the word abated, the words, “to the adjudicating authority under section 32F(1) of the Central Excise Act, 1944, was not written in the order dated 2.3.2012 We deem it necessary to consider section 32F(1) of the Act which reads as under:
“Section 32F. Procedure on receipt of an application under section 32E. — (1) On receipt of an application under sub-section (1) of section 32E, the Settlement Commission shall, within seven days from the date of receipt of the application, issue a notice to the applicant to explain in writing as to why the application made by him should be allowed to be proceeded with, and after taking into consideration the explanation provided by the applicant, the Settlement Commission, shall, within a period of fourteen days from the date of the notice, by an order, allow the application to be proceeded with, or reject the application as the case may be, and the proceedings before the Settlement Commission shall abate on the date of rejection :
Provided that where no notice has been issued or no order has been passed within the aforesaid period by the Settlement Commission, the application shall be deemed to have been allowed to be proceeded with.
15. It is not disputed by the learned counsel for the parties that the first applications of the petitioners were not maintainable in view of clause (d) of proviso to section 32E(1) as the petitioner has not deposited the additional amount of excise duty accepted by the petitioner no.1 along with interest due under section 11AB. Clause (d) of the proviso to the section, makes it clear that the application would not be maintainable or entertainable in absence of deposit of additional amount of excise duty and interest. Learned counsel for the respondents have vehemently urged that under the Act, there is no provision under which the second applications could be maintained. The applications of the petitioners have been rejected on 02.03.2012 at the threshold due to non-deposit of additional excise duty and interest. The procedure to be followed by Settlement Commission has been provided in section 32-I of the Act. It provides that the Settlement Commission shall have power to regulate its own procedure in discharge of its functions. We consider it necessary to extract Section 32-I (2) of the Act as under :-
“32- I Powers and procedure of Settlement Commissions :-
(2) Where an application made under section 32E has been allowed to be proceeded with under section 32F, the Settlement Commission shall, until an order is passed under sub-section [(5) of section 32F, have, subject to the provisions of sub-section (4) of that section, exclusive jurisdiction to exercise the powers and perform the functions of any Central Excise Officer, under this Act in relation to the case.”
From the perusal of sub-section (2) of section 32-I, it is clear that section 32F would only be applicable if an application, filed under section 32E(1), is a valid application and had been permitted to be proceeded with under section 32F till an order under sub-section (5) subject to the provisions of sub-section (4) is passed under section 32F of the Act. Sub- section (4) of section 32F provides that a report has to be called from the Commissioner of Central Excise within a specified period and after examining the report, fresh inquiry report can be called for. Sub-section (5) provides that after examining the report of the Commissioner of Central Excise, the Settlement Commission after giving an opportunity to the applicant and after examining such further evidence may pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application which has been referred in the report of the Commissioner. The expression ‘case’ has been defined in section 31(c) of the Act to mean any proceedings under the Act or any other Act for levy, assessment and collection of excise duty, pending before an Adjudicating Authority on the date on which an application under sub- section (1) of section 32E is made. The case of the petitioners was not covered either under sub-section (3), (4) or (5) of section 32F nor the Settlement Commission had called for any report from the Commissioner Customs and Central Excise under section 32F of the Act. Therefore, the view taken by the Settlement Commission that it had passed a final order is erroneous. Since the application of the petitioner was defective and was neither maintainable nor entertainable, final orders could not be passed on it as no report was called from the Commissioner. The first applications of the petitioners can only be rejected on technical ground of non-payment of the amount as provided by clause (d) of proviso to section 32E(1) as not maintainable. The first applications filed by the petitioners could be rejected under the discretionary powers by the Settlement Commission. Sub-section (1) of section 32F would come into play only when an application filed by the applicant before the Settlement Commission is maintainable.
16. For the sake of argument even if we assume that the Settlement Commission could decide the first applications under section 32F(1) wherein the defect under the first proviso to sub-section (1) of section 32E had not been removed and the one of the applicant was claiming to adjust the amount deposited by other applicant before the excise department so that he may comply with the clause (d) of the proviso to sub-section (1) of section 32E, so that he may cure the defect in his application, A notice for removing discrepancies could only be issued by the Settlement Commission under the discretionary powers. We deem it necessary to extract the operative part of the order dated 2.3.2012 passed by the Settlement Commission on the first applications of the petitioners as under:
“Dated 2.3.2012-- … The applications therefore do not fulfil / satisfy the criteria laid down under Section 32E(1) of the CEA, 1944 in as much as they have not paid the accepted duty and interest liability. The following order is passed in terms of sub-section (1) of Section 32 (F) of the Central Excise Act, 1944.
ORDER The applications filed by the applicant and the co-applicants are rejected and the proceedings before Settlement Commission stand abated. All concerned are informed accordingly.”
We also deem it appropriate to extract the operative part of the order 18.5.2012 passed by the Commissioner (Inv.) Settlement Commission, Additional Bench, Mumbai on the second applications of the petitioners as under:
“Dated 18.5.2012-- … As there is no provision under Chapter V of the Central Excise Act, 1944 and rules/ procedures made thereunder for entertaining another application for the same case, which is already rejected and has abated to the adjudicating authority under Section 32 F (1) of the Central Excise Act, 1944. The Hon’ble Commission has therefore directed that your applications dated 17.4.2012 should be returned. The same are accordingly returned herewith.
Kindly acknowledge the receipt.”
Even if the notice issued by the Settlement Commission is treated to be a notice under section 32F(1) of the Act requiring the petitioners to cure the defect in their applications and the defects are not removed then the only course left open to the Settlement Commission was to dismiss the applications as not maintainable. But the order passed by the Settlement Commission in rejecting the applications and abating the proceedings, by no stretch of imagination, could be treated to be a final order under section 32F(1) of the Act debarring the petitioner from moving a second valid application under section 32E. The view taken by the Settlement Commission that the rejection of first defective applications would amount to final order would render the mandatory bar created by the clause (d) of the first proviso to sub-section (1) of section 32E nugatory, redundant and otiose. We are of the considered opinion that under section 32F(1) only valid applications could be considered and decided according to the procedure provided in the section. But the application which are mandated by the first proviso to sub-section (1) of section 32E that it should not to be entertained by the Settlement Commission could not be decided or rejected or declared to have abated under section 32F(1). The notice dated 27.1.2012 though mentions that it was a notice under section 32F(1) for proceeding with the application of the petitioners but such notice could only be issued in a valid and eligible application. And such notice cannot be issued in a defective application which was not entertainable under section 32E(1) of the Act.
17. The second applications filed by the petitioners would not be barred by the principles of res judicata as the first applications were dismissed on technical ground of non-deposit of admitted excise duty and interest. For the applicability of bar of res judicata to the maintainability of the second applications, there must be determination of the matter in dispute in the first applications with regard to the questions raised therein. An order rejecting an application for non-deposit of admitted additional excise duty and interest as provided by clause (d) of the proviso to section 32E (1) of the Act would amount to administrative or technical order and it would not bar the second valid applications filed by the petitioners. The Apex Court in Sheodan Singh v. Daryao Kunwar, AIR 1966 SC 1332 had held in paragraph 13 as under :-
“Where, for example, the former suit was dismissed by the trial Court for want of jurisdiction, or for default of plaintiff’s appearance, or on the ground of non-joinder of parties or misjoinder of parties or multifariousness, or on the ground that the suit was badly framed, or on the ground of a technical mistake, or for failure on the part of the plaintiff to produce probate or letter of administration or succession certificate when the same is required by law to entitle the plaintiff to a decree, or for failure to furnish security for costs, or on the ground of improper valuation or for failure to pay additional court fee on a plaint which was undervalued or for want of cause of action or on the ground that it is premature and the dismissal is confirmed in appeal (if any) the decision not being on the merits would not be res judicata in a subsequent suit.”
In another decision, the Apex Court in State of Maharashtra and another v. M/s. National Construction Company, Bombay and another, AIR 1996 SC 2367 in paragraph 6 had held as under :-
“The important words are “has been heard and finally decided”. The bar applies only if the matter directly and substantially in issue in the former suit has been heard and finally decided by a Court competent to try such suit. That clearly means that on the matter or issue in question there has been an application of the judicial mind and a final adjudication made. If the former suit is dismissed without any adjudication on the matter in issue merely on a technical ground of non-joinder, that cannot operate as res judicata.”
We are conscious of the fact that the provisions of the Civil Procedure Code, 1908, in terms does not apply to the proceedings before the Settlement Commission. In view of the aforesaid decisions of the Apex Court, we of the opinion that though the provisions of the Civil Procedure Code, 1908, are not applicable to the Settlement Commission, but the principles of res judicata would be applicable. The second application filed by the petitioners would be barred if the first applications have been decided on merits. In absence of any decision on merits, and the first applications having been dismissed on technical ground of non-compliance of clause (d) of section 32E(1) of the Act, the second applications after depositing of admitted additional excise duty and interest, would be maintainable.
18. There is yet another reason to arrive at a conclusion that second applications before the Settlement Commission would not be barred. Section 32-O bars subsequent applications for settlement in certain cases. It lays down that in three types of cases subsequent applications are not maintainable. It is beneficial to reproduce 32-O of the Act 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
(ii) after the passing of an order of settlement under the said sub-section (7) 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, in relation to a case, such person is convicted of any offence under this Act in relation to that case; or
(iii) the case of such person is sent back to the Central Excise Officer having jurisdiction by the Settlement commission under section 32- L, then, he shall not be entitled to apply for settlement under section 32E in relation to any other matter.”
19. We have carefully examined section 32-O of the Act. We do not find that under any of the clauses of section 32-O the second applications of the petitioners will be barred. In the order dated 2.3.2012 no direction had been issued under section 32-L nor any such direction could be issued under section 32-L of the Act as the applications of the petitioners had to be rejected as not entertainable and no opinion could be recorded by the Settlement Commission. It is true, that under section 32-L the Settlement Commission could send the case back to the Central Excise Officer if in the opinion of the Settlement Commission, the person who made the application for settlement under section 32E has not co-operated in the proceedings before the Settlement Commission. But no such opinion had been recorded, in the case in hand, therefore, the Settlement Commission could not send the case to the adjudicating authority, i.e. the Central Excise Officer. The applications of the petitioners would not be barred by section 32-O because the petitioners applications had been rejected at the threshold for non- deposit of excise duty and interest. If the applications are rejected for non- deposit of additional excise duty and interest, then the applicants can make a second application after depositing the amount of additional duty and interest. In the order dated 18.5.2012 the Settlement Commission without any basis, illegally tried to bring the second applications filed by the petitioners within the ambit of section 32-L by unfairly adding that in the earlier order the expression, “abated to the adjudicating authority under section 32F(1) of the Central Excise Act, 1944.” had been written. The aforesaid expression had been inserted in the order dated 18.5.2012, unlawfully, in an attempt to cover-up the unreasonable order dated 2.3.2012 and 18.5.2012.
20. For the aforesaid reasons, we are of the considered opinion that since the petitioners' earlier applications were dismissed on technical defect for non-compliance of the provisions of clause (d) of the proviso to sub-section (1) of section 32E of the Act and the applications were not considered and decided on merits, therefore, the second applications filed by the petitioners after depositing the additional excise duty and interest would be maintainable and the order passed by the Settlement Commission dated 2.3.2012 and 18.05.2012 cannot be maintained and the writ petition deserves to be allowed and a direction is liable to be issued to the Settlement Commissioner to accept the second applications forthwith, which were returned back to the petitioners and thereafter decide the same in accordance with law.
21. In the result, the writ petition succeeds and is allowed. The impugned orders dated 2.3.2012 and 18.05.2012 passed by the Settlement Commission is quashed. A writ of mandamus be issued to the Settlement Commission to accept and take on record the second applications of the petitioners forthwith, which have been returned to them, and thereafter the Settlement Commission shall proceed to decide the applications in accordance with law within a period of three months from the date a certified copy of this order is produced before it. Parties shall bear their own costs.
(V.M. SAHAI, J.) (N.V. ANJARIA, J.) (SN DEVU PPS)