M/s. Vinay Wire & Poly Product Pvt. Ltd. and its Director have filed this petition for quashing the order dated 31 January 2014 passed by the Settlement Commission under section 32-E of the Central Excise Act, 1944. The Settlement Commission has concluded that it would not be possible for it to settle the dispute and has, accordingly, sent the matter back to the adjudicating authority.
The petitioner is a manufacturer of Plain Poly Films, Cast Poly Propylene Film and Flexible Laminated Rolls. It has two Units. In Unit No.1, Plain Poly Film is produced and in Unit No.2, Cast Poly Film is produced. Both the Units are registered with the Central Excise Department. Acting on intelligence information that the petitioners were engaged in unaccounted purchases of raw materials, unaccounted production of finished goods, clandestine removal of finished products and evasion of Central Excise duty leviable thereon, the officers of the Director General, Central Excise Intelligence, New Delhi (DGCEI) simultaneously searched the factory and other related premises of the petitioner-firm as also the business premises of the buyers on 30 June 2009 and on subsequent dates. On the basis of the parallel invoices recovered from Unit-I; shortages detected in the stocks of finished goods and raw materials kept in both the Units; records recovered from the residential and office premises of Siddharth Dixit; and the documents recovered from M/s. Anand Sales, Kanpur, the department quantified the total duty evaded by both the Units during the period August 2006 to June 2009 as under:-
Sr. No. Items M/s. Vinay Wires and Poly Products Pvt. Ltd., B-4, UPSIDC Industrial Area, Site-II, Rania, Kanpur Dehat (M/s VWPPPL-I) (Duty in Rs.) M/s. Vinay Wires and Poly Products Pvt. Ltd., C-2, C-5, UPSIDC Industrial Area, Site-II, Rania, Kanpur Dehat (M/s VWPPPL-II) (Duty in Rs.) TOTAL
1. Duty liability quantified on the basis of Parallel Invoices 13,94,292/-
33,54,426/-
47,48,718/-
2. Duty liability quantified on the basis of shortages detected.
10,70,530/-
92,840/-
11,63,370/-
3. Duty liability quantified on the basis of record recovered from Siddharth Dixit 2,29,20,228/-
1,41,95,222/-
3,71,15,450/-
4. Duty liability quantified on the basis of unaccounted holographic film procured from M/s Anand Sales, Kanpur
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3,51,53,707/-
3,51,53,707/-
TOTAL 2,53,85,050/-
5,27,96,195/-
7,81,81,245/-
During the course of the search, the petitioner deposited Rs.30 lacs under protest towards the duty liability.
After completion of the investigation, show cause notices dated 6 September 2011 were issued to the petitioner no.1 and 14 others containing the demands made on both the Units. In respect of M/s. Vinay Wires and Poly Products Pvt. Ltd. (Unit-I), the demands that were raised are as follows:
i. Central excise duty of Rs.2,43,14,520/- on goods manufactured and removed clandestinely;
ii. Cenvat credit for Rs.10,70,530/- involved on plastic granules (raw material) found short;
iii. Interest on the duty of Rs.2,43,14,520/-;
iv. Interest on the cenvat credit of Rs.10,70,530/-;
v. Imposition of penalty for clandestine clearance of goods with intent to evade payment of central excise duty under section 11 AC of the Act and rule 25 of the Central Excise Rules, 2002; and vi. Imposition of penalty under rule 15(2) of Cenvat Credit Rules, 2004 read with section 11 AC of the Act.
In respect of M/s. Vinay Wires and Poly Products Pvt. Ltd. (Unit-II), the demands that were raised are as follows:
i. Central excise duty Rs.5,27,03,355/- on goods manufactured and removed clandestinely;
ii. Central excise duty for Rs.44,476/- on finished goods CPP matalized found short and cleared clandestinely without invoice and without payment of duty;
iii. Cenvat credit for Rs.48,364/- involved on plastic granules (raw material) found short;
iv. Interest on the duty of Rs.5,27,03,355/-;
v. Interest on Cenvat credit of Rs.48,364/-;
vi. Imposition of penalty for clandestine clearance of goods with intent to evade payment of cental excise duty under section 11 AC of the Act and rule 25 of the Central Excise Rules, 2002; and vii. Imposition of penalty under rule 15(2) of Cenvat Credit Rules, 2004 read with section 11 AC of the Act."
Penalty was also proposed to be imposed under rule 26 of the Central Excise Rules, 2002.
The petitioners allege that the said search was conducted on the basis of information provided by an ex-employee who had given five files to the officers of the DGCEI who had planted them in the premises of the petitioner during the search operation. The petitioners also allege that the Director was detained in the office for 48 hours and mercilessly beaten up by the officers. A confessional statement was also taken from them under threat. As soon as the petitioner no.2 (the Director) was released on 2 July 2009, he retracted the statements through affidavits which he sent through speed-post to the DGCEI. On 10 November 2009, petitioner no.2 and one Siddharth Dixit were arrested from a hotel in New Delhi and produced before the concerned Magistrate on 12 November 2009. A complaint under section 200 of the Code of Criminal Procedure was filed by the petitioner in the Court of Additional Chief Metropolitan Magistrate, Delhi against the vigilance officers and Deputy Director in the office of DGCEI. The Magistrate took cognizance of the complaint and summons were issued to the accused persons under sections 323, 348, 365, 568 read with section 34 and 120-B of the Indian Penal Code on 1 December 2009. The summoning order was assailed by the accused persons by filing two petitions under section 482 of the Code of Criminal Procedure before the Delhi High Court. The petitions were allowed on 1 March 2011 and the order dated 1 December 2009 passed by the Additional Chief Metropolitan Magistrate was set aside. However, Special Leave Petitions were filed before the Supreme Court which were subsequently converted into criminal appeals. The Supreme Court allowed the appeals by the judgment and order dated 10 January 2013 with a direction to the Magistrate to complete the criminal proceedings as early as possible and at any rate, within a period of six months from the date of order of the Court. Charges have now been framed by the Court against the accused persons on 10 December 2013.
However, the petitioner no.1 and 14 others preferred applications before the Customs and Central Excise Settlement Commission under section 32-E for settlement of the dispute arising out of the show cause notices dated 6 September 2011 issued by the Additional Director General in the office of DGCEI. Most of these applications were filed on 29 January 2013 but some were filed on 21 March 2013 and 23 April 2013. An amount of Rs.63,85,052/- was also deposited after claiming CENVAT credit of Rs.3,49,98,954/-. This deposit was in addition to the amount of Rs.30 lacs which was deposited by the petitioner on 1 July 2009 during the course of the search and seizure operations.
In the application filed for settlement of the dispute, it was asserted that the search and seizure operations had been conducted on the basis of information provided by an ex-employee and that the basis of the investigation was an outcome of the fabricated evidence created by DGCEI officers with the help of its ex-employee as five files were brought by the DGCEI officers with them and were planted in the premises during search operations and were shown to have been recovered from the premises of the petitioner. The evasion of duty except the duty liability of differential duty between the finished goods and the duty already debited showing the clearance of plastic granules as cash sales was specifically denied. In fact what was stated was that the net liability, in addition to the deposit of Rs.30 lacs earlier deposited, worked out to Rs.63,85,052/- which had also been paid. A prayer was also, accordingly, made for grant of immunity from penalty and prosecution.
The Settlement Commission in accordance with the provisions of section 32-F issued notice to the applicants on 4 February 2013 and on receipt of a reply, passed an order dated 15 February 2013 for proceeding with the applications. Copies of the applications were then forwarded on 18 February 2013 to the Commissioner of Central Excise and Service Tax, Kanpur and the DGCEI for submission of their reports as was required under section 32-F. The DGCEI submitted its report on 16 April 2013. The Revenue reiterated the facts stated in the show cause notice and objected to the allegations made in the applications and submitted that three were issues involved namely :-
"(i) The clandestine clearance made by the factories of the applicant under parallel invoices, admitted by the applicant;
(ii) The clandestine sales shown in the data maintained by Shri Siddharth Dixit, admitted by the applicant; and
(iii) The demand of Rs.3,51,53,707/- demanded from Unit-II on laminates related to data recovered from CPU resumed from M/s Anand Sales, not admitted by the applicant."
The initial hearing before the Settlement Commission took place on 19 September 2013. At this stage, it needs to be noticed that under section 32-F(6), the Settlement Commission is required to pass an order within nine months from the last date of the month in which the application is made, failing which the settlement proceedings shall abate. However, under the proviso to sub-section (6) of section 32-F, the Commission may, for reasons to be recorded in writing, extend the aforesaid period by a further period not exceeding 3 months. The settlement applications were filed on 29 January 2013 and since the order was required to be passed on or before 31 October 2013, the Settlement Commission extended the period for a further period of three months upto 31 January 2014.
The Settlement Commission again heard the matter on 20 December 2013 and decided the settlement applications by an order dated 31 January 2014. The Settlement Commission concluded that since the applicants had not accepted substantial part of the duty liability and had not only alleged that the evidence had been fabricated and tampered with but had also disputed the very basis of the investigation, the disclosure cannot be said to be complete and true. The Settlement Commission, therefore, declined to settle the dispute as it felt that it was required to be settled through adjudication. The operative part of the order passed by the Settlement Commission is as follows:-
"The Bench has carefully considered the material available on record and examined the arguments put forth by the Ld. Advocate for the applicants and the Representative of Revenue at the time of hearing. The Bench observed that the applicant has not accepted a substantial part of the duty liability. The applicant had contested much of the evidence collected by the Revenue and has alleged that the evidence has been fabricated and tampered with. The Revenue, on the other hand, has given detailed grounds to reassert its position regarding the investigation as well as quantification of duty liability. The Bench observed that this case involves complex questions of fact which would need a detailed appreciation of evidence on both sides. The Bench also observed that since the applicant has disputed the very basis of the investigation, the disclosure cannot be said to be complete and true. The Bench, therefore, observes that this case would be better settled through adjudication. In view of the above, the Bench order to send the case back to the adjudicating authority in terms of Section 32(F)(5) of the Act."
Learned counsel for the petitioners placed emphasis on section 32-L which deals with the power of Settlement Commission to send a case back to the Central Excise Officer and submitted that since there is no allegation in the impugned order that the applicants had not co-operated with the Settlement Commission, the Settlement Commission was not justified in law in sending the case back to the adjudicating officer even if there was no disclosure of full and true facts. Learned counsel also submitted that even if complex questions involving facts were required to be determined after appreciation of evidence, then too nothing prevented the Settlement Commission from settling the matter instead of sending it back to the adjudicating authority and once the application had been admitted, the Settlement Commission could not have subsequently observed that true and full disclosure had not been made in the application. It is also the submission that the Revenue had made deliberate attempts not to settle the dispute since the Director of the petitioner-Company did not accede to the illegal threats made by the officers of DGCEI not to pursue the criminal case lodged against them. In this connection learned counsel pointed out that as soon as the charges were framed in the criminal case on 10 December 2013, the officers acted in vengeance to ensure that the dispute did not result in settlement.
Learned counsel appearing for the Revenue, however, has supported the impugned order and has submitted that it does not call for any interference by the Court under Article 226 of the Constitution.
The settlement of cases is contained in Chapter V of the Act. Section 32 provides that the Central Government shall, by notification in the Official Gazette, constitute a Commission to be called the Customs and Central Excise Settlement Commission for the settlement of cases under this Chapter and Chapter XIV-A. Section 32-E deals with the application for settlement of cases, while section 32-F deals with the procedure to be followed on receipt of an application under section 32-E.
In order to appreciate the controversy involved in this petition, it would be appropriate to reproduce the relevant provisions of sections 32-E, 32-F and 35-L and the same are as follows:
"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(56 of 1986).
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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.
(2) A copy of every order under sub-section (1), shall be sent to the applicant and to the Commissioner of Central Excise having jurisdiction.
(3) Where an application is allowed or deemed to have been allowed to be proceeded with under sub-section (1), the Settlement Commission shall, within seven days from the date of order under sub-section (1), call for a report along with the relevant records from the Commissioner of Central Excise having jurisdiction and the Commissioner shall furnish the report within a period of thirty days of the receipt of communication from the Settlement Commission:
Provided that where the Commissioner does not furnish the report within the aforesaid period of thirty days, the Settlement Commission shall proceed further in the matter without the report of the Commissioner.
(4) Where a report of the Commissioner called for under sub-section (3) has been furnished within the period specified in that sub-section, the Settlement Commission may, after examination of such report, if it is of the opinion that any further enquiry or investigation in the matter is necessary, direct, for reasons to be recorded in writing, the Commissioner (Investigation) within fifteen days of the receipt of the report, to make or cause to be made such further enquiry or investigation and furnish a report within a period of ninety days of the receipt of the communication from the Settlement Commission, on the matters covered by the application and any other matter relating to the case:
Provided that where the Commissioner (Investigation) does not furnish the report within the aforesaid period, the Settlement Commission shall proceed to pass an order under sub-section (5) without such report.
(5) After examination of the records and the report of the Commissioner of Central Excise received under sub-section (3), and the report, if any, of the Commissioner (Investigation) of the Settlement Commission under sub-section (4), and after giving an opportunity to the applicant and to the Commissioner of Central Excise having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, 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, but referred to in the report of the Commissioner of Central Excise and Commissioner (Investigation) under sub-section (5) or sub-section (4).
(6) An order under sub-section (5) shall not be passed in respect of an application filed on or before the 31st day of May, 2007, later than the 29th day of February, 2008 and in respect of an application made on or after the 1st day of June, 2007, after nine months from the last day of the month in which the application was made, failing which the settlement proceedings shall abate, and the adjudicating authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 32E had been made.
Provided that the period specified under this sub-section may, for reasons to be recorded in writing, be extended by the Settlement Commission for a further period not exceeding three months.
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Section 32L. Power of Settlement Commission to send a case back to the Central Excise Officer. - (1) The Settlement Commission may, if it is of opinion that any person who made an application for settlement under section 32E has not co-operated with the Settlement Commission in the proceedings before it, send the case back to the Central Excise Officer having jurisdiction who shall thereupon dispose of the case in accordance with the provisions of this Act as if no application under section 32E had been made.
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Under sub-section (1) of section 32-E, an assessee can make an application, before adjudication, to the Settlement Commission to have the case settled. The application shall contain a full and true disclosure of the duty liability which has not been disclosed before the Central Excise Officer having jurisdiction. It shall also disclose 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 the applicant admits short levy on account of misclassification, under-valuation, inapplicability of exemption notification or CENVAT credit or otherwise. On receipt of the application made under sub-section (1) of section 32-E, the Settlement Commission has to 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. After taking into consideration the explanation provided by the applicant, the Settlement Commission, shall either allow the application to be proceeded with or reject the application. Where an application is allowed to be proceeded with, the Settlement Commission shall call for a report along with the relevant records from the Commissioner of Central Excise having jurisdiction. On receipt of the report from the Commissioner, the Settlement Commission, may, if it is of the opinion that any further enquiry or investigation in the matter is necessary, direct, for reasons to be recorded in writing, the Commissioner (Investigation) to make or cause to be made such further enquiry or investigation and furnish a report to the Commission. Sub-section (5) of section 32-F then provides that after examination of the records and the report of the Commissioner of Central Excise and the report, if any of the Commissioner (Investigation), the Settlement Commission may pass such order as it thinks fit. Sub-section (8) of section 32-F postulates that the order passed under sub-section (5) shall provide for the terms of settlement and in case of rejection, contain the reasons therefor.
It is in the light of the aforesaid provisions that the contentions advanced by learned counsel for the petitioners require consideration.
The first contention is that the Settlement Commission could have sent the case back to the adjudicating authority only if it was of the opinion that any person who made an application for settlement under section 32-E did not co-operate with the Settlement Commission.
As noticed hereinabove, under sub-section (5) of section 32-F, the Settlement Commission, after examination of the records and the report of the Commissioner of Central Excise and the report, if any, of the Commissioner (Investigation) and after giving opportunity to the applicant and to the Commissioner of Central Excise to be heard, has to pass such order as it thinks fit on the matters covered by the application. Under sub-section (8) of section 32-F, the order passed by the Settlement Commission under sub-section (5) shall provide for the terms of the settlement and in case of rejection contain reasons therefor. Thus, on a plain reading of the provisions of sub-sections (5) and (8) of section 32-F, it is clear that the Settlement Commission has to pass such order as it thinks fit and it has the power to not only provide for the terms of the settlement but also to reject the application in which eventuality, reasons have to be recorded. The power conferred on the Settlement Commission under section 32-L to send the case back to the Central Excise Officer is in addition to the aforesaid powers of the Settlement Commission. Such a power is given to the Settlement Commission under section 32-L, if it finds that any person who has made an application for settlement under section 32-E, has not co-operated with the Settlement Commission in the proceedings before it. This power given to the Settlement Commission under section 32-L does not and cannot take away the powers conferred on the Settlement Commission under sub-sections (5) and (8) of section 32-F. It is, therefore, not possible for the Court to accept the first submission of learned counsel for the petitioners.
The second submission of learned counsel for the petitioners is that once the application filed under section 32-E has been allowed to be proceeded with under sub-section (1) of section 32-F, the Settlement Commission has to settle the case by passing an appropriate order under sub-sections (5) and (8) of section 32-F and it cannot reject the application even if it finds that the application does not contain a full and true disclosure of the duty liability or that the case involves complex questions of fact which require detailed appreciation of evidence.
This submission of learned counsel for the petitioners cannot also be accepted. Under sub-section (1) of section 32-E, the applicant is required to make a full and true disclosure of his duty liability and merely because the Settlement Commission has, after considering the explanation offered by the applicant, allowed the application to be proceeded with under sub-section (1) of section 32-F, will not mean that the Settlement Commission has accepted that the applicant has made full and true disclosure of his duty liability because that is not the stage to make such an inquiry. It is clear from sub-section (3) of section 32-F that it is only when an application is allowed to be proceeded with that the Settlement Commission shall call for a report along with the records from the Commissioner of Central Excise having jurisdiction. It is after examination of the records and the report of the Commissioner of Central Excise that the Settlement Commission, after giving an opportunity to the applicant and to the Commissioner of Central Excise to be heard, is required to pass an order as it thinks fit under sub-section (5) on the matters covered by the application. It cannot, therefore, be asserted that once the application filed under sub-section (1) of section 32-E has been allowed to be proceeded with under sub-section (3) of section 32-F, the Settlement Commission has necessarily to make a settlement. If that was so, then in that event power would not have been conferred on the Settlement Commission under sub-section (8) of section 32-F to reject the application.
The third submission of learned counsel for the petitioners is about the mala fides of the officers of the department.
It is sought to be asserted that since a complaint had been filed under section 200 of the Code of Criminal Procedure in which charges had been framed on 10 December 2013, the officers, with a mala fide intention made attempts to ensure that the case was not settled. The officers have not been impleaded by name as party respondents and even otherwise the allegations are very vague and have not been substantiated.
The last submission is that the Settlement Commission should have settled the dispute even if complex questions of facts were involved and should not have sent the matter back to the adjudicating authority.
This submission cannot also be accepted. The Settlement Commission has given good and cogent reasons for sending the case back to the adjudicating authority. The Settlement Commission noticed that the applicants had not accepted a substantial part of the duty liability and had in fact contested the evidence collected by the Revenue as being fabricated and tampered with. It also noticed that the Revenue had given reasons to substantiate its position regarding the investigation as well as the quantification of duty liability. In such a situation, the Settlement Commission thought it appropriate, particularly when the applicants had not made a full and true disclosure and that complex questions of fact, which required appreciation of evidence, were required to be settled through adjudication. A fair amount of discretion has to be given to the Settlement Commission in cases where matters are placed before it for settlement keeping in mind the well settled principle that settlement is not akin to adjudication. Unless it is established that the discretion has been exercised in an arbitrary or perverse manner or that it is not based on relevant considerations or has taken into consideration irrelevant matters, Courts will not interfere in the exercise of such discretion by the Settlement Commission under Article 226 of the Constitution.
There is, therefore, no illegality in the impugned order which may call for any interference by this Court under Article 226 of the Constitution.
The writ petition is, accordingly, dismissed.
Order Date :- 12.05.2014 GS (Dr. D.Y. Chandrachud, C.J.) (Dilip Gupta, J.)