UNLESS TWIN CONDITIONS IN SECTION 32E OF CENTRAL EXCISE ACT, 1944 ARE FULFILLED THE SETTLEMENT COMMISSION CANNOT MOVER FURTHER

[Mr. M. GOVINDARAJAN]

Settlement Commission

Section 32 of the Central Excise Act, 1944 (‘Act’ for short) provides that the Central Government shall, by notification in the Official Gazette, constitute a Commission to be called the Customs, Central Excise and Service Tax Settlement Commission for the settlement of cases under Chapter V and Chapter XIVA of the Customs Act, 1962.    Once the application is filed with the Settlement Commission it cannot be withdrawn. 

Application for settlement

Section 32E of the Act provides the procedure for filing the application for settlement under the Act before the Settlement Commission.  Section 32E (1) of the Act provides that 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 prescribed manner.

Full and true disclosure

The provisions relating to settlement can be invoked by an assessee only if he makes full and true disclosure of his tax liability and not with mala fide intention to defuse and obstructing prosecution and penalty proceedings by approaching the Settlement Commission with incomplete disclosure.

Power of Settlement Commission to send back the case

Section 32L of the Act provides that 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.

In SDL AUTO PVT. LTD THROUGH ITS DIRECTOR SHRI H.S. BANGA & ANR., ICEBERG AQUA PVT. LTD. & ORS., KMG ROLLING PVT. LTD. & ANR. VERSUS COMMISSIONER OF CENTRAL EXCISE, FARIDABAD, DELHI-IV & ANR., UNION OF INDIA & ORS. - 2019 (1) TMI 774 - DELHI HIGH COURT the Delhi High Court held that the Settlement Commission has no power to waive the requirement of full and true disclosure.  The Settlement Commission must record its satisfaction on the jurisdictional pre-conditions are satisfied that an order ‘settling’ the case can be passed.  Ineligible cases where jurisdictional pre-conditions are not satisfied the Settlement Commission shall return to the Central Excise Officer for adjudication of the show cause notice on merits. 

In this case out of the total duty demand of Rs.11,80,12,105/-  along with interest as demanded and proposed in the show cause notice the Settlement Commission admitted duty liability of Rs.1,56,11,930/- and interest Rs.44,17,956/-.  Since the pre conditions are not fulfilled the High Court held that the orders of Settlement Commission are not sustainable.  The Settlement Commission fell into serious error of jurisdiction in settling the case arising from the show cause notice on 16.01.2013.

In SURESH KUMAR VERMA & ORS. VERSUS CUSTOMS, CENTRAL EXCISE AND SERVICE TAX SETTLEMENT COMMISSION & ORS. - 2022 (12) TMI 8 - DELHI HIGH COURT the writ petitioners were engaged in the manufacture of zarda and packing pouches.  The Revenue searched the premises of the petitioners on the basis of information received from intelligence.  During the search it was found that zarda was manufactured using six pouch packing machines.  The Revenue issued show cause notices to the petitioners.  The petitioners Nos. 1, 2 and 5 were issued with show cause notice on 14.08.2015 which was later amended 27.03.2017 which requires to give the reply to the show cause notice to Assistant Commissioner of Central Excise, Faridabad instead of Commissioner of Central Excise, Lucknow.  The other petitioners were issued with show cause notice on 29.11.2016.

The petitioners filed applications for Settlement Commission for its adjudication.  The Settlement Commission passed the impugned order dated 14.03.2018.  The Settlement Commission observed that the petitioners have not made full and true disclosure and have not co-operated in the proceedings conducted by the Settlement Commission.  The Revenue raised a demand notice dated 06.04.2018, based on the order of Settlement Commission to pay the following amount-

• Central Excise duty = Rs.10,13,83,938/-
• Penalty  = Rs.1,00,00,000/-
• Interest  =Rs.5,88,15,372/-
• Redemption fine   = Rs. 2,00,000/-
• Redemption fine   = Rs.20,000/-

Being aggrieved against the order of Settlement Commission the petitioners filed the present writ petitions before the High Court. 

The petitioners submitted the following before the High Court-

• The impugned orders passed by the Settlement Commission are flawed in law.
• The Settlement Commission alleged that the petitioners did not made full and true disclosure and not cooperated in the proceedings conducted by it.  In such situation the Settlement Commission ought to have remitted the matter to the concerned authority under the Act to adjudicate in accordance with law.

The Revenue reiterated the order of Settlement Commission as good one and free from errors.  The High Court analyzed the provisions of the Act relating to Settlement of cases by Settlement Commission.

The High Court held that once the Settlement Commission comes to a conclusion that there has been no true and fair disclosure of facts and the manner in which the liability has been derived, the Settlement Commission, in the opinion of High Court, cannot then proceed to adjudicate the liability.  A plain reading of Section 32E of the Act stresses that unless the twin conditions mentioned therein are fulfilled, the Settlement Commission cannot move further in the matter. The Settlement Commission is, necessarily, then required to remit the matter to the concerned statutory authority. The High Court set aside the impugned order passed by the Settlement Commission.