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Shree Flavours LLP Versus Government of India & Ors.

Rejection of Settlement Application - assessment under Sections 4 and 4A of the CEA - N/N.10/2010-CE (N.T.) dated 27th February, 2010 - packing machines - Petitioner approached the Settlement Commission under Section 32 E of the CEA with a prayer to admit the application and settle the SCN issued to it. The Settlement Commission then directed the application to be proceeded with under Section 32 F (1) on 2nd July, 2012 and called for a report from the Additional Commissioner under Section 32 (F) .....

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he adjudicating authority, more so in a situation where it is of the opinion that a settlement is unlikely. - The powers of the Settlement Commission under Section 32L (1) of the CEA to send the matter to the adjudicating authority, if the applicant does not cooperate with the Settlement Commission, is in addition to the powers under Section 32F (5) of the CEA. If in a settlement proceeding, any party refuses to cooperate with the authority, which is dealing with the dispute, it cannot expec .....

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tion and penalty, vested with the Settlement Commission, is a consequence being provided to any applicant before the Settlement Commission, only to ensure the speedier disposal and resolution of the disputes and is not a tool for delaying adjudication. Whenever the Settlement Commission comes to the conclusion that the dispute cannot be resolved by it, it must refer the matter to the adjudicating authority. Any other interpretation to the contrary, defeats the fundamental purpose for constitutio .....

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hli, Advocates. Respondents Through: Mr. Amit Mahajan, CGSC for R-1. Mr. Sanjeev Narula, Senior Standing Counsel with Mr. Abhishek Ghai, Advocate for R-2 & 3. ORDER Prathiba M. Singh, J. 1. The powers of the Customs and Central Excise Settlement Commission (hereafter referred to as Settlement Commission ) constituted under Section 32 of the Central Excise Act, 1944 (hereinafter referred to as the CEA ), to send the matter to the adjudicating authority by rejecting the application for settlem .....

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ckings is in various pack sizes. As per the Petitioner, the packing of FCT products was undertaken by it either manually or with the help of manually operated machines. FCT being excisable, the Petitioner avers that it was paying excise duty on the products of its manufacture. 3. There are three types of assessments under the provisions of the CEA. First, under Section 4 of the CEA, goods are assessed as per the transaction value i.e. the consideration received from the purchaser. The second met .....

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e Petitioner, it is subjected to assessment under Sections 4 and 4A of the CEA. By Notification No.10/2010-CE (N.T.) (hereinafter referred to as Notification No. 10/2010 ) dated 27th February, 2010, the Central Government notified that FCT manufactured with the aid of the packing machines and packed in pouches, would be notified goods to be assessed as per Section 3A of the CEA. The said Notification No.10/2010 reads as under: G.S.R. (E).- In exercise of the powers conferred by sub-section (1) o .....

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nce with the provisions of the said section 3A. 2. This notification shall come into force on the 8th March, 2010. Explanation. - For the purposes of this notification, (a) "packing machine" includes all types of Form, Fill and Seal (FFS) machines and Profile Pouch Making Machine, by whatever names called, whether vertical or horizontal, with or without collar, single-track or multi-track and any other type of packing machine used for packing of pouches of notified goods; and (b) ' .....

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ication No.11/2010-CE (N.T.) dated 27th February, 2010 notifying the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 [hereafter CTU Rules ]. The definition given to the word packing machines , both in the notification as also in the CTU Rules, as is evident, was on the basis of the nature of the machines. Thus, under Section 3A of the CEA, the capacity of production of a particular unit was to be determined on the basis of t .....

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The Petitioner filed a declaration on 5th March, 2010 claiming that it does not use any Form, Fill and Seal Machines (hereafter FFS machines ) and that all manufacturing activities in its factory are undertaken with the aid of manual machines and tin packing machines. The Petitioner requested the authorities to seal all the packing machines used in packing of the notified goods. In response to this request, the officers from the Department visited the factory premises of the Petitioner and unins .....

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e Petitioner and hence several visits were made by the Department officials to inspect the machines. Several letters were exchanged. Finally, the Anti-Evasion Staff of the Department visited the Petitioner s unit on 21st May, 2010, and commenced a detailed investigation. Relying upon the Notification No.10/2010 and the CTU Rules, a show cause notice ( SCN ) was issued on 21st July, 2011 to the Petitioner. By this SCN the Department stated as under: The contention of the party that they packed po .....

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technical report prepared by YMCA University of Science & Technology, Faridabad (Haryana) to state that: • The Petitioner tried to deliberately and knowingly camouflage the descriptions of machines used by it; • The Petitioner did not pay central excise duty wilfully and knowingly in accordance with the provisions of Section 3A of the CEA and the CTU Rules; • The outstanding excise liability is liable to be recovered from the Petitioner along with the interest under Section 1 .....

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ty of ₹ 250,11,88,585/- 10. The Petitioner then approached the Settlement Commission under Section 32 E of the CEA with a prayer to admit the application and settle the SCN issued to it. The Settlement Commission then directed the application to be proceeded with under Section 32 F (1) on 2nd July, 2012 and called for a report from the Additional Commissioner under Section 32 (F) (3), which was submitted on 8th August, 2012 The Settlement Commission, after considering the same and after he .....

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Kumar, sr. standing counsel for respondents No. 2 and 3. List on 10th December, 2012. Request is made for postponement of proceedings before the Commissioner. The same shall be considered reasonably since this Court had issued notice. Dasti under signature of the Court Master. The said order continues till date. Petitioners Submissions 11. Mr. Parag Tripathi, learned Senior Counsel appearing on behalf of the Petitioner, submitted that the Tribunal has committed a fundamental error while rejectin .....

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had no option but to proceed further in the matter. He took exception to the observation of the Settlement Commission that its jurisdiction could only be invoked by errant tax evaders who resort to concealment of facts . He submitted that an applicant making a full and true disclosure of facts cannot be denied relief by the Settlement Commission on the above ground. 12. Mr. Tripathi further submits that out of 16 machines, which were seized, the dispute boiled down only to three machines and thu .....

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plication and its powers to reject the application, are constricted by the provisions of Section 32 L of the CEA. As per Mr. Tripathi, it is only in a case where the applicant, who makes an application for settlement, has not cooperated with the Settlement Commission, that the Settlement Commission can send the case back to the Central Excise Officer exercising jurisdiction on the case. Mr. Tripathi further submits that the Settlement Commission, under Section 32 F (5) may pass such orders as it .....

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act and law as to the applicability of a provision of law. 13. Mr. Tripathi, thus, submits that the matter ought to be sent back to the Settlement Commission and not to the adjudicating authority. He also submits that the Petitioner would not be able to avail of the remedy before the Settlement Commission if the present petition is rejected in view of Section 32 O of the CEA and therefore it should be given a chance to approach the Settlement Commission. If the Settlement Commission again feels .....

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event that the Settlement Commission does not agree with the Petitioner, it would then seek adjudication and hence the entire purpose of going back to the Settlement Commission is going to be defeated. Mr. Narula submits that the Petitioner is only willing to go by the minority view of the Tribunal which has held that the Petitioner is liable to pay only ₹ 4,08,77,436/- crores of the duty. 15. Mr. Narula thereafter submits that owing to the stand of the Petitioner and the delays already ca .....

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adjudication in this case would involve the interpretation of the definition of packing machines as contained in the Notification No.10/2010 and the CTU Rules. 16. Mr. Narula seriously disputes the contention that the Settlement Commission cannot reject an application except under Section 32 L of the CEA and contends that the powers of the Settlement Commission to pass such orders as it thinks fit' includes the power to send the matter to the adjudicating authority. Mr. Narula places relian .....

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o be proceeded before the appropriate adjudicating authority. Relevant Provisions of the Central Excise Act, 1944 17. The provisions of CEA which fall for consideration in the present case are- 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 .....

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shall be disposed of in the manner hereinafter provided...... 32F. Procedure on receipt of an application under Section 32E - (1)........ to (4) ........... (5) After examination of the records and the report of the Principal Commissioner of Central Excise or Commissioner of Central Excise received under subsection (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 Princi .....

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eferred to in report of the Principal Commissioner of Central Excise or Commissioner of Central Excise and Commissioner (Investigation) under sub-section (3) or sub-section (4). (6)....... to (10) ........... 32I. Powers and procedure of Settlement Commission - (1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in a Central Excise Officer, under this Act or the rules made thereunder....... 32L. Power of the Settl .....

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and Findings 18. Section 32 E of the CEA requires an applicant to make a full and true disclosure of the duty liability that has not been disclosed before the Tribunal, the manner in which said liability has been derived, the additional amount of excise duty accepted as being payable and such other particulars as specified in the provision. Once an application is filed under Section 32 E, the procedure under Section 32 F (1) requires the Settlement Commission to issue a notice to the applicant .....

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the records and the report, the Settlement Commission, after hearing parties, may pass such order as it thinks fit in the matters covered by the application and any other matter relating to the case not covered by the application.' Thus, it is clear that the powers of the Settlement Commission are wide and are meant to effectively settle the disputes before it. 19. Coming to the first submission of the Petitioner viz., the finding in the impugned order that since there is full and true disc .....

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o evade tax. Thus, this Court rejects and sets aside the finding of the Settlement Commission that "these are meant for errant tax evaders who resort to concealment of facts relating to their transactions in statutorily prescribed records. To mend their such misdemeanor, these provisions have been incorporated in the law." 20. However, that does not bring to an end the further examination of the impugned order. The Court is required to examine the contents of the principal finding of t .....

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tailed enquiry and adjudication. Such exercise may require further enquiry and material evidence on the matter. It would also necessitate to determine as to whether the scope of expressions used in the definition of 'packing machine' is such as to cover the remaining impugned 2 machines within its purview. Section 31I of the Act confers on the Settlement Commission all the powers by a Central Excise Officer under the Act but its scope is limited and has to be read in accordance with the .....

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alian Food Ltd. v. Commissioner of Central Excise 2010 (254) ELT 392 (Mad.) (hereafter Australian Food ) to hold that disputed questions of fact and law ought not to be entertained by it. The relevant para of Australian Food (Supra) reads: "From this Section (Sec.32E), it is seen that the assessee may approach the Settlement Commission, before adjudication to settle the case, disclosing his duty liability which has not been disclosed by him before the Central Excise Officer. But, it nowhere .....

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Section 4-A of the Central Excise Act instead of Section 4, that point goes out of the jurisdiction of the Settlement Commission, since it has not been vested with the power to decide such a question of direct assessment. By such an act, the Settlement Commission has usurped the jurisdiction of the adjudicating authorities and as has been rightly commented on the part of the Revenue, by the impugned order, the Settlement Commission has set a bad precedent". 22. This Court has also consider .....

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cannot act as a proper substitute for the adjudication proceedings. In Picasso Overseas and Others v. Director General of Revenue (Intelligence) and Another [W.P. (C) No.1495/2007 and W.P. (C) No.4401/2007] decided on 03.08.2009 by a Division Bench of this Court, the point directly arose for consideration. The issue posed before this Court was: ………..can the settlement commission substitute itself for the adjudicating officer and arrive at a decision on highly contentious is .....

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d not adjudicate. (ii) All the provisions make it abundantly clear that what is required of the Settlement Commission is a decision when there are terms of settlement agreed to by the applicant and a duty liability which is accepted by him; he could not be fastened with the liability which he never intended as accepted to be payable by him. (iii) Section 127(1) as it stood then, used the expression complexity of the investigation which shows that highly complex and contentious questions of fact .....

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lement Commission, may, depending on the facts of each case, refer the matter to the adjudicating authority, more so in a situation where it is of the opinion that a settlement is unlikely. 24. The second contention of the Petitioner that the Settlement Commission can reject an application and send the matter to the adjudicating authority, if and only if the applicant has not cooperated with the Settlement Commission as per Section 32 L of the CEA, is incorrect. The powers of the Settlement Comm .....

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following observations of the Allahabad High Court in Vinay Wire (Supra): 20. As noticed hereinabove, under sub-section (5) of Section 32F, 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. Un .....

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Section 32L to send the case back to 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 32L, if it finds that any person who has made an application for settlement under Section 32E, has not co-operated with the Settlement Commission in the proceedings before it. This power given to the Settlement Commission under Section 32L does not and cannot take away the powers conferred on the Settlem .....

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y refuses to cooperate with the authority, which is dealing with the dispute, it cannot expect it to proceed further. In any Alternate Dispute Resolution ( ADR ) mechanism namely mediation, conciliation etc., cooperation of the parties is a pre-requisite and an essential condition. Thus, Section 32 L of the CEA merely states the obvious i.e. if there is noncooperation, the matter would be sent to the adjudicating authority. In any process of settlement, it cannot be expected that the Settlement .....

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Settlement Commission is of the opinion, for any reason whatsoever, that the dispute is one which cannot be settled, the Settlement Commission has the absolute discretion not to waste any further time on the matter and to immediately, with utmost alacrity, refer the matter to the adjudicating authority. 27. The power of granting immunity from prosecution and penalty, vested with the Settlement Commission, is a consequence being provided to any applicant before the Settlement Commission, only to .....

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Petitioner - Whether they constitute packing machines' as defined in Notification No.10/2010 or the CTU Rules. This is an issue which now needs to be adjudicated by the adjudicating authority. The Court has been shown the technical reports on record and some of the findings of the minority view to contend that the issue is not as technical as it is made out to be, by the majority view. In fact, the Petitioner heavily relies upon the minority view to submit that there is in fact no dispute be .....

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