WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.1 of 32 THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 02.06.2010 + WP(C) 3223/2010 QUALIMAX ELECTRONICS PVT LTD ... Petitioner - versus – U.O.I & ORS … Respondents AND + WP(C) 3220/2010 PRADEEP GUPTA ... Petitioner - versus – U.O.I & ORS … Respondents AND + WP(C) 3222/2010 MANJU GUPTA ... Petitioner - versus – U.O.I & ORS … Respondents AND + WP(C) 3224/2010 MOHIT GUPTA ... Petitioner - versus – U.O.I & ORS … Respondents Advocates who appeared in this case:- For the Petitioner : Mr C. Hari Shankar with Mr Ravindra For the Respondent No.1 : Mr Jatan Singh with Mr Ashok Singh and Mr Sudeep Sudan For the Respondent Nos. 2 -3 : Mr Mukesh Anand with Mr Shailesh Tiwari, Mr Sumit Batra And Mr R. C. S. Bhadoria WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.2 of 32 CORAM:- HON’BLE MR JUSTICE BADAR DURREZ AHMED HON’BLE MR JUSTICE V.K. JAIN 1. Whether Reporters of local papers may be allowed to see the judgment ? Yes 2. To be referred to the Reporter or not ? Yes 3. Whether the judgment should be reported in Digest ? Yes BADAR DURREZ AHMED, J 1. The petitioners in this group of four writ petitions are aggrieved by the communication dated 04.05.2010 received from the Customs and Central Excise Settlement Commission (hereinafter referred to as „the Settlement Commission‟), whereby they were informed of the rejection of their settlement applications filed under Section 32E of the Central Excise Act, 1944 (hereinafter referred to as „the said Act). The order of the Settlement Commission, which was communicated to the petitioners was as follows:- “Now that the writ petition has been withdrawn by the applicant and as the case already stands adjudicated even before filing the settlement applications, no case before the Commission exists.” 2. Section 32E, to the extent relevant, is as under:- ―32E. Application for settlement of cases: – (1) An assessee may, at any stage of a case relating to him make an application 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 WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.3 of 32 admits short levy on account of misclassification or otherwise of such excisable goods, to the Settlement Commission to have the case settled 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; and (c) the additional amount of duty accepted by the applicant in his application exceeds two lakh rupees: 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. xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx‖ 3. The common question which calls for a decision in these writ petitions is whether the “case” of the petitioners had been “adjudicated” prior to the filing of their settlement applications under Section 32E of the said Act. Normally, such a question would appear to require a straightforward determination of the factual position. However, in these writ petitions, it so happens that the order-in-original passed by the adjudicating authority was dated 24.12.2009 though it was received by the petitioners after 08.01.2010, which was the date on which the petitioners had filed their settlement applications under Section 32E of the said Act. WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.4 of 32 4. On behalf of the petitioners, it was contended that the mere passing of the order-in-original was not sufficient and unless and until the order was received by them, it could not be said that their case had been adjudicated in the context of the provisions of Section 32E of the said Act. Section 32 E(1) of the said Act enables an assessee, in respect of a “case” relating to him, to make an application, “before adjudication”, to the Settlement Commission to have the case settled. On behalf of the petitioners, it was submitted that since the settlement applications under Section 32E were filed on 08.01.2010, which was prior in time to the petitioners receiving copies of the order-in-original dated 24.12.2009, the said settlement applications could not have been rejected on the ground that the case had already been adjudicated even before the filing of the settlement applications. The learned counsel for the petitioners also submitted that the Settlement Commission, itself, has been taken the stand in cases before it that unless the order is communicated to the assessee prior to the filing of the settlement application, it cannot be said that the case had been adjudicated. Consequently, in such cases, where, though the order-in- original is passed prior to the filing of the settlement application, but it is communicated to the assessee after such filing, the Settlement Commission proceeds with applications and does not reject them outright as has been done in the present writ petitions. To establish this proposition, the learned counsel for the petitioners placed a copy of the Settlement Commission‟s order in the case of – In Re: Emjay Creations: (2007) 219 E.L.T 776 (Sett. Comm.). Reliance was also placed by the learned counsel for the WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.5 of 32 petitioners on a decision of the High Court of Kerala in the case of Government Wood Works v. State of Kerala: (1988) 69 STC 62. 5. On the other hand, the learned counsel for the respondents submitted that the provisions of Section 32E of the said Act do not lend themselves to any ambiguity and, therefore, the same should be construed literally. In other words, according to the learned counsel, it does not matter as to whether the assessee has been communicated or has received the order-in-original prior to the making of an application under Section 32E and all that is relevant for proceeding with a settlement application is that the order-in-original must not have been passed or made before the application is filed by the assessee to have his case settled. The learned counsel for the respondents also placed reliance on the definition of the word “case” as provided in Section 31(c) of the said Act. In the said provision, ―case‖ has been defined to mean any proceeding under the said Act or any other Act for the levy, assessment and collection of excise duty, pending before an adjudicating authority on the date on which an application under Section 32E(1) is made. It was contended by the learned counsel for the respondents that inasmuch as the order-in-original had been made and/ or passed by the adjudicating authority on 24.12.2009, there was nothing pending before such adjudicating authority on 08.01.2010 when the petitioners had filed their applications under Section 32E of the said Act. Therefore, on 08.01.2010, there was no “case” which was pending adjudication and, thus, nothing was left for the Settlement Commission to settle. WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.6 of 32 6. In order to answer the issue at hand and to appreciate the contentions of the parties, it would be necessary for us to look at the facts leading to the passing of the impugned order. A show cause notice dated 30.09.2008 was issued by the Additional Director General, Directorate General of Central Excise Intelligence, New Delhi, inter alia, requiring Qualimax Electronics Private Limited (one of the petitioners herein) to show cause to the Commissioner of Central Excise, Ghaziabad as to why: ―(i) Rs 5,78,11,047/- (Five crore seventy eight lac eleven thousand and forty seven only) being the Central Excise duty including Special Excise Duty, Education & Higher Education Cess should not be demanded from them under Section 11A of the Central Excise Act, 1944. (ii) Penalty under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944, should not be imposed upon them. (iii) Interest under Section 11AB of the Central Excise Act, 1944 should not be demanded from them.‖ The other petitioners as well as some other persons, who are not before us, were also required to show cause to the said Commissioner of Central Excise, Ghaziabad as to why penalty under Rule 26 of the Central Excise Rules, 2002 should not be imposed upon them. Qualimax Electronics Private Limited submitted its reply which it termed as an interim reply on 21.12.2009. The order-in-original was passed on 24.12.2009 by the Commissioner of Customs and Central Excise, Ghaziabad. By virtue of the said order, the demand of central excise duty of Rs 5,78,11,047/- upon Qualimax Electronics Private Limited was confirmed under the proviso to Section 11A (1) of the said Act. Interest at the appropriate rate was also WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.7 of 32 demanded on the said amount from Qualimax Electronics Private Limited under Section 11AB of the said Act. The said Commissioner also imposed a penalty of Rs 5,78,11,047/- upon Qualimax Electronics Private Limited under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the said Act. By virtue of the order dated 24.12.2009, the said Commissioner also imposed a penalty of Rs 1,00,00,000/- on Mr Pradeep Gupta, Director of Qualimax Electronics Private Limited under Rule 26 of the Central Excise Rules, 2002. A penalty of Rs 50 lacs was also imposed on Mr Mohit Gupta, who was looking after the work of Qualimax Electronics Private Limited, under the said Rule 26. A penalty of Rs 10 lacs was imposed on Mrs Manju Gupta (proprietor of M/s Vikram Tyre) under the said Rule 26. 7. According to the petitioners, they were unaware of the making / passing of the said order-in-original dated 24.12.2009 when they filed their settlement applications before the Settlement Commission on 08.01.2010. However, according to the respondents, the petitioners were well aware of the making of the said order-in-original and in order to thwart the process of recovery of the demand and penalties along with interest, the petitioners avoided service of copies of the said order-in-original on them and rushed to the Settlement Commission by way of their applications under Section 32E filed on 08.01.2010. We shall point out the circumstances of the making of the order-in-original and the mode and manner in which copies of the same were served upon the petitioners a little later. For the present, we continue with the sequence of events, which are not in controversy. After the WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.8 of 32 settlement applications were filed on 08.01.2010, the Settlement Commission issued a notice under Section 32F(1) of the said Act requiring the petitioners to explain in writing to the Commission as to why the applications filed by them should be allowed to be proceeded with. At this juncture, it would be pertinent to point out that Section 32F prescribes the procedure to be followed by the Settlement Commission on receipt of an application under Section 32E. Sub-section (1) of Section 32F stipulates that on receipt of an application under Section 32E(1), 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. The said provision further stipulates that after taking into consideration the explanation provided by the applicant, the Settlement Commission, shall, within a period of fourteen days from the date of notice, by an order, allow the application to be proceeded with, or reject the application, as the case may be, and in the latter eventuality, the proceedings before the Settlement Commission shall abate on the date of rejection. The proviso to Section 32F(1) prescribes 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 be allowed to be proceeded with. 8. Coming back to the factual situation, the settlement Commission issued the notice prescribed under Section 32F(1) on 11.01.2010, that is, within the stipulated period of seven days. By virtue of the said notice, the petitioners were also required to explain the following:- WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.9 of 32 ―3. The written explanation should, among other things, contain whether the applications fulfill the criteria as laid under 32E of Central Excise Act and also inform the Commission whether, the bar applicable under Section 32O of the Central Excise Act, 1944 is applicable in their case. 4. It is also required to be explained that in view of the fact that the applicant has admitted the entire duty demand however, they have deposited only an amount of Rs 5.15 crores hence, the remaining amount of Rs 63,11,047/- is not deposited by the applicant till the filing of settlement application, hence not fulfilling the requirement of Section 32E of the Central Excise Act 1944 and moreover, the settlement applications have also been filed in the old format which is discontinued and replaced by the new format since 01/03/07, why the said applications shall be allowed to be proceeded with.‖ Immediately on receipt of the said notice under Section 32F(1), instead of replying to the same and offering the explanation sought for by the Settlement Commission, one of the petitioners (Qualimax Electronics Private Limited) for the reasons best known to it, filed a writ petition [WP(C) 283/2010] before this Court challenging the said notice dated 11.01.2010. In the said writ petition a prayer was made for the setting aside of the said notice dated 11.01.2010 issued by the Settlement Commission. Interestingly, a direction was also sought requiring the Settlement Commission to decide the petitioners‘ settlement applications in terms of the provisions of Chapter V of the said Act as they existed prior to 01.03.2007. This prayer was apparently made because the settlement applications had been filed in the old format which had been discontinued and had been replaced by the new format with effect from 01.03.2007 as would be apparent from the relevant portion of the notice dated 11.01.2010 which has been extracted above. In the said writ petition, a prayer was also WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.10 of 32 made for a direction that the respondents be prohibited from effecting service on the petitioner of the order dated 31.12.2009 (presumably the reference is to the order-in-original dated 24.12.2009). 9. Anyhow, the said writ petition was withdrawn on 18.01.2010 in the following manner indicated in the order of the court:- ―The learned counsel for the petitioner seeks permission to withdraw this petition with liberty to take recourse to such remedies which may be available to the petitioner after the Settlement Commission determines the issue contained in the show cause notice dated 11th January, 2010. The learned counsel for the petitioner states that the reply to the show cause notice has been filed this morning itself. It is obvious that the Settlement Commission would dispose of the said show cause notice in accordance with law. The writ petition is dismissed as withdrawn with the aforesaid liberty.‖ As mentioned in the order of this Court dated 18.01.2010, the petitioners had filed their replies to the notice under Section 32F(1) on 18.01.2010 itself. Thereafter, the Settlement Commission was informed of the withdrawal of the writ petition and the impugned communication dated 04.05.2010 was issued by the Settlement Commission. 10. We may now refer to the controversy with regard to the making of the order-in-original, its communication to the petitioners and receipt of copies of the said order by the petitioners. As pointed out above, the order- in-original was passed / made on 24.12.2009. There is no controversy with regard to this. There is also no controversy with regard to the fact that copies of the said order-in-original were received by the petitioners much WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.11 of 32 after 08.01.2010, that is, after the date on which the settlement applications had been filed under Section 32E(1) of the said Act. 11. In the course of hearing of these writ petitions, we had directed the counsel for the respondents to verify as to on which date the order-in- original was despatched and on which date the service was effected on the petitioners. The learned counsel for the respondents placed before us a copy of the letter dated 15.02.2010 issued by the Superintendent, Central Excise, R-I D-III, Ghaziabad to the Superintendent (Adj.), Customs & Central Excise, Commissionerate, Ghaziabad. From the said letter dated 15.02.2010, it is clear that the copies of the order-in-original dated 24.12.2009 had been sent individually to noticee Nos. 2-4 (Mr Pradeep Gupta, Mrs Manju Gupta and Mr Mohit Gupta) at their address — 83, Anand Lok, New Delhi-49 through speed post on 09.02.2010. The letter also indicates that a copy of the order-in-original dated 24.12.2009 had also been sent to Qualimax Electronics Private Limited at the said address — 83, Anand Lok, New Delhi-49 on 02.02.2010 through speed post. 12. The learned counsel for the respondents had also placed on record a letter dated 19.05.2010 written to him by the Assistant Commissioner, Central Excise, Div-III, Ghaziabad. In the said letter dated 19.05.2010, it is stated that the order-in-original dated 24.12.2009 was despatched on 31.12.2009. In the said letter, no particulars are given as to who despatched the said order-in-original on 31.12.2009 and to whom it was desptached. However, the learned counsel for the parties stated that on WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.12 of 32 31.12.2009, the order-in-original was despatched from the office of the adjudicating authority. It is on this date that the order-in-original went out of the control of the adjudicating authority. This date of 31.12.2009 would be of great significance as we shall see later in this judgment. The said letter dated 19.05.2010 also indicates that the order-in-original dated 24.12.2010 had been sent to the Range Office on 12.01.2010 for delivery to the party. Anyhow, the letter dated 19.05.2010 goes on to state that on 13.01.2010, one Inspector and one Sepoy had been deputed to visit the premises at 83, Anand Lok, New Delhi-49 to serve the order-in-original. However, service could not be effected inasmuch as the security guard at the premises informed that the directors /authorized signatories, namely, Mr Pradeep Gupta, Mr Mohit Gupta and Mrs Manju Gupta were not present at the house and they were out of station. The letter goes on to state that Mr Pradeep Gupta was contacted over the telephone but he replied that he will not receive any order. It is further indicated in the said letter dated 19.05.2010 that, thereafter, the Inspector and Sepoy went to the factory premises at D-12, Site-IV, Industrial Area, Sahibabad, Ghaziabad and there they found the premises to be locked. They were informed that the unit was closed for a long time. Consequently, in the presence of two panchas, the order-in-original dated 24.12.2009 was supposedly pasted on the gate of the said factory premises. The letter also indicates that copies of the order-in- original, in respect of the three persons referred to above, were also sent by speed post on 21.01.2010 in one envelope and again on 09.02.2010 separately to each party. From the above two letters dated 15.02.2010 and WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.13 of 32 19.05.2010, it is clear that the petitioners had not received the order-in- original dated 24.12.2009 when they filed their settlement applications under Section 32E(1) of the said Act before the Settlement Commission on 08.01.2010. In fact, even if whatever is stated in the two letters is taken to be true, the copies of the order-in-original had not even been sent by post to the petitioners by 08.01.2010. The service by pasting on the gate of the factory premises was also done only on 13.01.2010. However, it is also true that the order-in-original dated 24.12.2009 was despatched from the office of the adjudicating authority (i.e., Commissioner of Central Excise and Customs, Ghaziabad) on 31.12.2009. It is on this date that the order-in- original dated 24.12.2009 went out of the control of the adjudicating authority. This fact is of material significance and the reason for this would be clear from the discussion below. 13. With the facts out of the way, we shall now examine the precedents in law. As pointed out above, the learned counsel for the petitioners referred to a decision of the Settlement Commission in the case of Emjay Creations (supra) to submit that it has been the practice of the Settlement Commission that unless the adjudication order had been communicated to the assessee prior to the date of filing of the settlement application, it could not be said that the case had been adjudicated and that the case was not pending before the adjudicating authority. We find that the decision in Emjay Creations (supra) does indicate that the Settlement Commission took the view that till the order is pronounced or published or WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.14 of 32 the party affected has means of knowing it, the order could not be said to have been passed. However, for our purposes, the practice of the Settlement Commission is not what is relevant. The question is whether that practice is in accord with the legal principles. Of course, the Settlement Commission in the said decision in Emjay Creations (supra), had placed reliance on two decisions of the Kerala High Court which were also referred to by the learned counsel for the petitioners. One decision was in the case of Vasudevan v. Assistant Collector of Central Excise & Customs: (1994) 72 ELT 533 (Ker.). That decision was with reference to the provisions of Section 153 of the Customs Act, 1962 and the Kerala High Court, in connection therewith, had concluded that the normal rule is to tender the order, decision, summons or notice or to send it by registered post to the person for whom it is intended or to his agent. We find that a similar provision is contained in Section 37C of the said Act, which reads as under:- ―37C Service of decisions, orders, summons, etc. — (1) Any decision or order passed or any summons or notices issued under this Act or the rules made thereunder, shall be served, — (a) by tendering the decision, order, summons or notice, or sending it by registered post with acknowledgment due, to the person for whom it is intended or his authorised agent, if any; (b) if the decision, order, summons or notice cannot be served in the manner provided in clause (a), by affixing a copy thereof to some conspicuous part of the factory or warehouse or other place of business or usual place of residence of the person for whom such decision, order, summons or notice, as the case may be, is intended; (c) if the decision, order, summons or notice cannot be WP(C) Nos. 3223/10, 3220/2010, 3222/2010 & 3224/2010 Page No.15 of 32 served in the manner provided in clauses (a) and (b), by affixing a copy thereof on the notice board of the officer or authority