1 WP-266-02 jpc IN THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 266 OF 2002 M/s Mahahar Audiotronics Pvt.Ltd. F-49, Deshbandhu Gupta Road, Karolbagh, Delhi .. Petitioners Versus 1. Union of India Through the Joint Secretary, Ministry of Law, Finance and Company Affairs, Ayakar Bhavan, M. K. Road, Churchgate, Mumbai 400 020 2. The Settlement Commission, Customs and Central Excise, Additional Bench, Ministry of Finance,Utpad Shulk Bhavan, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051 3. The Commissioner of Customs (Imports), New Custom House, Ballard Estate, Mumbai 400 038 4. The Additional Director, Directorate of Revenue Intelligence, Hotel Waldrof, 16, Arthur Bunder Road, Colaba, Mumbai 400 005 .. Respondents 2 WP-266-02 .... Mr. Vikram Nankani a/w Mr. Sushant Murthy i/by Mr.N.S. Thacker for the Petitioners Mr. Pradeep S. Jetly for the Respondents .... CORAM: V. C. DAGA, & S. J. KATHAWALLA, JJ. DATED: 27 th July, 2010. JUDGMENT( Per S.J.Kathawalla, J.) 1. The present Writ Petition inter alia challenges the order dated 2 nd August, 2001 and the order dated 4 th December, 2001 passed by the Settlement Commission, Customs and Central Excise, Additional Bench, Mumbai ( hereinafter referred to as “the Settlement Commission”). The facts: 2. During the period 1995-96, the Petitioners inter alia imported several consignments of electronic items such as printed PCB, Tape Deck Mechanism, etc. (hereinafter referred to as “the said goods”). After the said goods were assessed and allowed for clearance for home consumption, the Directorate of Revenue Intelligence (“DRI”) started investigation into the alleged under- invoicing of the said goods by the Petitioners. The investigation 3 WP-266-02 resulted in a show cause notice dated 11 th June, 1999, in which, the Petitioners were called upon to show cause as to why the following amounts should not be demanded and recovered from the Petitioners towards customs duty on account of under-invoicing of the said goods:- (i) Rs.5.90,323/-, in respect of 3 shipments of the said goods in relation to which, the DRI had obtained export declarations by the foreign suppliers from the Hong Kong Customs, details whereof were given in Chart-III to the show cause notice; (ii) Rs.23,01,077/- in respect of 7 shipments of the said goods in respect of which no export declarations were available as detailed in Chart-IV to the show cause notice. 3. On 2 nd June, 2000, the Petitioners made an Application to the Settlement Commission admitting the additional duty liability of Rs.4,60,078/-. This amount represented duty in respect of the 3 shipments in respect of which export declarations were available but the amount was recalculated by the Petitioners based on the actual amount of freight and insurance available. The amount demanded in the show cause notice of Rs.5.90,323 /- was calculated on the basis of addition of notional freight and insurance @ 21.125% in terms of Rule 9(2) of the Customs Valuation (Determination or Price of Imported Goods) Rules 1988 ( the “Valuation Rules“), but since 4 WP-266-02 the actual freight and insurance amounts were available, the Petitioners recalculated the duty liability based on the FOB value mentioned in the export declarations for 3 shipments and therefore, the admitted duty liability was reduced to Rs. 4,60,078/-. This amount has been accepted by the Settlement Commission with a minor correction in the calculation whereby the final amount at which the liability has been settled works out to Rs.4,66,827/-which has been paid by the Petitioners and there is no dispute in respect thereof. 4. Accordingly in the application made before the Settlement Commission, the Petitioners did not accept any duty liability in respect of the 7 shipments for which no export declarations were available. The application was admitted by an order dated 11th August, 2000. At the final hearing, the Settlement Commission did not accept the nil liability in respect of 7 shipments. At that stage, the Petitioners submitted before the Settlement Commission that in respect of the 7 shipments they were ready and willing to accept additional duty liability of Rs. 3 lacs based on the lowest transaction value of identical goods in terms of Rule 5(3) of the Valuation Rules which works out to Rs.2,31,662/-, but rounded off to Rs.3 lacs. This was recorded by the Advocates’ letter dated 14 th June, 2001. 5 WP-266-02 5. The Settlement Commission, vide impugned order dated 2 nd August, 2001 however, settled the case for duty liability of Rs. 23,01,077/- in respect of 7 Bills of Entry as per the show cause notice, by relying on the decision of the Tribunal in the case of Orson Electronics Pvt. Ltd. Vs. Collector of customs, 1996 (82) ELT 499. This was in addition to duty liability of Rs.4,66,827/- in respect of the 3 shipments which as aforesaid is not a subject matter of challenge. The Settlement Commission also imposed penalty of Rs. 1 lac but granted immunity from payment of interest and prosecution. 6. The Petitioners challenged the said impugned order dated 2 nd August, 2001 before this Court in Writ petition No.2202 of 2001, which came to be disposed of vide an order dated 10 th September, 2001 by this Court on withdrawal of the Petition with liberty to file an Application for rectification before the Settlement Commission, for which leave was granted by this Court. The Settlement Commission, however, rejected the application for rectification vide order dated 4 th December, 2001. Hence the present Petition was filed by the Petitioner impugning the orders dated 2 nd August, 2001 and 4 th December, 2001 passed by the Settlement Commission 7. This Court, by its order dated 25 th February, 2002, had earlier dismissed the present Writ Petition. The Petitioners preferred 6 WP-266-02 a Special Leave Petition (SLP) from the said order of dismissal dated 25 th February, 2002. The Special Leave Petition filed by the Petitioners was allowed and by an order dated 13 th August, 2004 passed in Civil Appeal No. 5245 of 2004, the Hon’ble Supreme Court remanded the case for examination by this Court. While remanding the case, the Hon’ble Supreme Court, vide order dated 13 th August, 2004 has inter alia, recorded as under: “..... In this regard, the learned senior counsel appearing on behalf of the appellants has placed reliance on Rule 5(3) of the Customs Valuation Rules, 1988 which lays down that “in applying this rule, if more than one transaction value of identical goods is found, the lowest such value shall be used to determine the value of imported goods”. It has been submitted that while passing the original order and fixing the duty, the Settlement Commissioner has not taken into consideration value of lowest transaction value of the identical goods out of several transaction values of the identical goods produced before it. Learned counsel appearing on behalf of the Union of India submitted that from the impugned order, it does not appear that this point was raised before the High Court. Be that as it may, the point raised being a pure question of law, we are of the view that the High Court was not justified in refusing to go into the merits of the original order passed by the Settlement Commission.” Submissions : 8. It is submitted on behalf of the Petitioners that the disclosure of additional duty liability for the sum of Rs. 3 lakhs in 7 WP-266-02 respect of 7 shipments is complete and correct. As the show cause notice sought to re-determine the value of 7 shipments based on the value of “ exactly identical goods” in terms of Rule 5(3) of the Valuation Rules, the Authority ought to have adopted the lowest value. It is submitted that in view of the express and clear provision of the Valuation Rules, the Settlement Commission ought to have accepted the disclosure of the additional duty liability of Rs.3 lakhs in respect of 7 shipments, based on the lowest transaction value. It is submitted that the Tribunal in many cases has taken the view that having regard to the Rule 5(3) of the Valuation Rules, in case of similar goods, lowest transaction value of similar goods must be adopted for determination of price of goods under import. Some of these Judgments are: i. Somaiya Organics ( India) Ltd. Vs. CCE Allahabad, 2009 (244) E.L.T. (Tri.-Del.) ii. Salasar Corporation Vs. Commissioner of Cus. (Exports), Chennai, 2008 (228) E.L.T. 315 (Tri.-Chennai) iii. Commissioner of Customs (I), Nhava Sheva Vs. V.M. Traders, 2007 (215) E.L.T. 85 (Tri.- Mumbai) iv. Seagram Manufacturing Ltd. Vs. Commissioner of Customs, Delhi, 2006 (197) E.L.T. 351 (Tri.-Del) 8 WP-266-02 9. It is submitted that therefore the decision of the Tribunal in Orson Electronics (supra) is not at all applicable as the Tribunal did not consider the provisions of Rule 5(3) nor was any such contention canvassed before the Tribunal. The facts and circumstances of the case in Orson Electronics Pvt. Ltd. are totally different from the facts and circumstances of the present case and therefore, the ratio thereof is not at all applicable. 10. It is submitted that having regard to the Rule 5(3) of the Valuation Rules, the Settlement Commission, ought to have settled the case in respect of the 7 shipments for Rs. 3 lacs instead of Rs.23,01,077/-. It is further submitted that Sub Section 7 of Section 127 C, as it stood at the relevant time, enjoins on the Settlement Commission to pass an order in accordance with the provisions of the Act which necessarily encompass the Valuation Rules, framed thereunder. 11. It is submitted that this Court in Aurora Fibers Ltd. Vs. Union of India 2009 (243) ELT 327, while dealing with the case of imposition of penalty by the Settlement Commission, held after noticing sub-section (7) of Section 127C of the Customs Act, that the Settlement Commission passed an order in accordance with the 9 WP-266-02 provisions of the Act, which in that case, was with reference to Section 124 of the Customs Act. The ratio of this case applies also to the present case, because, in the present case, the Settlement Commission ought to have followed the provisions of Rule 5(3) of the Valuation Rules. The same view has been taken by this Court in Kamat Printers Pvt. Ltd. Vs. Union of India, 2010 (251) ELT 177 wherein, in para 10, this Court has held that the Settlement Commission is bound to pass the order in terms of the provisions of the Act and cannot proceed to pass order beyond the same. 12. It is submitted that the order dated 4th December, 2001 is also required to be set aside as the reasoning in paragraph 6.2.9 thereof is the same as in the order dated 2nd August, 2001. In respect of Petitioners’ submissions on merits, the question of whether the Settlement Commission has power to entertain the rectification application is not being pressed and therefore, this question of law be left open by this Court. 13. It is therefore submitted that Rule in the above petition be made absolute by setting aside the orders dated 2 nd August, 2001 and 4 th December, 2001 to the extent that Settlement Commission 10 WP-266-02 has settled the case in respect of 3 shipments for duty amount of Rs.23,01,077/- instead of Rs.3 lacs. Per Contra: 14. It is submitted on behalf of the Respondents that the Revenue could not obtain copies of export declarations filed by the foreign suppliers in respect of 7 Bills of Entry. In such circumstances, contemporaneous evidence of FOB value of identical and similar goods in comparable quantities imported from the same suppliers in Hong Kong was relied upon by the Revenue. 15. It is submitted that the Petitioners filed an application for Settlement before the Settlement Commission under the provisions of Chapter XIVA of the Act. It is submitted that “settlement“ and “adjudication” are two different proceedings under the scheme of the Customs Act, 1962. It is submitted that “the expression ‘powers’ which are vested in a customs officer under the Customs Act, 1962, as stated in Section 127-I of the Customs Act, 1962 has to be read in accordance with the scheme of Chapter XIVA and its objects”. The order of Settlement Commission is in the form of a package and takes into consideration all the aspects of the case in a holistic manner before determining the issues. It is in this context, sub 11 WP-266-02 section 5 of Section 127 C confers on the Settlement Commission, the powers to “pass such orders as it thinks fit on the matters covered by the application”. Therefore, once the Petitioners have adopted the course of settlement it has to be governed by the provisions of the said Chapter XIVA of the Act. Resultantly, the benefit, which could have been availed when the matter of determination of duty was before a Customs Officer is not attracted to the cases of a settlement undertaken under the provisions of Chapter XIVA of the Act. 16. It is further submitted that in the first instance, if the Petitioners felt that no import duty was payable in respect of the 7 Bills of Entry, there was no occasion for the petitioners to prefer an application before the Settlement Commission more so when in respect of the remaining 3 Bills of Entry, the petitioners had accepted and paid the customs duty. If according to the Petitioners, no customs duty was payable and/or customs duty different to what is determined was payable then on the plain language of Section 127B of the Act, the Petitioners’ application before the Settlement Commission was not maintainable. An application under Section 127B of the Act would be maintainable only if it discloses duty liability, which had not been disclosed to the proper officer. 12 WP-266-02 Obviously, a disclosure contemplated is in the nature of voluntary disclosure of the concealed additional duty. It is therefore submitted that the Petitioners having opted to get the customs duty liability settled by the Settlement Commission under Chapter XIVA of the Act, cannot be permitted to dissect the Settlement Commission’s order with a view to accept what is favourable to them and reject what is not. It is therefore submitted that the contention of the Petitioners that the Settlement Commission has given a go by to Rule 5(3) of the Customs Valuation Rules is unsustainable. 17. It is submitted that it is not within the scope of the High Court’s power of judicial review to go into the validity of the determination in view of Section 127J which renders every order of settlement passed under Section 127C(7) of the said Act conclusive. The High Court, not being a Court of Appeal against order of the Settlement Commission, may examine the legality of the procedure and not the validity of the order. 18. It is submitted that the Petitioners have failed to make out any grounds requiring interference of this court. The petition is devoid of merits and the Rule issued therein deserves to be discharged with costs. 13 WP-266-02 Conclusion: 19. We have perused the impugned orders and have considered the oral as well as written submissions advanced on behalf of the Petitioners as well as the Respondent. We have also considered the case law cited on behalf of the Petitioners. 20. By show cause notice dated 11 th June, 1999, the respondents called upon the Petitioners to show cause why the amount of Rs.5,90,323/- in respect of 3 shipments of the said goods in relation to which, the DRI had obtained export declarations by the foreign suppliers from the Hong Kong Customs, details whereof were given in Chart-III to the show cause notice, and an amount of Rs. 23,01,077/- in respect of 7 shipments of the said goods in respect of which no export declarations were available as detailed in Chart-IV to the show cause notice, should not be demanded and recovered from the Petitioners towards customs duty on account of under- invoicing of the said goods. As set out above, there is no dispute pending in respect of the amount already paid by the Petitioners to the Respondent in respect of 3 shipments of the said goods and the dispute now relates only in respect of 7 shipments in respect of which no export declarations were available as detailed in Chart-IV to the show cause notice. 14 WP-266-02 21. The allegation in respect of 7 shipments contained in paragraph 8.3 of the show cause notice, is reproduced hereunder: “8.3. Further, similarly, a separate Chart IV has been prepared showing the amount of customs duty evaded in 7 consignments imported by M/s MAPL from M/s Pearl Industrial Company, Hong Kong during the period August, 1995 to June, 1996 for which the corresponding export declarations could not be received from Hong Kong Customs & Excise Department as this did not keep records beyond 2 years. The chart has been prepared on the basis of value given in export declarations received from Hong Kong Customs for exactly identical goods and the actual value of the goods as admitted by Shri Maninder Pal Singh Bakshi in his statement dated 15.4.1999. The Chart IV is annexed herewith this Show cause Notice. (Refer Annexure No.14).” It is therefore clear that the show cause notice sought to re- determine the value of 7 shipments based on the value of “exactly identical goods”. 22. Rule 5(3) of the Valuation Rules provides how the value of such imported goods should be determined and is reproduced hereunder: “5(3). In applying this rule, if more than one transaction value of identical goods is found; the lowest such value shall be used to determine the value of imported goods.” 15 WP-266-02 23. Sub Section 7 of of Section 127 C of the Act as it stood at the relevant time reads thus: “(7) After examination of records and the report of the Commissioner of Customs received under sub- section(1), and the report, if any, of the Commissioner (Investigation) of the Settlement Commission under sub-section (6), and after giving an opportunity to the applicant and to the Commissioner of Customs having jurisdiction to be head, either in person or through a representative duly authorized 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 Commissioner(Investigation) under sub- section (1)or sub-section (6).” Thus sub section 7 of section 127C makes it amply clear that after examination of records and the report of the Commissioner of Customs and after giving an opportunity to the parties to be heard and examining 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 Commissioner (Investigation) under sub-section (1) or sub-section (6). 16 WP-266-02 24. The valuation Rules are issued by the Central Government in exercise of powers conferred by Section 14 of the said Act read with Section 156 thereof read with Section 22 of the General Clauses Act, 1897 and therefore form part of the Act. As the show cause notice sought to re-determine the value of 7 shipments based on the value of “exactly identical goods”, in view of the express and clear provisions of Rule 5(3) of the Valuation Rules it was incumbent and mandatory upon the Settlement Commission to adopt the lowest value. 25. The clear admission on the part of the Respondents that contemporaneous evidence of FOB Value of identical and similar goods in comparable quantity imported from the same supplier in Hong Kong was relied upon makes it mandatory on the part of the Respondents to adopt the lowest value of such transaction value of contemporaneous imports of identical and similar goods, as required under Rule 5(3) and Rule 6(3) of the Valuation Rules. 26. Though it is true that “settlement” and “adjudication” are two different proceedings under the scheme of the Act, it is not as if the Settlement Commission can settle the case de-hors the provisions of the said Act. As pointed out by the Petitioners, this 17 WP-266-02 Court has held in its decisions in the case of Aurora Fibers Ltd. (supra) and Kamat Printers Pvt. Ltd. (Supra) that the Settlement Commission must also pass orders in accordance with the provisions of the said Act, as provided for in sub section 7 of Section 127C of the said Act. It therefore follows that in settling the case of under valuation, the Settlement Commission is also required to determine the duty liability by adopting the lowest value in terms of Rule 5 and Rule 6 of the Valuation Rules. The Settlement Commission cannot ignore and/or overlook the provisions of Rule 5 and Rule 6 of the Valuations Rules. Reference to Section 127-I is irrelevant in the facts and circumstances of the present case as the Petitioners have already deposited the entire additional admitted duty liability including the sum of Rs. 3 lacs being liability in respect of 7 Bills of entry in respect of which no export declarations are available. 27. The Respondents have submitted that the Application under Section 127B of the Customs Act is maintainable only if it discloses duty liability, which had not been disclosed to the proper officer and the Petitioners having opted to get its customs duty liability settled by the Settlement Commission under Chapter XIVA of the Act, now cannot be permitted to dissect the Settlement Commission’s order with a view to accept what is favourable to them 18 WP-266-02 and reject what is not. In our view the submission is incorrect. After the Settlement Commission admitted the Application, the Petitioners made a further disclosure of the amount of their additional duty liability in respect of 7 Bills of Entry and recorded the same vide Advocates’ letter dated 14 th June, 2001. This additional admitted duty liability is part of the Application made by the Petitioners for settlement of the case. Since the Settlement Commission did not settle the case in respect of the 7 Bills of Entry in accordance with law, the impugned order passed by the Settlement Commission to that effect is challenged before this Court as arbitrary, unreasonable and perverse. The above submission of the Respondents is therefore not tenable and is rejected. 28. The submission of the Respondent that it is not within the scope of the High Court’s power and judicial review to go into the validity of determination in view of Section 127J which renders every order of Settlement passed under Section 127C(7) of the said Act conclusive is also not correct. The orders of the settlement Commission are amenable to the writ jurisdiction and the judicial review thereof is permissible under Article 226 of the constitution of India as held by the Hon’ble Supreme Court in the Case of Jyotendrasinhji Vs. S. I.Tripathi, 1993 Supp (3) SCC 389. In the 19 WP-266-02 present case, not only the decision but also the decision making process is not in accordance with the law since the settlement commission has not followed the provisions of Rule 5(3) of the Valuation Rules which are part of the Act. 29. Under the circumstances, we hold that the orders dated 2 nd August, 2001 and 4 th December, 2001 passed by the Settlement Commission are ex-facie arbitrary and perverse, inasmuch as the settlement of the case in relation to the duty liability is not in accordance with law. The orders passed by the Tribunal dated 2 nd August, 2001 and 4 th December, 2001 to the extent that the Settlement Commission has settled the case in respect of 7 shipments for the amount of 23,01,077/- instead of Rs. 3 lacs is set aside. The question whether the Settlement Commission has power