IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 21-3-2011 CORAM: THE HONOURABLE MR.JUSTICE R.SUDHAKAR W.P.No.5916 of 2008 and M.P.No.1 of 2008 M/s.Bond Stores Pvt. Ltd., Represented by its Director Mr.Ajay K.Menon VII/1131, Shreyas Kappalanandimukku Cochin. ... Petitioner Versus 1. Customs & Central Excise Settlement Commission Additional Bench II Floor, Narmada Block Custom House, No.60, Rajaji Salai Chennai 1. 2. Commissioner of Customs (Imports) Custom House No.60,Rajaji Salai Chennai 1. 3. The Assistant Commissioner of Customs (DIU) Custom House No.60,Rajaji Salai Chennai 1. .... Respondents Prayer: Writ Petition filed under Article 226 of the Constitution of India for the relief of issuance of writ of certiorarified mandamus to call for the records of the first respondent culminating in the Final Order dated 28.2.2008 issued from file C.No.VIII/10/95, 103-109/2007 SC quash the same and direct the first respondent to reconsider the application on merits with the assistance of the Commissioner (Investigation). https://hcservices.ecourts.gov.in/hcservices/ For Petitioner :- Mr.S.Murugappan For Respondents :- Mr.T.R.Senthilkumar Senior Standing Counsel O R D E R The above writ petition is filed for issuance of a writ of certiorarified mandamus to call for the records of the first respondent culminating in the Final Order dated 28.2.2008 issued from file C.No.VIII/10/95, 103-109/2007 SC quash the same and direct the first respondent to reconsider the application on merits with the assistance of the Commissioner (Investigation). 2. The writ petition is filed challenging the final order of the first respondent dated 28.2.2008 which reads as follows:- "25. Accordingly, we find no alternative but to send the case back to the jurisdictional Customs Officer under Section 127I of the Customs Act. He shall dispose of the case in accordance with the provisions of the act as if no application under Section 127B has been made." 3. The brief facts which are necessary for the disposal of the present writ petition are as follows:- The petitioner is operating a duty free shop in Chennai Port and based on the investigation done a show cause notice in No.OS- 16/2006-DIU dated 1.3.2007 demanding customs duties and imposing penalties on the company and the officers of the company was issued. The petitioner filed a case before the first respondent for settlement of the case by admitting a total liability of Rs. 67,05,357/-. The case was admitted by the first respondent by its order No. 14/2007-Cus dated 4.6.2007. Even before the admission of the case, at the time of investigation the petitioner paid Rs.25 lakhs towards duty involved on 30.8.2006 and Rs. 10 lakhs on 8.9.2006 and further sum of Rs. 10 lakhs on 20.9.2006. The petitioner also furnished bank guarantee and based on a joint discussion with the respondent department, the petitioner gave a letter dated 2.7.2007 asking the department to encash the bank guarantee for Rs. 42,55,000. This was followed by a reminder dated 26.7.2007. It however, appears that the department informed the Settlement Commission that it has not encashed the bank guarantee by letter dated 31.7.2007. It is pertinent to point out that the bank guarantee given by the petitioner on 24.8.2007 is to the tune of Rs. 1,23,55,000. At this point of time, the first respondent Settlement Commission after admitting the case by order No. 14/2007-Cus proceeded to resolve the matter as provided in Chapter XIV-A which relates to the settlement of cases. https://hcservices.ecourts.gov.in/hcservices/ Section 127C prior to amendment provides the procedure on receipt of an application under Section 127B and the relevant portions which would be useful for the disposal of the writ petition are as follows:- "127C Procedure on receipt of application under Section 127B (1) on receipt of an application under Section 127B, the Settlement Commission shall call for a report from the Commissioner of Customs having jurisdiction and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission may, by order,allow the application to be proceeded with or reject the application : Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard: Provided further that the Commissioner of Customs shall furnish such report within a period of one month of the receipt of the communication from the Settlement Commission, failing which it shall be presumed that the Commissioner of Customs has no objection to such application; but he may raise objections at the time of hearing fixed by the Settlement Commission for admission of the application and the date of such hearing shall be communicated by the Settlement Commission to the applicant and the Commissioner of Customs within a period not exceeding two months from the date of receipt of such application, unless the presiding officer of the Bench extends the said period of two months, after recording the reasons in writing. (2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Commissioner of Customs having jurisdiction. (3) Subject to the provisions of sub-Section (4), the applicant shall, within thirty days of the receipt of a copy of the order under sub- section (1) allowing the application to be proceeded with, pay the amount of additional duty admitted by him as payable and shall furnish proof of such payment to the Settlement Commission. (4) If the Settlement Commission is satisfied, on an application made under sub- section (1) that the applicant is unable for good https://hcservices.ecourts.gov.in/hcservices/ and sufficient reasons to pay the amount referred to in sub-section (3) within the time specified in that sub-section, it may extend the time for payment of the amount which remains unpaid or allow payment thereof by instalments, if the applicant furnishes adequate security for the payment thereof. (5) Where the additional amount of customs duty referred to in sub-section (3) is not paid by the applicant within the time specified or extended period, as the case maybe, the Settlement Commission may direct that the amount which remains unpaid, together with simple interest at the rate of eighteen per cent per annum or at the rate notified by the Board from time to time on the amount remaining unpaid, be recovered as the sum due to the Central Government by the proper officer having jurisdiction over the applicant in accordance with the provision of Section 142. (6) Where an application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner of Customs having jurisdiction and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner (Investigation) to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. (7) After examination of the 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 Commissioner under sub-section (6) and after giving an opportunity to applicant and to the Commissioner of Customs 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 Customs or the Commissioner (Investigation) under https://hcservices.ecourts.gov.in/hcservices/ sub-section (1) or sub-section (6). ....... ........ ...... ....... ........ ...... 9. Every order passed under sub-section (7) shall provide for the terms of settlement including any demand by way of duty, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud, or misrepresentation of facts. " 4. In accordance with the above provisions, the first respondent directed the Commissioner (Investigation) to conduct an investigation on rival claims and furnish a factual report as provided under Section 127C(6). Accordingly an investigation was conducted by the Commissioner (Investigation) and a report in C.No. VIII/10/95/2007-SC dated 18.2.2008 was filed and it is a detailed report which gives the various parameters that were considered for determining the duty liability for the purpose of settlement commission to come to a conclusion as to how the issue should be resolved. Paragraph 9 of the report clearly states the nature of the order passed by the first respondent which runs as follows:- "9. In view of the irreconcilable positions taken by the rival parties, Addl. Bench hereby directs Commissioner (Investigation) attached to this Bench to conduct investigation on rival claims and file a factual report to the Bench. Any other matter not referred to above but relevant to the facts in issue may also be investigated and reported. " It is, therefore, clear that the commission took a conscious decision to order investigation by the Commissioner. 5. On the basis of the order of the first respondent, the investigation was thoroughly done and a detailed report was filed. The report proceeds to give a detailed working sheet showing as to how the calculations as regards the quantum of duty demanded in the show cause notice and the quantum of duty admitted by the petitioner should be considered. In paragraph 2.4 the various heads like duty demanded and admitted in application, duty demanded and duty accepted after first joint sitting and proportionate duty demanded and duty accepted after scrutiny of Bond Register have been tabulated and in this tabulated column the demand of duty as per show cause notice is https://hcservices.ecourts.gov.in/hcservices/ shown as Rs.1,69,22,098.80. The said tabulation containing category wise split up of the originally admitted duty along with the revised versions. The category wise duty calculation as per report is extracted below:- Category of Bills Total No. of cash memos Duty demanded in SCN and admitted in application Proportionate duty demand and duty accepted after joint sitting 1 Proportionate duty demand and duty accepted after scrutiny of Bond Register No signature of crew member 102 42,80,113.52 10,16,323.04 25,70,027 25,70,027 20,13,102 20,13,102 No such crew member 54 12,05,987.90 12,05,987.90 6,04,451.90 6,04,451.90 4,73,467 4,73,467 Purchase denied by Master 52 19,25,870.66 14,76,814 11,94,895.18 7,83,278,16 9,36,010 6,13,590 No such Vessel 21 5,63,607.49 Nil 2,36,736.22 Nil 1,85,435 Nil Sales made to Coastal Vessels 58 25,05,588.49 Nil 12,20,357.23 4,25,959.64 9,55,906 3,33,654 Signature not tallying 324 64,40,930.75 30,06,228.46 32,34,341.34 Nil 25,33,571 Nil Total Duty demanded in SCN Total Duty Accepted 611 1,69,22,098.80 67,05,353.63 90,61,809 43,83,717.17 70,97,432.42 34,33,814.25 6. The investigating authority has given various reasons as to why after investigation the duty liability has been scaled down from that of the duty demanded in the show cause notice and all the particulars have been thoroughly investigated and analysed in the report which runs to nearly 17 pages. For the purpose of determining the issue, the Commissioner (Investigation) also relied upon the final https://hcservices.ecourts.gov.in/hcservices/ order passed by the Settlement Commission in its earlier Final order No.57/2007 in the case of M/s. Flemingo DFS. On the basis of the said earlier order passed by the Settlement Commission and considering material documents and the evidence produced by the Revenue as well as the petitioner, the investigation report was filed. 7. In paragraph 4.4. of the final report, the Commissioner (Investigation) has recorded the operative portion of the admission order dated 4.6.2007 passed by the Settlement Commission directing the Revenue to encash the bank guarantee given by them to realise the amount and also to pay the balance amount of admitted duty. The Commissioner (Investigation) has also stated that the petitioner has paid Rs.25 lakhs towards duty and the bank guarantees were encashed by the Department during January 2008 insofar as the admitted duty of Rs.67,05,347. After receipt of the report, the Settlement Commission, heard the parties on 20.2.2008. The petitioner made their written submissions and they also relied upon the earlier decision of the Settlement Commission in the case of M/s. Flemingo (DFS) Pvt. Ltd., . 8. The first respondent Bench however, on considering the entire arguments made on either side and after narrating the various events that had happened suddenly took a view that in respect of the duty demand there is a huge gap of Rs.1.07 crore i.e more than three times of the admitted amount. The Bench was of the view that the disclosure made by the petitioner cannot be considered as a full and true disclosure as there were demonstrable contradictions, inconsistencies and incompleteness in the disclosures made one after another by the petitioner. The Bench relied upon the decision of the Apex Court in the case of Union of India Vs. Anil Chanana (2008 TIOL 09 – SC -CUS) to come to the conclusion that full and true disclosure of facts relating to the case have not been made by the petitioner and accordingly remitted the case to the jurisdictional Customs Officer under Section 127I of the Customs Act. Challenging the same the present writ petition has been filed. 9. Primarily Mr. S.Murugappan, the learned counsel appearing for the petitioner contended as follows:- (i). The admitted fact is that the show cause notice has been issued for a higher sum of Rs.1,69,22,099. After the joint sitting held between the department and the petitioner, as per order of the Settlement Commission to the Commissioner (Investigation), the department conceded that the proportionate duty demand should be Rs.90,61,809 against which the petitioner accepted a liability of Rs.43,83,717.17. Thereafter, on the basis of the investigation report and the earlier orders of the Settlement Commission the Department conceded that the show cause notice demand should be Rs.70,97,432.42. The petitioner however, accepted for Rs. https://hcservices.ecourts.gov.in/hcservices/ 34,33,814.25. The basis for computation of these figures was based not merely on the plea taken by the petitioner but also on the basis of the investigation and analysis of the documents by the department which can be discerned from various instances cited in the investigation report. When the matter was investigated on the basis of the order of the first respondent Settlement Commission, the claim of the department was split up into various categories which are as follows:- 1. No signature on the crew member/master in the cash bill. 2. No such crew member master available at the time of sale 3. Purchase denied by the master/crew member 4. No such vessel berthed during the date of sale 5. Sales made to coastal run vehicles 6. Signature not tallied with the declaration made by crew to the customs. (ii). All these categories were analysed and the objections of the petitioner and the observation of the department are set out in the relevant paragraphs of the report. The major duty component falls under category 6 which is based on the earlier orders of the Settlement Commission in the case of M/s.Flemingo (DFS) dated 4.6.2007. (iii) On the basis of this report, the Settlement Commission should have decided the issue and computed the duty liability for settlement of the case. Without doing so, the first respondent has thrown the entire blame on the petitioner as if the petitioner has been making different disclosures each time one at variance with the other. This fact is not correct as admittedly in paragraph 24 of the order it has been recorded that the Revenue has conceded that there were errors in the calculation and the demand in the show cause notice should be brought down from Rs.1,69,22,099 to Rs.1,41,60,362. It will be necessary to extract paragraph 24 of the order which is as follows:- 24. The Bench considered carefully the S.C.N, the submissions and the rival claims of the applicant and the Revenue. The applicant has made disclosures many a time, each one at variance with the other. The Revenue has conceded that there were some errors in the calculation and brought down the demand from Rs.1,69,22,099/- to Rs.1,41,60,362/- As against that the amount admitted by the applicant is only Rs.34,33,814/-. There is thus, a huge gap of about Rs.1.07 cr. https://hcservices.ecourts.gov.in/hcservices/ i.e. more than three times the admitted amount. The evidence furnished by this department is based on official records and the bills issued by the applicant and as such the demand of the department is prima facie corroborated. The applicant has been adopting various basis for making varying disclosures from time to time. In view of the above, the Bench feels that the disclosure of limited liability by making shifting exclusions made by the applicants cannot be considered full and true, especially in this case which is fraught with gross fraudulent and illegal practices by the applicant over a long period of time and where there are demonstrable contradictions, inconsistencies and incompleteness in the disclosures made one after another by the applicant. When the department itself accepts difference in calculation of duty liability, the department is not justified in blaming the petitioner of varying disclosure which plea is also denied. (iv). The petitioner at the time of admission of the application has clearly admitted a liability of Rs.67,05,357 as against Rs.1,69,22,099 and the case was admitted vide admission order dated 4.6.2007. Thereafter, the investigation was ordered. The question of calculation arose only because of the direction issued by the Settlement Commission for an investigation report in terms of Section 127C (6). Once the investigation was going on the petitioner was allowed to participate and point out the error in calculation and only at that point of time, the mistakes could be culled out and pointed out so as to work out proper duty liability. It was, therefore, contended that the first respondent without considering the detailed investigation report has thrown the entire blame on the petitioner without any justification. The so called huge duty difference between the show cause notice and the admitted liability cannot be a ground to throw away the case after admission. The petitioner has co-operated with the department. (v). The investigation report and the calculations made therein is partly based on the earlier order passed by the settlement commission in a similarly situated case in M/s.Flemingo DFS and, therefore, even as per the department's case there is a clear and distinct dispute with regard to the duty demanded. In both cases the Revenue has admitted that there is an error in calculation in respect of the amount demanded as per the show cause notice. Such being the case, the first respondent cannot throw the blame on the petitioner and state that there is variance in the disclosures made by the petitioner. According to the petitioner there is only one disclosure https://hcservices.ecourts.gov.in/hcservices/ at the time of application to an admitted duty liability of Rs. 67,05,357/-. The various calculations that are found in the investigation report are based on the documents analysed by the investigating authority. It is on the basis of the direction issued by the first respondent Settlement Commission. The petitioner cannot be found fault for these variations. It is for the Settlement Commission to arrive at a proper conclusion particularly in view of the earlier order passed in the case of M/s. Flemingo DFS where it is to be noted that duty demand on each head varies. Without going into merits, the Settlement Commission came to an erroneous conclusion that there are more than one disclosures made by the petitioner. It is pleaded that what is contained in the investigation report cannot be called as disclosure by the petitioner. The enquiry conducted by the competent authority in terms of Section 127C(6) cannot be called as disclosure of the petitioner. It is only an investigation and therefore the first respondent's observation that the disclosures were made one after another by the petitioner and there were demonstrable contradictions, inconsistencies and incompleteness in the disclosures has no basis and it is based on misconception of the provision of law. 10. The learned counsel appearing for the petitioner also distinguished the case relied upon by the first respondent in UNION OF INDIA VS. ANILA CHANANA AND ANOTHER (2008 IND LAW SC 112) stating that the facts are not similar to the facts of the present case as the said decision of the Apex Court relied on by the first respondent relates to a case of compounding of an offence in terms of Section 137 (3) of the Act . In that case the Apex Court has accepted the contention of the Union of India that at time of disclosures there should not be any inconsistencies or incompleteness and the person who made the disclosure in the application for compounding the offence did not make true and proper disclosures whereas in the present case, the learned counsel stated that the admitted liability was Rs. 67,05,357/- whereas even as per the calculations made in the investigation report the errors were pointed out only to show that the demand made in the show cause notice is without proper basis. There is no subsequent disclosure by the petitioner except pointing out the infirmity in the demand. In such view of the matter the learned counsel for the petitioner stated that the decision of the Apex Court relied on by the first respondent will not be applicable to the facts of the present case. 11. Mr. T.R.Senthilkumar, the learned counsel appearing for the respondents pleaded that going by the investigation report, the various details contained therein require a proper adjudication by the competent adjudicating authority and the Settlement Commission, in view of the various inconsistencies pointed out in the investigation report, declined to entertain the application for settlement. He also stated that the petitioner did not co-operate with the settlement https://hcservices.ecourts.gov.in/hcservices/ Commission by making the payment in time. 12. As regards the contention of the department that the petitioner has not co-operated with the Settlement Commission by paying the admitted duty, this court is not able to accept the same for the simple reason that part duty was paid even before the issuance of show cause notice, at the investigation stage, and the balance amount was directed to be realised by way of encashing the bank guarantee by the Settlement Commission in its admission order dated 4.6.2007. Paragraph 16 of the said order is usefully extracted hereunder:- 16. In view of the representation from the advocate for the applicants, we grant them 15 days time to sit with the Revenue and verify the documents together and arrive at a consensus if possible. Revenue should ensure that all the relevant documents are made available to the applicants so that further disputes are avoided. This exercise should be done within 15 days and report compliance. The Revenue may encash the Bank Guarantee given by them to realise the amount. In the meantime, the applicants have fulfilled all the conditions for admission. Accordingly, the Bench is of the view that the application merits admission. The application is, therefore, admitted and allowed to be proceeded with under Section 127C(1) of the Customs Act, 1962 and the applicants are directed to pay the balance amount of admitted duty within 30 days from the date of receipt of this order. 13. It could be seen from the various letters which have been pointed out by the learned counsel for the petitioner that the petitioner has already informed the Revenue to encash the bank guarantee for the balance amount by letter dated 2.7.2007 followed by reminder dated 26.7.2007. It is the Department which refused to encash the bank guarantee for one reason or other. However, thereafter it comes to light that the department had encashed the bank guarantee and the delay if at all could be attributed to the Revenue and not to the petitioner. The fact that the admitted liability has