WP(C) 4410/2007 Page 1 of 28 * IN THE HIGH COURT OF DELHI AT NEW DELHI + WP(C) 4410/2007, CM 8248/2007, CM 11752/2007 & CM 11105/2008 Reserved on: 15th January, 2010 % Date of Decision: 17th September, 2010 DIRECTOR GENERAL OF CENTRAL EXCISE INTELLIGENCE ..... Appellant Through: Mr Mohan Prasaran, ASG with Mr Satish Aggarwala and Ms Hrishika Pandit. versus MURARILAL HARISHCHANDRA JAISWAL PVT LTD AND ORS ..... Respondents Through: Mr Dushyant Dave, Sr Advocate with Ms Vibha Datta Makhija and Mr Yashvardhan for R-1 to R-6. Mr Philemon Nongbri for R-7 to R-14. Mr D.D. Singh for R-15 & R-16. CORAM: HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE SIDDHARTH MRIDUL 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 the Digest? Yes. SIDDHARTH MRIDUL, J . 1. The present writ petition under Articles 226 and 227 of the Constitution of India seeks quashing of the final order no. F-492-494/CE/07- SC(PB) dated 15th February, 2007 passed by the Settlement Commission, WP(C) 4410/2007 Page 2 of 28 Customs & Central Excise, Principal Bench, Delhi (hereinafter referred to as „the Settlement Commission‟) whereby the applications filed by the respondents herein for settlement were disposed of by the Settlement Commission. 2. The facts as are necessary for the adjudication of the present petition are as follows:- (a) The petitioner is an investigating agency under the Ministry of Finance empowered to, inter alia, investigate into commission of offences under the Central Excise Act, 1944 (hereinafter referred to as „the said Act‟). (b) The main respondent manufactures “Hans” branded chewing tobacco falling under Sub-heading No. 2404.41 of the First Schedule to the Central Excise Tariff Act, 1985. They are registered with the Central Excise Department and have their factories at Mukherjee Nagar, North Delhi; Holambi Kalan, Laldora, Delhi; Patparganj Industrial Area, East Delhi and Rejender Nagar Industrial Area, Mohan Nagar, Ghaziabad. (c) On the basis of intelligence inputs that respondent no.1 was indulging in evasion of Central Excise duties by clandestinely removing Hans brand Khaini without payment of duty, a case was booked by the petitioner-Department against the WP(C) 4410/2007 Page 3 of 28 respondent no. 1 to 16. (d) On 3rd November, 2004 during search operation on the premises of the respondent no.1 and its directors, the petitioner found, apart from other incriminating goods/documents, Indian currency amounting to `20,42,61,000/- and 15 kilograms of foreign marked gold biscuits purportedly the sale proceeds of non-duty paid excisable goods. All of the above were seized by the petitioner. On the same day, unaccounted cash amounting to `3,13,18,500/- was also seized from respondent no. 15, a Bangalore based dealer of respondent no.1, as sale proceed of non-duty paid excisable goods. (e) During the initial stage of investigation, out of the cash seized from respondent no. 1 to 16, the latter volunteered to deposit duty amounting to `15,30,56,842/-, which was subsequently adjusted by the petitioner-Department as per the latter‟s request made on 8th November, 2004, 30th December, 2004 and 25th February, 2005. (f) On 19th April, 2005 a show cause notice was issued for extension of time to complete the investigation regarding cash, gold and other excisable goods seized from respondent no. 1 to 16. On 28th April, 2005 an order was passed by the competent WP(C) 4410/2007 Page 4 of 28 authority extending period to issue show cause notice to the said respondents by another six months. (g) On 20th October, 2005 the respondent no. 1 to 6 filed applications under Section 32E of the said Act before the Settlement Commission, admitting duty liability of `3,84,17,138/- and further disclosing that actual proportion of raw tobacco in their product i.e. Hans branded Khaini, is 70% and not 95% as shown in their records. On 26th October, 2005 a demand-cum-show cause notice, demanding duty of `34,50,57,409/- and proposing confiscation of seized Indian currency of `20.42 crores and `3.13 crores, 15 kilograms of foreign marked gold and finished goods worth `1.52 crores, was issued by the petitioner-Department to the respondent no.1 to 16. On 23rd November, 2005 the petitioner filed reply to the applications for settlement filed by respondent no. 1 to 6. (h) On 2nd January, 2006 the respondent no.1 to 6 filed revised applications under Section 32E of the said Act, before the Settlement Commission admitting an enhanced duty liability of `5,79,02,915/-. The respondent no. 1 to 6 quantified the duty evasion on the basis of data regarding consumption of raw tobacco, which had been discussed in the show cause notice for corroboration purposes. The amount admitted by the respondent WP(C) 4410/2007 Page 5 of 28 no. 1 to 6 included the time barred duty for the period beyond five years from the date of issue of show cause notice. (i) The petitioner-Department filed its reply to the revised application on 10th January, 2006. The Settlement Commission after hearing arguments of the parties admitted the application of respondent no. 1 to 6 on 23rd January, 2006. Thereafter, on 16th February 2006 respondent no.7 to 13 filed application before the Settlement Commission. The Department filed its reply to the applications on behalf of respondent no. 7 to 13 on 3rd April, 2006. The Settlement Commission admitted the application of respondent no.7 to 13, after hearing arguments of the parties, on 2nd May, 2006. (j) On 17th March 2006 respondent no. 14 to 16 filed application for settlement before the Settlement Commission. The reply thereto on behalf of the petitioner-Department was filed on 2nd May, 2006. The Settlement Commission admitted the application of respondent no. 14 to 16 after hearing parties on 16th May, 2006. (k) In the meantime, vide its order dated 9th May, 2006 the Settlement Commission directed the Commissioner (Investigation), Settlement Commission, to conduct WP(C) 4410/2007 Page 6 of 28 investigation on certain points. On 21st July, 2006 the respondent no.1 to 16 filed their comments on the points raised by the Settlement Commission wherein, they alleged that the duty calculation chart prepared by the petitioner in the show cause notice was not reliable for quantification, because the information therein did not constitute direct evidence of clandestine manufacture and removal; and that there was duplication and also that it was based on various sources like transporters, sub-transporters, dealers, sub-dealers, commercial tax department etc. (l) On 24th July, 2006 the petitioner-Department also filed elaborate counter comments wherein all the allegations raised by respondent no. 1 to 16 purportedly seeking relief on unsubstantiated grounds were rebutted point-wise. (m) On 15th November, 2006 the Commissioner (Investigation) submitted its investigation report, wherein, the view of the petitioner-Department was broadly supported in respect of duty quantification chart, manufacturing capacity of respondent no. 1 to 16 etc. However, it was mentioned in the investigation report that demand of duty amounting to `3,13,38,000/- made on the basis of transportation of goods by one specific transporter, M/s Shree Govinda Roadways was not duly corroborated. WP(C) 4410/2007 Page 7 of 28 (n) On 23rd January, 2007 after hearing the parties, the Settlement Commission directed the other respondents to file amended application. The respondent no.6 filed amended application as per the directions of the Settlement Commission on 31st January, 2007. (o) On 9th February, 2007 during the initial hearing, the respondent no. 1 to 16 admitted further additional duty liability, thereby enhancing their total admission to `8,33,88,511/- for the period from 1st April, 1998 to 3rd November, 2004, by disclosing the fact that the quantity of raw tobacco shown as „sold‟ to three specific dealers may be included in the computation of use of raw tobacco. (p) Thereafter, vide the impugned order dated 15th February, 2007 the Settlement Commission settled the total duty at `16,70,76,824/- including Education Cess, with interest, to be adjusted out of cash seized from respondent no. 1 to 6. Further, 15 kilograms of seized gold was confiscated with an option to redeem the same on payment of fine in lieu of confiscation amounting to `30 lakhs. The currency seized from respondent no. 15 amounting to `3,13,18,500/- and other seized excisable goods were not considered appropriate for confiscation. Apart WP(C) 4410/2007 Page 8 of 28 from the above relief, the Settlement Commission granted immunity from penalty and prosecution to the respondent no. 1 to 16. (q) Aggrieved by the said impugned order dated 15th February, 2007 the petitioner-Department challenges its correctness by way of the present petition. 3. Mr Mohan Parasaran, the learned Additional Solicitor General, appearing on behalf of the petitioner-Department, urged that the Settlement Commission should not have gone into the complex facts and issues that arose as a result of the subject show cause notice. Counsel also argued that the Settlement Commission did not go into the question of full and true disclosure at the stage of admission of the application filed by the respondents herein. It was further submitted that the impugned order is invalid as there is no recording therein of satisfaction of true and full disclosure on behalf of the respondents herein. Furthermore, it was urged on behalf of the petitioner-Department that the impugned order settled issues which were anterior to the issuance of the show cause notice and that the application under Section 32E was filed by the respondents before the issuance of the show cause notice and was, thus, not maintainable. 4. Per contra, it is urged on behalf of the respondents by Sh Dushyant Dave, Senior Advocate, that the issue of full and true disclosure at the time WP(C) 4410/2007 Page 9 of 28 of admission of the application filed by the respondents was never urged before the Settlement Commission itself at any stage and that the petitioner- Department accepted the order of admission without demur when the same was passed by the Settlement Commission. On behalf of the respondents it was further urged that Section 32E is a self-contained code and that its principal purpose is settlement and not adjudication and as such the present petition is not maintainable. It was also urged on behalf of the respondents that Section 32E(2) states that the application before the Settlement Commission may be made 180 days after the seizure and as such the application filed on behalf of the respondents was maintainable. It was further argued on behalf of the respondents that the Settlement Commission has power under Section 32F(7) to consider issues apart from the application. It was lastly argued on behalf of the respondents that the decision of the Settlement Commission is not justiciable under Articles 226 and 227 of the Constitution of India and that a pragmatic/practical view should govern the proceedings before the Settlement Commission. 5. Before dealing with the merits of the contentions made on behalf of the parties it would be necessary to consider the relevant provisions of the said Act. (a) Section 31(c) of the said Act reads as under: “Section 31(c): ”case” means any proceeding under this 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 sub-section (1) of section WP(C) 4410/2007 Page 10 of 28 32E is made: Provided that when any proceeding is referred back in any appeal or revision, as the case may be, by any court, Appellate Tribunal or any other authority, to the adjudicating authority for a fresh adjudication or decision, as the case may be, then such proceeding shall not be deemed to be a proceeding pending within the meaning of this clause;” (b) Section 32E of the said Act reads as under: “Section 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 liability which has not been disclosed before the Central Excise Officer having jurisdiction, the manner in which such liability has been derived, the additional amount of excise duty accepted to be payable by him and such other particulars as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of misclassification, under-valuation, inapplicability of exemption notification or Cenvat credit but excluding the goods in respect of which no proper record has been maintained by the assessee in his daily stock register 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; (c) the additional amount of duty accepted by the applicant in his application exceeds three lakh rupees; and (d) the applicant has paid the additional amount of excise duty accepted by him along with interest due under section 11AB: 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 (5 of 1986). WP(C) 4410/2007 Page 11 of 28 (1A) Notwithstanding anything contained in sub-section (1), where an application was made under sub-section (1), before the 1st day of June, 2007 but an order under sub-section (1) of section 32F has not been made before the said date or payment of amount so ordered by the Settlement Commission under sub-section (1) of section 32F has not been made, the applicant shall within a period of thirty days from the 1st day of June, 2007, pay the accepted duty liability failing which his application shall be liable to be rejected. (2) Where any excisable goods, books of accounts, other documents have been seized under the provisions of this Act or rules made thereunder, the assessee shall not be entitled to make an application under sub-section (1), before the expiry of one hundred and eighty days from the date of the seizure. (3) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed. (4) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant.” (c) Section 32F of the said Act reads as under: “Section 32F: Procedure on receipt of an application under section 32E. — (1) On receipt of an application under sub-section (1) of section 32E, 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, and after taking into consideration the explanation provided by the applicant, the Settlement Commission, shall, within a period of fourteen days from the date of the notice, by an order, allow the application to be proceeded with, or reject the application as the case may be, and the proceedings before the Settlement Commission shall abate on the date of rejection: Provided 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 have been allowed to be proceeded with. (2) A copy of every order under sub-section (1), shall be sent to the applicant and to the Commissioner of Central Excise having jurisdiction. (3) Where an application is allowed or deemed to have been allowed to be proceeded with under sub-section (1), the Settlement Commission shall, within seven days from the date of order under sub-section (1), call for a report along with the relevant records from the Commissioner of Central Excise WP(C) 4410/2007 Page 12 of 28 having jurisdiction and the Commissioner shall furnish the report within a period of thirty days of the receipt of communication from the Settlement Commission: Provided that where the Commissioner does not furnish the report within the aforesaid period of thirty days, the Settlement Commission shall proceed further in the matter without the report of the Commissioner. (4) Where a report of the Commissioner called for under sub-section (3) has been furnished within the period specified in that sub-section, the Settlement Commission may, after examination of such report, if it is of the opinion that any further enquiry or investigation in the matter is necessary, direct, for reasons to be recorded in writing, the Commissioner (Investigation) within fifteen days of the receipt of the report, to make or cause to be made such further enquiry or investigation and furnish a report within a period of ninety days of the receipt of the communication from the Settlement Commission, on the matters covered by the application and any other matter relating to the case: Provided that where the Commissioner (Investigation) does not furnish the report within the aforesaid period, the Settlement Commission shall proceed to pass an order under sub-section (5) without such report. (5) After examination of the records and the report of the Commissioner of Central Excise received under sub-section (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 Commissioner of Central Excise 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 Central Excise and Commissioner (Investigation) under sub-section (3) or sub-section (4). (6) An order under sub-section (5) shall not be passed in respect of an application filed on or before the 31st day of May, 2007, later than the 29th day of February, 2008 and in respect of an application made on or after the 1st day of June, 2007, after nine months from the last day of the month in which the application was made, failing which the settlement proceedings shall abate, and the adjudicating authority before whom the proceeding at the time of making the WP(C) 4410/2007 Page 13 of 28 application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 32E had been made. (7) Subject to the provisions of section 32A, the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before passing any order under sub-section (5) and, in relation to the passing of such order, the provisions of section 32D shall apply. (8) The order passed under sub-section (5) shall provide for the terms of settlement including any demand by way of duty, penalty or interest, the manner in which any sums due under the settlement shall be paid and all other matters to make the settlement effective and in case of rejection contain the reasons therefor and it 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: Provided that the amount of settlement ordered by the Settlement Commission shall not be less than the duty liability admitted by the applicant under section 32E. (9) Where any duty, interest, fine and penalty payable in pursuance of an order under sub-section (5) is not paid by the assessee within thirty days of receipt of a copy of the order by him, the amount which remains unpaid, shall be recovered along with interest due thereon, as the sums due to the Central Government by the Central Excise Officer having jurisdiction over the assessee in accordance with the provisions of section 11. (10) Where a settlement becomes void as provided under sub-section (8), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the Central Excise Officer having jurisdiction may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the date of the receipt of communication that the settlement became void.” (d) Section 32H of the said Act reads as under: “Section 32H: Power of Settlement Commission to reopen completed proceedings. — If the Settlement Commission is of the opinion (the reasons for such opinion to be recorded by it in writing) that, for the proper disposal of the case pending WP(C) 4410/2007 Page 14 of 28 before it, it is necessary or expedient to reopen any proceeding connected with the case but which has been completed under this Act before application for settlement under section 32E was made, it may, with the concurrence of the applicant, reopen such proceeding and pass such order thereon as it thinks fit, as if the case in relation to which the application for settlement had been made by the applicant under that section covered such proceeding also: Provided that no proceeding shall be reopened by the Settlement Commission under this section after the expiry of five years from the date of application. Provided further that no proceeding shall be reopened by the Settlement Commission under this section in a case where an application under section 32E is made on or after the 1st day of June, 2007.” (e) Section 32-I of the said Act reads as under: “Section 32-I: Powers and procedure of Settlement Commissions.— (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. (2) Where an application made under section 32E has been allowed to be proceeded with under section 32F, the Settlement Commission shall, until an order is passed under sub-section (5) of section 32F, have, subject to the provisions of sub-section (4) of that section, exclusive jurisdiction to exercise the powers and perform the functions of any Central Excise Officer, under this Act in relation to the case. (3) In the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission. (4) The Settlement Commission shall, subject to the provisions of this Chapter, have power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers, or of the discharge of its functions, including the places at which the Benches shall hold their sittings.” (f) Section 32L of the said Act reads as under: “Section 32L: Power of Settlement Commission to send a case back to the Central Excise Officer. – (1) The Settlement Commission may, if it is of opinion that any person who made an application for settlement under section 32E WP(C) 4410/2007 Page 15 of 28 has not co-operated with the Settlement Commission in the proceedings before it, send the case back to the Central Excise Officer having jurisdiction who shall thereupon dispose of the case in accordance with the provisions of this Act as if no application under section 32E had been made. (2) For purpose of sub-section (1), the Central Excise Officer shall be entitled to use all the materials and other information produced by the assessee before the Settlement Commission or