Delhi High Court
Kbs Industries Ltd & Anr. vs The Customs Central Excise And Service … on 13 January, 2025
Author: Vibhu Bakhru
Bench: Swarana Kanta Sharma, Vibhu Bakhru
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 13.01.2025
+ W.P.(C) 10505/2024 & CM APPL. 43170/2024
KBS INDUSTRIES LTD & ANR. ..... Petitioners
versus
THE CUSTOMS CENTRAL EXCISE AND
SERVICE TAX SETTLEMENT COMMISSION
PRINCIPAL BENCH NEW DELHI & ORS. ..... Respondents
Advocates who appeared in this case:
For the Petitioners : Ms. Tuhina and Mr. Deep Shah,
Advocates.
For the Respondents : Mr. Harpreet Singh, Senior Standing
Counsel with Ms. Suhani Mathur, Advocate.
CORAM
HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MS. JUSTICE SWARANA KANTA SHARMA
JUDGMENT
VIBHU BAKHRU, ACJ
1. The petitioners have filed the present petition, inter alia,
impugning an order dated 28.03.2024 (hereafter the impugned order)
issued by the Customs, Central Excise and Service Tax Settlement
Commission (hereafter the Settlement Commission) under Section
127C(5) of the Customs Act, 1962 (hereafter the Act), whereby the
petitioners’ applications for settlement of a case under Section 127B
of the Act, were disposed of.
Signature Not Verified
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2. The petitioners also impugn the constitutional validity of the
Notification No. 18/2015-Cus dated 01.04.2015 (hereafter the
Notification) as being discriminatory and arbitrary. The petitioners
claim that the said notification is beyond the statutory mandate of the
Act read with the Customs Tariff Act, 1975 (hereafter the CT Act).
3. Additionally, the petitioners impugn the recovery proceedings
initiated by the respondents for recovery of dues as determined.
4. Petitioner no.1 is a company named M/s. KBS Industries
Limited (hereafter KBS) and petitioner no.2 is a director of KBS. The
petitioners filed an application under Section 154 of the Act seeking
rectification of the impugned order to the extent that it imposed the
interest of ₹1,15,13,067/- (Rupees One Crore Fifteen Lacs Thirteen
Thousand and Sixty-Seven only), which was rejected. The Settlement
Commission held that the rectification of errors under Section 154 of
the Act is confined to arithmetical or clerical errors and the
petitioners’ application was beyond the scope of the Section 154 of the
Act. The Settlement Commission found that there was no clerical or
arithmetical error which would warrant any rectification of the
impugned order. The same was communicated to the petitioners by a
letter dated 26.06.2024, which is also impugned in the present petition.
5. The petitioners assail the impugned order to the limited extent
that the Settlement Commission has imposed interest computed at
₹1,15,13,067/- on the delayed payment of duty. The Settlement
Commission had accepted the report of the Commissioner dated
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10.01.2024 filed under Section 127C(4) of the Act, whereby the
interest payable by the petitioners was computed at ₹1,15,13,067/-.
6. The petitioners are, essentially, aggrieved by the computation of
the interest. According to the petitioners, the same also includes the
interest of Countervailing Duty (CVD) imposed under Section 3 of the
CT Act as well as the Special Additional Duty (SAD) under Section
3A of the CT Act, which is contrary to the law.
7. The learned counsel appearing for the petitioners advanced the
submissions in support of the petitioners claim that the interest levied
by the Settlement Commission was without authority of law.
8. The sole question to be addressed is whether the impugned
order to the extent that it imposed the interest amounting to
₹1,15,13,067/- warrants any interference in these proceedings.
FACTUAL CONTEXT
9. As noted above, KBS is an incorporated company and petitioner
no.2 is one of its directors at the material time. KBS claims that it is,
inter alia, engaged in the manufacturing of high quality of semi-
finished copper and copper alloy products (rods, bus bars, strips,
plates, wires, sheet and circles) for a wide range of engineering
industries.
10. The Directorate General of Foreign Trade (DGFT) had issued
two Advance Authorisations (DGFT Licences) to KBS: Advance
Authorisation License No. bearing No. 0510395142 dated 31.07.2015;
Signature Not Verified
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and Advance Authorisation License No. bearing No. 0510399488
dated 17.08.2016.
11. KBS imported Continuous Cast Copper Rod 8mm valued at
₹10,85,60,299/- against Advance Authorisation dated 31.07.2015 and
Copper Scrap valued at ₹5,43,06,644.30/- against Advance
Authorisation dated 17.08.2016. The said goods were imported
without payment of duties. Admittedly, KBS failed to discharge its
export obligation against the Bill of Entries under Advance
Authorisations and it sold the said goods in the local market.
12. It is stated that the intelligence to the aforesaid effect was
gathered by the Officers of the Customs (Preventive)
Commissionerate. Accordingly, search operations were carried out at
the premises of KBS (Plot No.418, HSIIDC Phase-1, Barhi Industrial
Area, Sonepat, Haryana-131001 and Plot No. F-1730, DSIIDC, Narela
Industrial Area, Delhi – 110040) on 08.06.2017. It is stated that during
the course of search, 1500 Kgs of copper scrap was found at Sonipat
premises, however, no stocks of goods imported were found. The
search was also conducted at the office premises of KBS.
13. Thereafter, the summons was issued to petitioner no.2 and his
premise (House No.24/70, West Punjabi Bagh, New Delhi) was also
searched on 15.06.2017. During the search, statement of petitioner
no.2 was recorded under Section 108 of the Act. He acknowledged
that the goods imported under the Advance Licenses were sold in the
local market.
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14. The impugned order records that on enquiries, petitioner no.2
claimed that the goods were sold in the local market due to financial
crisis and he was ready to pay the custom duty alongwith interest and
penalty. After making necessary enquiries, the custom officials
ascertained the custom duty involved in respect of the goods imported
under the Advance Licenses at Dadri Port and Patli Port was
₹2,35,24,597/- (₹1,15,59,956/- + ₹1,19,64,641/-). The impugned order
notes that out of recovery of custom duty of ₹2,35,24,597/-, KBS had
discharged its liability to the extent of ₹2.04 Crores (₹1,19,64,641/-
against License No.0510395142 dated 31.07.2015 and ₹84,35,359/-
against License No.0510399488 dated 17.08.2016).
15. On completion of the investigation, the concerned officer
issued the demand-cum-show cause notice No.40/2021-22 dated
16.07.2021. The operative part of the said notice is set out below:-
“20. Now, therefore on the basis of aforementioned facts,
evidences and investigations in the case M/s. KBS
Industries, 418, HSIIDC Phase-1, Barhi Industrial Area,
Sonepat, Haryana are hereby called upon to Show Cause in
writing to the Principal Commissioner of Customs
(Preventive), New Custom House, Near IGI Airport, New
Delhi within 30 days on receipt of this Show Cause Notice,
as to why: –
i. the exemption claimed by them under Notification
No. 18/2015-Customs dated 1st April, 2015 should not
be denied to them;
ii. Customs duty of Rs 2,35,24,597/- (Rupees Two
Crore Thirty Five Lakh Twenty Four Thousand Five
Hundred Ninety Seven) against the Customs Duty
forgone by inadmissible availment of exemption under
Notification No. 18/2015-Customs dated 1st April,Signature Not Verified
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2015 should not be demanded, recovered along with
interest under Section 142 of the Customs Act, 1962 in
terms of Bond and Bank Guarantee executed by the
party in terms of Para (iv) of Notification No. 18/2015-
Customs dated 1st April, 2015 and the amount of Rs
2,05,00,000/- (Rupees Two Crore Five Lakh)
deposited by M/s. KBS Industries Ltd voluntarily
during investigations should not be appropriated
against the demand of Customs duty of Rs
2,35,24,597/- (Rupees Two Crore Thirty Five Lakh
Twenty Four Thousand Five Hundred Ninety Seven)
and interest payable;
iii. The goods valued collectively at Rs. 11,17,97,632/-
(Rupees Eleven Crore Seventeen Lakh Ninety-Seven
thousand Six Hundred Thirty Two) imported vide
aforesaid Bills of Entry should not be held liable for
confiscation under Section 111(o) of the Customs Act,
1962.
iv. Penalty should not be imposed on M/s. KBS
Industries Ltd. under the provisions of Section 112
and/or 114A and 114AA of the Customs Act, 1962.
21. Shri Arjun Anand, Director of M/s. KBS Industries
Ltd. is hereby called upon to show cause to the Principal
Commissioner of Customs (Preventive), New Custom
House, Near IGI Airport, New Delhi within 30 days of the
receipt of this notice, as to why penalty should not he
imposed on him under Section 112 and/or114A and
114AA of the Customs Act, 1962, for the acts of
omission.”
16. In the aforesaid context, the petitioner company filed an
application under Section 127B of the Act before the Settlement
Commission for settlement of the disputes arising in connection with
the show cause notice dated 16.07.2021. KBS was the main applicant
and petitioner no.2 was a co-applicant.
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17. It is material to note that the petitioners accepted their liability
to pay an amount equal to the duty leviable along with the interest at
the rate of 15% per annum from the date of clearance of the said
materials in terms of the notification dated 01.04.2015. However, the
petitioners disputed that the said goods imported were liable for
confiscation. The Settlement Commission disposed of the petitioners’
application in terms of the impugned order.
18. The impugned order notes that certain discrepancies were
noticed in the application filed by the petitioner including that the
petitioners had not deposited the interest on the custom duty, as
admitted. The petitioners responded by an email dated 17.01.2022,
inter alia, admitting that the total custom duty liability was
₹2,35,24,597/- out of which, an amount of ₹2,24,61,000/- had been
paid and the remaining amount of ₹10,63,597/- was required to be
paid. The petitioners also stated that they had been unable to pay the
admitted interest liability due to COVID pandemic.
19. The concerned Customs Authority (hereafter the Commissioner)
furnished the response to the applications filed by the petitioners on
23.06.2023. The Commissioner affirmed the payment of entire duty of
₹2,35,24,597/- as demanded in the show cause notice along with
₹20,00,000/- towards interest liability. The Commissioner also
computed the interest liability of ₹1,19,05,337/-.
20. The Settlement Commission afforded the petitioners a hearing
on 11.04.2023.
Signature Not Verified
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21. The impugned order indicates that the petitioners also submitted
the additional submissions disputing the calculation of interest
liability. In view of the rival stands regarding the liability to pay
interest, the Settlement Commission passed an order dated 11.10.2023
directing the Commissioner to cause further investigation and to
submit the report.
22. The Commissioner submitted the report dated 07.12.2023. The
copy of said report has not been placed on record. However, the
impugned order records the contents of the said report. The relevant
extract of the impugned order is set out below: –
“9.0 Report of Commissioner (Inv.), Settlement
Commission Report:
9.1 As per the orders of the Hon’ble Bench, Settlement
Commission, New Delhi, further investigation was
initiated by the Commissioner (Investigation) and
necessary inquiry was conducted by the Commissioner
(Inv.) with the department and the applicant.
Accordingly, vide letter dated 16.10.2023 the applicant
and the department were requested to furnish Advance
Authorization wise details in a prescribed format which
contained particulars such as BE number and date, duty
involved, date of payment period of delay, if any, rate of
interest, amount of interest, date of payment etc.
9.2 The department submitted its report vide letter
07.12.2023. As per the report the following was reported:
S. N. Advance Interest payable Interest paid Balance
Authorisation by Applicant amount of
No./date Interest
payable
1 0510399488 67,27,232.57 0.00 67,27,232.57
/17.08.2016
2 0510395142 47,85,834.29 20,00,000 27,85,834.29
/31.07.2015Signature Not Verified
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Total 1,15,13,066.86 20,00,000 95,13,066.869.3 The applicant vide his letter dated 01.01.2024
submitted a duly certified calculation sheet by a chartered
accountant and claimed that the total duty saved/foregone
against Advance Authorization No. 0510395142 was Rs.
96,24,379/ only and that only balance amount of duty of
Rs. 1,69,009/- and interest of Rs. 81,819/- is payable by
them. In the calculation sheet in respect of Advance
Authorization no 0510395142 dated 31.07.20215 the
applicant accepted interest liability of Rs 46,39,280.07
and claimed to have paid Rs.44,70,270.88 of its interest
liability. As regards to Advance Authorization no
0510399488 dated 17.08.2016, though no such
calculation sheet was provided but the applicant accepted
interest liability of Rs. 29,87,477 68/-.
9.4 The Commissioner (Inv.) carefully examined the
reports submitted by both sides and submitted as under:
(i)That against Advance Authorization No.
0510395142 dated 31.07.2015, the applicant
imported the impugned goods under 6 Bills of
Entry but in the calculation, sheet provided to the
department, they mentioned only 5 Bills of Entry.
(ii) It was observed that the applicant deviated
from his earlier accepted duty lability of
Rs.1,19,64641/-and claimed that the duty payable
is Rs.96,24,379/-only.
(iii) The applicant wrongly claimed of redemption
letter dated 23.11.2020 issued by DGFT respect of
Licence No. 0510091142 deed 31.07.2015, there is
no question of interest lability.
(iv) As regards to the report dated 23.06.2023 of
the department forwarding therewith interest
calculation sheet, it was observed that the interest
lability worked out earlier was Rs.1,19,05,337 and
later it was worked out to Rs.1,15,13,067. The
department confirmed that the amount of interest
payable by the applicant was Rs.1,15,13,067/- andSignature Not Verified
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since the applicant has already paid interest of
Rs.20,00,000/-. The balance amount of
Rs.95,13,067/-is yet to be paid.
(v) That Condition (iv) of the Notification
No.18/2015-Customs dated 01.04.2015 prescribes
date of charging of interest where Export
Obligation has not been fulfilled by the importer,
which is reproduced below:
“(iv) that in respect of imports made
before the discharge of export obligation
in full, the importer at the time of
clearance of the imported materials
executes a bond with such surety or
security and in such form and for such
sum as may be specified by the Deputy
Commissioner of Customs or Assistant
Commissioner of Customs, as the case
may be, binding himself to pay on
demand an amount equal to the duty
leviable, but for the exemption contained
herein, on the imported materials in
respect of which the conditions specified
in this notification are not complied with,
together with interest at the rate of
fifteen percent per annum from the date
of clearance of the said materials.”
(vi) That the applicant has been consistently
changing its stand. Initially, at the time of filing
of the application, the applicant accepted the
entire duty liability of Rs.2,35,24,597/ in respect
of both said licenses [Rs.1,15,59,956/-
Rs.1,19,64,641/- in respect of Advance
Authorization Licenses Nos. 0510399488 dated
17.08.2016 and 0510395142 dated 31.07.20215
respectively). But now the applicant is asserting
duty of Rs.96,24,379/-only in respect of
Authorization License No. 0510395142 dated
31.07.2015.
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(vii) As per record, there is delay in payment of
duty. It is an established fact that duty and interest
go together. In the instant case, the applicant has
accepted the duty liability and the records show
that there was delay in payment of the same
therefore the applicant cannot escape from
payment of interest thereon.
(viii) In the instant case, the applicant, M/s KBS
Industries Ltd. has failed to discharge export
obligation and the department has provided date
wise details of the interest payable from such
relevant date as prescribed under the said
Notification. Therefore, the total interest payable
by the applicant is Rs. 1,15,13,066.86/
(Rs.67,27,232.57 for Advance Authorization
No.0510399488 + Rs.47,85,834.25/- for Advance
Authorization No.0510395142) Out of which, the
applicant has already paid Rs 20,00,000/- and
balance amount of interest Rs.95,13,067/- is yet to
be paid by the applicant. The details have been
verified as per provisions of the Customs Act,
1962 and found in order.”
23. The petitioners were once again given an opportunity to be
heard in the context of the report submitted by the Commissioner
under Section 127C(4) of the Act.
24. After hearing the petitioners, the Settlement Commission passed
the impugned order. The dispositive part of the impugned order reads
as under:-
“ORDER
13.1 The Bench, therefore, settles the case of
Applicant and Co- Applicants under section 127C (5)
of the Customs Act, 1962 on the following terms and
conditions:
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i. DUTY: The Bench settles the duty liability at Rs
2,35,24,597/- (Rupees Two Crore Thirty Five Lakh
Twenty Four Thousand Five Hundred Ninety Seven
Only) and as the amount has been already paid by the
Applicant the same is appropriated towards such
liability.
ii. INTEREST: The Bench settles the interest amount
on delayed payment of duty at Rs.1,15,13,067/-
(Rupees One Crore Fifteen Lakh Thirteen Thousand
Sixty Seven Only) and the amount Rs.20,00,000/-
already paid by the Applicant is appropriated towards
the liability. The applicant is directed to pay the
balance interest liability of Rs.95,13,067/- within 15
days of receipt of this order.
iii. PENALTY
a. A penalty of Rs.8,00,000/- (Rupees Eight Lakhs
only) is imposed on M/s KBS Industries Limited, the
Applicant
b. A penalty of Rs.2,00,000/- (Rupees Two Lakh only)
is imposed on Shri Arjun Anand. Director, M/s KBS
Industries Ltd, the co-applicant
The Bench grants immunity to them from penalty in
excess of the above amounts
13.2 Immunity from Prosecution: Subject to the
compliance of the above orders, the Bench grants
immunity to the applicant/co-applicant from
prosecution under the Act in so far as this case is
concerned.
13.3 The concerned Jurisdictional Commissioner is
directed to verify the amount deposited by the
applicant from the original challans within 30 days of
the receipt of this order under intimation to the
Commission.
14. This Order is made and immunities are granted
subject to the provisions of the Customs Act, 1962, as
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applicable to these proceedings and section 127 C and
section 127 H of the said Act, in particular.
15. This Order shall be void and immunities
withdrawn if at any point of time, the Bench finds that
the Applicant/Co-Applicant have failed to comply with
order or had concealed any particular material to the
Settlement or had given false evidence or had obtained
this order by fraud or mis-representation of facts.”
REASONS AND CONCLUSION
25. As noted at the outset, the petitioners’ principal challenge to the
impugned order is founded on the premise that no interest payable on
CVD levied under Section 3 of the CT Act or on SAD levied under
Section 3A of the CT Act. It is contended that since there is no
statutory provision for payment of interest on the said duties, interest
as imposed by the impugned order – which is stated to include interest
on the said duties – is erroneous and contrary to law. It is submitted
that although an order passed under Section 127C(5) of the Act cannot
be challenged on merits, the same is untenable if it is not in
accordance with the provisions of the Act.
26. The learned counsel for the petitioners rested her submissions
on the decision of the Bombay High Court in Mahindra & Mahindra
Ltd. vs. Union of India1. She also pointed out that the Special Leave
Petition (SLP) preferred by the Revenue against the said decision
[SLP(C) Diary No.18824/2023] was dismissed as the Supreme Court
had found no merit in the said petition2.
1
2022 SCC OnLine Bom 3155
2
Union of India and Others v. Mahindra & Mahindra Ltd. 2023 SCC OnLine SC 1435
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27. At the outset, it is relevant to bear in mind the Scheme of
Chapter XIV-A of the Act which contains provisions regarding
Settlement of Cases. In terms of Section 127B of the Act any
importer, exporter or any other person may in respect of a case
relating to him make an application before the Settlement Commission
to have the case settled prior to its adjudication.
28. The expression “case” is defined in Section 127A(b) of the Act
to mean proceedings under the Act or any other Act for the levy,
assessment, and collection of customs duty, pending before an
adjudicating authority on the date on which an application is made
under Sub-section (1) of Section 127B of the Act. The proviso to
Section 127A(b) of the Act also clarifies that any proceedings referred
by any Court, Appellate Tribunal or any other authority for a fresh
adjudication or decision, would not fall within the scope of
proceedings within the meaning of the said Section and thus cannot be
considered as a case.
29. Section 127C of the Act provides for procedure to be followed
on receipt of an application under Section 127B of the Act. In terms
of Section 127C(1) of the Act, the Settlement Commission is required
to issue a notice to the applicant to explain why its application should
be allowed. After taking into consideration the said explanation, the
Settlement Commission is required to pass an order either to proceed
with the application or reject the same. A copy of the said order is
required to be sent to the Principal Commissioner of Customs or
Commissioner of Customs having the jurisdiction. The Principal
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Commissioner of Customs or the Commissioner of Customs, as the
case may be, is required to furnish a report within thirty days on
receipt of communication from the Settlement Commission. Sub-
section (4) of Section 127C of the Act empowers the Settlement
Commission to direct further enquiry or investigation if it considers
apposite and records the reasons in writing.
30. Sections 127D, 127E, 127H and 127-I of the Act contain
provisions which delineate the powers of the Settlement Commission
to direct provisional attachment; to reopen completed proceedings; to
grant immunity from prosecution and penalty; and to send back the
case to the proper officer.
31. After examination of the records and report(s) furnished by the
concerned authority, the Settlement Commission is required to pass
“such order as it thinks fit on 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 Principal Commissioner of Customs
or Commissioner of Customs and Commissioner (Investigation) under
Sub-section (3) or Sub-section 4” of Section 127C of the Act.
32. Section 127J of the Act expressly provides that an order of
settlement shall be conclusive as to the matters stated therein. Section
127C of the Act and Section 127J of the Act are set out below for
ready reference:
127C. Procedure on receipt of an application under
Section 127B.–(1) On receipt of an application under
section 127B, the Settlement Commission shall, within sevenSignature Not Verified
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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 Principal Commissioner of
Customs or Commissioner of Customs 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 Principal Commissioner of Customs
or Commissioner of Customs 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
Signature Not Verified
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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
Principal Commissioner of Customs or Commissioner of
Customs 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 Principal
Commissioner of Customs or 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 Principal Commissioner of Customs or
Commissioner of Customs and Commissioner (Investigation)
under sub-section (3) or sub-section (4).
(5A) The Settlement Commission may, at any time within
three months from the date of passing of the order under sub-
section (5), amend such order to rectify any error apparent on
the face of record, either suo motu or when such error is
brought to its notice by the jurisdictional Principal
Commissioner of Customs or Commissioner of Customs or
the applicant:
Provided that no amendment which has the effect of
enhancing the liability of the applicant shall be made under
this sub-section, unless the Settlement Commission has given
notice of such intention to the applicant and the jurisdictional
Principal Commissioner of Customs or Commissioner of
Customs as the case may be, and has given them a reasonable
opportunity of being heard.
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(7) Subject to the provisions of section 32A of the Central
Excise Act, 1944 (1 of 1944), 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 of the Central Excise Act,
1944 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 127B.
(9) Where any duty, interest, fine and penalty payable in
pursuance of an order under sub-section (5) is not paid by the
applicant 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 proper officer having jurisdiction over the
applicant in accordance with the provisions of Section 142.
(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
proper 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.
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127J. Order of settlement to be conclusive.–Every order of
settlement passed under sub-section (5) of section 127C shall
be conclusive as to the matters stated therein and no matter
covered by such order shall, save as otherwise provided in this
Chapter, be reopened in any proceeding under this Act or
under any other law for the time being in force.
33. It is clear from the Scheme of Chapter XIV-A of the Act that
the provisions contained therein are for settlement of cases and not for
adjudication of disputes. In the circumstances, it is not open for an
applicant to dissect the order passed by the Settlement Commission or
to seek merit review of the such an order. Since the nature of the
order passed under Section 127C of the Act is that of a settlement of a
case, the applicant is required to accept the same in its entirety.
34. Sub-section (8) of Section 127C of the Act also expressly
provides that an order passed under Sub-section (5) of Section 127C
of the Act shall provide for terms of settlement including payment by
way of duty, penalty or interest and the manner in which the sums
shall be paid.
35. In the present case, the impugned order expressly provides that
the order would be void and immunities granted would be withdrawn
if the petitioners fail to comply with the order.
36. Given the nature of the order passed under Section 127C of the
Act – which is in the nature of a settlement – it would not be
permissible to dissect the same and accept that parts of the order
which are favourable to the applicant while rejecting the other
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directions which are not. The order of Settlement Commission must be
accepted in entirety.
37. In Sanghvi Reconditioners (P) Ltd. v. Union of India: (2010) 2
SCC 733, the Supreme Court had observed as under:
“36. We also find substance in the contention of the learned
counsel for the Revenue that having observed that the
appellant had not made a full and true disclosure, their
application should have been rejected by the Settlement
Commission on that count itself and no relief should have
been granted to the appellant. However, in view of the fact
that order dated 8-2-2001 passed by the Settlement
Commission allowing the application of the appellant to be
proceeded was not challenged by the Commissioner nor such
a plea was urged by the Revenue before the High Court or in
their reply to the present appeal, we find it difficult to reject
the application at this stage, though, having perused some of
the documents available on record, we are convinced that the
appellant had not made a full and true disclosure of its affairs
before the Settlement Commission. Be that as it may, we are
of the opinion that having opted to get their customs duty
liability settled by the Settlement Commission, under Chapter
XIV-A of the Act, the appellant 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.
37. As observed by Krishna Iyer, J. in CIT v. B.N.
Bhattacharjee [(1979) 4 SCC 121 : 1979 SCC (Tax) 297] , the
recommendation of the Wanchoo Committee was: (SCC p.
128, para 20)
“20. … a compromise measure of a statutory settlement
machinery where [a] big evader could make a
disclosure, disgorge what the Commission fixes and
thus buy quittance for himself and accelerate recovery
of taxes in arrears by the State, although less than what
may be fixed after long protracted litigation and
recovery proceedings.”
[Emphasis supplied]
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38. Having stated the above, it is also necessary to note that Sub-
section (5) of Section 127C of the Act expressly provides that the
Settlement Commission would make an order as contemplated therein
“in accordance with the provisions of the Act”. Therefore, it is not
permissible that the Settlement Commission make an order contrary to
the provisions of the Act.
39. In Mahindra & Mahindra Ltd. v. Union of India1, the Bombay
High Court, after examining the order passed by the Settlement
Commission in that case, concluded that it was contrary to law
inasmuch as it had directed payment of interest in respect of
countervailing duty and special additional duty levied under Sections
3 and 3A of the CT Act. The court found that there was no statutory
provision enabling levying of interest on such duties and therefore the
same was impermissible. However, it is necessary to note that the
case settled by the order of the Settlement Commission in that case
pertained to four show cause notices alleging that the petitioner had
not declared the entire amount payable in connection with the goods
imported, which amounted to misdeclaration with an intent to avoid
payment of custom duty. In the given facts, the court found that no
interest was payable on the countervailing duty or the special
additional duty. However, the present case is clearly distinguishable
on facts from the case in Mahindra & Mahindra Ltd. v. Union of
India (supra). The petitioners’ case is not based on any misdeclaration
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of the duty payable on goods; it arises on account of failure on the part
of the petitioners to satisfy the export obligations.
40. The petitioners had availed of a scheme, which enabled the
importer to import material against advance authorization without
payment of any custom duty, special additional duty, safeguard duty
and anti-dumping duty. The said scheme expressly provided for levy
of interest at the rate of 15% per annum from the date of clearance of
the goods if the conditions for availing such exemption – which
included obligations to export – were not complied with. The
exemptions as availed by the petitioners were extended in terms of the
Notification No.18/2015-Cus dated 01.04.2015 issued under Section
25 of the Act. The relevant extract of the said Notification is set out
below:
“In exercise of the powers conferred by sub-section (1) of
section 25 of the Customs Act, 1962 (52 of 1962), the Central
Government, being satisfied that it is necessary in the public
interest so to do, hereby exempts materials imported into India
against a valid Advance Authorisation issued by the Regional
Authority in terms of paragraph 4.03 of the Foreign Trade
Policy (hereinafter referred to as the said authorisation) from
the whole of the duty of customs leviable thereon which is
specified in the First Schedule to the Customs Tariff Act, 1975
(51 of 1975) and from the whole of the additional duty,
safeguard duty, transitional product specific safeguard duty and
anti-dumping duty leviable thereon, respectively, under
sections 3, 8B, 8C and 9A of the said Customs Tariff Act,
subject to the following conditions, namely:-
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(iv) that in respect of imports made before the discharge of
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such surety or security and in such form and for such sum
as may be specified by the Deputy Commissioner of
Customs or Assistant Commissioner of Customs, as the
case may be, binding himself to pay on demand an
amount equal to the duty leviable, but for the exemption
contained herein, on the imported materials in respect of
which the conditions specified in this notification are not
complied with, together with interest at the rate of fifteen
per cent per annum from the date of clearance of the said
materials;”
41. As is apparent from the above, the exemption notification was
issued by the Central Government in exercise of powers under Section
25(1) of the Act. The said Section is set out below:
“25. Power to grant exemption from duty.–(1) If the
Central Government is satisfied that it is necessary in the
public interest so to do, it may, by notification in the Official
Gazette, exempt generally either absolutely or subject to such
conditions (to be fulfilled before or after clearance) as may be
specified in the notification goods of any specified description
from the whole or any part of duty of customs leviable
thereon.”
42. Section 25(1) of the Act expressly empowers the Central
Government to impose such conditions as may be specified in the
notification, for exempting goods of any specified description from the
whole or any part of duty of customs leviable thereon. In the present
case, admittedly, KBS had imported goods for the purpose of export
without payment of custom duty, additional duty, safeguard duty and
anti-dumping duty, subject to the conditions as stipulated in the
Notification dated 01.04.2015. The petitioners had availed the benefit
of the said Notification and had bound themselves to comply with the
conditions as stipulated in the said Notification.
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43. As noted above, one of the conditions required the importer to
execute bond with such security or surety in such form as may be
specified binding the importer to pay on demand an equal amount to
the duty leviable on the imported material along with interest at the
rate of 15% per annum from the date of clearance of the said material,
if the conditions stipulated were not satisfied.
44. Admittedly, the petitioners had not satisfied the conditions
subject to which import of material had been permitted without
payment of duties. Thus, interest on such duties was payable as was
stipulated in terms of the Notification dated 01.04.2015.
45. It is apparent that present case is not one where there is no
statutory provision for levy of interest. On the contrary, in the present
case, Section 25(1) of the Act empowers the Central Government to
impose conditions for exemption from payment of specified duties.
And, the Central Government had stipulated payment of interest from
the date of clearance of the material if the importer had failed to
discharge their export obligations, as one such condition.
46. Admittedly, the petitioners had bound themselves to the said
conditions and had availed the benefit of the said Notification. In this
view, we are unable to accept that the impugned order imposing
interest on delayed payment of duties is contrary to law.
47. The petitioners had also challenged the constitutional vires of
the Notification dated 01.04.2015. However, as noted at the outset,
the learned counsel for the petitioners did not seriously contest the
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same and in our view rightly so. The petitioners’ challenge to the
Notification is insubstantial. The exemption was granted subject to
the importer satisfying its export obligations. The petitioners do not
challenge the grant of advance authorizations and permission to
import the goods in question without payment of duties on the
condition of fulfilling the export obligations. Clearly, if the conditions
were not satisfied, the petitioner would be liable to pay the duties on
the material imported.
48. Admittedly, such duties would be payable on the date of
clearance of the goods and therefore stipulating that the interest would
be payable on such dates if the conditions are not satisfied cannot by
any stretch be stated to be arbitrary or unreasonable.
49. In view of the above, we find no merit in the petition, the same
is, accordingly, dismissed. The pending application is also disposed
of.
VIBHU BAKHRU, ACJ
SWARANA KANTA SHARMA, J
JANUARY 13, 2025
M/’gsr’
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