HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
RESERVED
Civil Misc. Writ Petition (Tax) No. 1661 of 2009
M/s Chandra Kamal Corporation and another
Vs.
Union of India and others
********
Hon'ble Tarun Agarwala,J.
Hon'ble Surya Prakash Kesarwani,J.
(Per: Tarun Agarwala,J.)
1. The petitioner No.1 is a proprietorship firm and petitioner No.2 is a private limited company and are engaged in the manufacture and sale of Pan Masala, commonly known as Gutka. On 8.6.2002 the Central Excise Department conducted a detailed search at the petitioner's premises and found certain quantity of the excisable goods in excess of the recorded stock. Cash amounting to Rs.58,50,750/- was also seized. After completion of the investigation, two show cause notices dated 5.12.2002 and 23.5.2003 were issued calling upon the petitioners to show cause as to why the central excise duty, penalty and interest may not be levied and the currency and the goods so seized may not be confiscated.
2. During the pendency of the show cause notices the petitioners preferred an application under Section 32E of the Central Excise Act (hereinafter referred to as the "Act") before the Settlement Commission praying for the settlement of the dispute. The application for settlement of the case was processed and the Commission passed an order holding that the conditions prescribed under the Act were fulfilled and, accordingly, admitted the application to be processed under Section 32 F of the Act. The Settlement Commission after taking into the facts and circumstances of the case passed an order dated 28.2.2008 holding that petitioner No.1 was liable to pay excise duty to the tune of Rs.92,22,581/- and petitioner No.2 was liable to pay duty amounting to Rs.18,52,978/- which was required to be paid within 15 days from the date of receipt of the order. On the question of interest, the Commission held that the case being one of clandestine removal, petitioner Nos.1 and 2 were liable to pay interest on the delayed payment of duty as per the prescribed rate under Section 11AB of the Act. The Department was directed to calculate interest which was to be paid by the petitioner within 15 days from the receipt of such communication from the Department. On the question of penalty, the Commission found that the case being one of the clandestine removal, the Commission declined to grant immunity to the petitioners from penalty leviable under the provisions invoked in the show cause notice. The Commission, however, directed that the total penalty imposed on the petitioners, which was equal to the penalty imposable under Section 11AC of the Act was liable to be paid. The Commission computed a sum of Rs.46,11,290/- as penalty on petitioner No.1 and Rs.9,26,399/- upon petitioner No.2. The Commission however granted immunity to the petitioner from prosecution under the Customs Act, 1962 subject to payment of duty, interest, fine and penalty.
3. Since the order of the Settlement Commission contained clerical errors, the petitioners moved an application dated 19.3.2008 for rectification of the mistake. The Settlement Commission found that its order contained certain calculation mistakes and, accordingly, issued a corrigendum dated 11.9.2008 revising the duty payable. As per the corrigendum dated 11.9.2008 the revised duty that become payable by petitioner No.1 was Rs.41,22,036/- and penalty was revised to Rs.20,61,018/-. The Commission directed the revised duty and penalty to be payable within 15 days and interest to be paid within 10 days from the date of communication of the order.
4. Immediately thereafter the petitioner moved an application indicating that as per the order of the Settlement Commission the petitioners are liable to pay the duty and penalty as per the chart indicated therein. The petitioners also requested the Department to communicate the quantum of interest so that the same could be paid. Similar application was again moved on 13.10.2008. The Superintendent Central Excise by an order dated 14.10.2008 communicated the petitioners that the benefit of proviso of Section 11AC of the Act would not be available as there was no such direction by the Settlement Commission and that the petitioners were required to pay the balance amount of Rs.7,42,454/-. On 25.11.2008, the petitioners informed the Superintendent that the amount of Rs.7,42,454/- has been deposited by them. On 19.1.2009 the Superintendent Central Excise quantified the interest and communicated the petitioners that an amount of Rs.12,29,898/- was payable. According to the petitioners, the said amount was deposited on 9.2.2009. The petitioners thereafter filed an application dated 2.7.2009 praying that the excess amount deposited by way of penalty should be refunded in view of the proviso to Section 11AC of the Act. This application remained pending and the present writ petition was filed praying for the quashing of the order dated 28.2.2008 and the corrigendum dated 11.9.2008 passed by the Settlement Commission in so far as it denied the benefit of proviso to Section 11-AC of the Act and further prayed for a writ of mandamus commanding the respondents to refund the excess amount of 75% deposited towards penalty.
5. In this back drop, we have heard Sri Pankaj Bhatia along with Sri Gopal Verma, the learned counsel for the petitioner and Sri Ashok Singh, the learned counsel for the respondents.
6. The learned counsel contended that the Settlement Commission has to pass an order determining the quantum of penalty which has to be in accordance with the provisions of the Act and has no power to settle the case "dehors" the provisions of the Act, which are applicable to regular assessment orders. The learned counsel contended that the scheme of settlement, as contained under Sections 32E and 32F of the Act, do not envisage the Settlement Commission to settle a case, which is against the provisions of the Act. The learned counsel contended that under the proviso to Section 11AC of the Act, if duty and interest is paid within 30 days from the date of communication of the order of the Central Excise Officer determining such duty in which case the amount of penalty liable to be paid would be 25% of the duty so determined. In the instant case the penalty imposed was almost 100% of the duty assessed and, therefore, the order of the Commission demanding penalty to the extent indicated in the order as modified by the corrigendum is patently erroneous and against the provisions of the Act.
7. On the other hand, Sri Ashok Singh, the learned counsel for the Department contended that the penalty imposed by the Settlement Commission under Section 11AC of the Act is to be paid full in compliance of the order passed by the Settlement Commission. It was contended that under Section 32(8) of the Act, the order passed by the Settlement Commission under sub section (5) of Section 32 of the Act provides for "terms of settlement" which includes any demand by way of duty, penalty and interest and the manner in which sums under the settlement is required to be paid. It was therefore, contended that the sum of penalty determined by the Commission is required to be paid and no immunity with regard to waiver under the proviso to Section 11AC of the Act could be given since no such waiver was provided by the Commission.
8. In order to appreciate the controversy involved in the present writ petition and the submissions made at the Bar, it would be appropriate to consider a few provisions of the Act. Under Section 32-E of the Act, an assessee could make an application before the Settlement Commission to have his case settled. The application should contain a full and true disclosure of his duty, liability, etc., which had not been disclosed before the Central Excise Officer. The said application, if accepted is processed under Section 32-F of the Act. A report is called from the Commissioner of Central Excise 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 or the investigation involved therein, the Settlement Commission may allow or reject the application. If the application is processed, the Commission after examining the record and the report of the Commissioner and, after examining such other evidence, would pass an order providing the terms of settlement including any demand by way of duty, penalty or interest and the manner in which such sums would be paid. In the event, the duty interest, penalty etc. is not paid within the stipulated period, interest on the amount quantified by the Commission becomes payable under Section 32-F(9) of the Act.
9. Section 32-I of the Act provides the powers and procedure of the Settlement Commission. For facility, the said provision is extracted hereunder:
"Powers and procedure of Settlement Commission:- (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."
10. Sub Section (1) of Section 32-I of the Act provides that the Settlement Commission shall have all the powers which are vested in the Central Excise Officer under the Act or the Rules. Sub-section (2) of Section 32-I of the Act provides that the Settlement Commission while passing an order under Section 32F(5) will have exclusive jurisdiction to exercise the powers and perform the function of any Central Excise Officer under this Act in relation to the case. Section 32K of the Act gives power to the Settlement Commission to grant immunity from prosecution and for imposition of any penalty either in whole or in part. The Central Excise Officer has been defined under Section 2(b) of the Act.
11. In the light of the aforesaid provision one has to consider and take a look at the first and second proviso to Section 11AC of the Act. The relevant extract of the provision is extracted hereunder:
"[11AC. Penalty for short-levy or non-levy of duty in certain cases.─ Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined :
[Provided that where such duty as determined under sub-section (2) of section 11A, and the interest payable thereon under section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section be twenty-five per cent. of the duty so determined :
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :
................."
12. A perusal of the aforesaid provision indicates that where duty is determined under Section 11 A(2) of the Act and interest payable under Section 11 AB of the Act is paid within 30 days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid would be 25% of the duty so determined. The second proviso further provides that the benefit of reduced penalty under the first proviso would be available if the amount of penalty so determined has also been paid within the aforesaid period of 30 days.
13. It was urged by the learned counsel for the Department that the provisions of Section 11AC of the Act is not applicable to the Settlement Commission and that the Settlement Commission, in any case, is not bound by the said provision.
14. In this regard, we are of the opinion, that the Commission's power of settlement has to be exercised in accordance with the provisions of the Central Excise Act. Though the Commission has power to make such order as it thinks fit on the matters covered by the application under Section 35(5) of the Act, however, the Commissioner cannot make an order making a settlement which would be in conflict with the provisions of the Act such as the quantum and payment of penalty.
15. The object of the legislature in introducing Sections 32E and 32F in the Act was to ensure that protracted proceedings before the authorities or in Courts are avoided by resorting to settlement of cases. In this process, an assessee was not expected to get any reduction in the amount which was statutorily required to be paid under the Act. However under Section 32K of the Act, the Commission had the power to grant immunity from prosecution and penalty. The immunity extended only to the penal provision of the Central Excise Act. The Commission was also empowered to waive either whole or in part from the imposition of any penalty with respect to the case covered by the settlement. In our opinion, the Settlement Commission has an exclusive jurisdiction to exercise all powers of the regular authority especially that of the Central Excise Officer in view of the provision of Section 32-I of the Act which specifically provides that the Settlement Commission shall have exclusive jurisdiction to exercise the power and perform the function of any Central Excise Officer under this Act. This exclusive jurisdiction, which the Settlement Commission derives under Section 32-I is also in accordance with the provision of Section 32F(1) of the Act, which can be exercised only when the Commission makes a formal order to admit or allow the application to be proceeded with for the purpose of effecting a settlement. We are also of the view that the Settlement Commission has no power to waive duty or interest and has to determine the quantum of duty in accordance with the relevant provisions of the Act. The Settlement Commission has no power to settle the case "dehors" the provision of the Act.
16. In the light of the aforesaid, the Settlement Commission while passing orders under Section 32F of the Act is vested with the powers of the Central Excise Officer, who is empowered to determine the duty and the interest payable on it. Once such duty is determined under Section 11A(2) and interest is determined under Section 11AB of the Act, the first proviso to Section 11AC comes into operation by law, namely, that where the assessee pays the amount of duty and interest within the stipulated period of 30 days from the date of communication of the order determining such duty, in which case the amount of penalty is liable to be paid by the assessee would be 25% of the duty so determined. This provision is for the benefit of the assessee, namely, that if the assessee pays the duty and interest demanded within 30 days of the communication of the order, in that event, the assessee would be liable to pay 25% of the duty amount by way of penalty otherwise he would be liable to pay 100% of the duty amount by way of penalty.
17. In K.P. Pouches (P) Ltd. vs. Union of India, 2008 (228) E.L.T. 31, the entire duty amount was paid well before the show cause notice. The adjudicating authority while determining the duty directed the assessee to pay 100 of the duty amount by way of penalty. The Delhi High Court held, that where the assessee had deposited the entire duty amount well before the show cause notice, the assessee was liable to pay only 25% of the duty amount as penalty and that the adjudicating authority could not demand more than 25% of the duty amount by way of penalty, in view of the first proviso to Section 11AC of the Act. Based on the said order of the Delhi High Court, the Central Board of Excise and Customs issued a circular dated 22.5.2008. For facility, the said circular is extracted hereunder:
"F. No.208/07/2008-CX-6 Government of India Ministry of Finance Department of Revenue Central Board of Excise & Customs *** New Delhi dated the May 22 , 2008 To The Chief Commissioner of Central Excise (All) The Chief Commissioner of Customs and Central Excise (All) The Director Generals (All) The Commissioner of Central Excise (All) The Commissioner of Central Excise (Appeals) (All) Subject: Observation of Delhi High Court regarding first proviso to section 11AC .
Sir/Madam, A reference has been received by the Board inviting its attention to the Delhi High Court judgment in the case of K.P. Pouches (P) Ltd [2008-TIOL-240-HC-DEL-CX]. In para 27 of the order, the High Court has opined that the adjudication authority should explicitly state the option available to the assessee under section 11AC of the Act in its adjudication order.
2. The matter has been examined . The first and second proviso to section 11AC of the Act read as follows;
"Provided that where such duty as determined under sub-section (2) of section 11A, and the interest payable thereon under section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such persons under this section shall be twenty-five percent. of the duty so determined:
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso: "
It is seen that these proviso to section 11AC of the Act have been specifically inserted to ensure speedy recoveries of the disputed amount. It is an incentive given to the assessee that if he pays the duty amount along with interest, the penalty is reduced to 25% of the duty. This provision is beneficial to the department as well as the assessee as rightly pointed out by Delhi High Court and therefore, the assessee should be made aware of the option available to him.
3. In view of the points as discussed above, Board has decided that in all the cases, wherein penalty under section 11AC of the Act is imposed, the provisions contained in first and second proviso to section 11AC should be mandatorily mentioned in the Order-in-Original itself by the adjudicating authority.
4. The field formation may be suitably informed .
Yours faithfully , ( Rahul Nangare ) Under Secretary to the Government of India"
18. The Central Board of Excise and Customs clarified that the proviso to Section 11AC was specifically inserted to ensure speedy recovery of the disputed amount and consequently an incentive was given to the assessee that, if he pays the duty and interest within the stipulated period, then penalty was reduced to 25% of the duty. The Board clarified that the said proviso was beneficial not only for the Department but also to the assessee. The Delhi High Court in K.P. Pouches (supra) held that the assessee should be informed of the option in the adjudication order itself.
19. Similarly in Exotic Associates vs. Commissioner of Central Excise, 2010 (252) E.L.T. 49 (Guj.), the Gujrat High Court held that the adjudicating authority in its adjudication order should explicitly set out the options available to the assessee under Section 11AC of the Act and if the assessee thereafter does not take advantage of the first proviso to Section 11AC of the Act, it would be entirely at its own peril.
20. In Commissioner of Central Excise and Customs, Surat-II vs. Gopal Fiber, 2010 (256) E.L.T. 10, the Gujrat High Court after considering the circular dated 22.5.2008 held, that wherever penalty under Section 11AC of the Act was imposed, the provisions contained in first and second proviso of Section 11AC should be mandatorily mentioned in the order passed by the adjudicating authority.
21. Similar view was again reiterated in Commissioner of Central Excise and Customs, Surat-I vs. Bhagyodaya Silk Industries, 2010 (262)E.L.T. 248 (Guj.).
22. In the light of the aforesaid, the adjudicating order requires the quantification of the penalty to be made in terms of the first and second proviso of Section 11AC of the Act so that an incentive is given to the assessee to pay the duty and interest within the stipulated period in order to avail payment of duty at reduced rate of 25%, failing which, the total amount of penalty becomes payable. This option was not given in the instant case by the Settlement Commission and, therefore, to that extent the order of the Settlement Commission imposing penalty is in violation of the first proviso to Section 11AC of the Act.
23. We also find that the quantum of penalty so determined by the Commission was almost equivalent to 100% of the duty payable. This is not in consonance with the first proviso to Section 11AC of the Act. The first proviso to Section 11AC of the Act mandates that 25% of penalty would be payable by the assessee, if duty and interest so determined is paid within the stipulated period of 30 days.
24. As we have already held, the Commission is required to pass orders in consonance with the provisions of the Act and cannot settle the case "dehors" the provisions of the Act. The Commission has the powers to waive the penalty, but, if it does not do so and imposes penalty, it can only do so in consonance with the provisions of the Act. The Commission cannot pass an order of penalty which over rides the provision of Section 11AC of the Act.
25. We also find that the Commission while issuing the corrigendum, directed the assessee to pay the amount within 15 days from the date of communication of the order. In our view, the period of 30 days, as specified in Section 11AC of the Act, cannot be reduced by the Commission. The mandatory provision contemplated under the proviso to Section 11AC of the Act is that a reasonable time is given to ensure that the amount is paid. Reducing the period would not provide that incentive to the assessee to avail this benefit by making the payment within the reduced period. The period mentioned in the proviso is a mandatory provision, which cannot be reduced by the Commission.
26. We also find that a cash of Rs.58,50,650/- was seized at the time of search and before issuance of the show cause notice. Substantial amount was paid which covers the duty so determined. In any case, if it does not cover the duty imposed upon petitioner Nos.1 and 2, it definitely covers the imposition of duty on one of the petitioners and, therefore, as per the decision of the Delhi High Court in K.P.Pouches (supra) when the entire duty amount had been paid before the show cause notice, the assessee would be liable to pay only 25% of the duty amount as penalty.
27. We also find that various payments were made at various stages. According to the petitioners, they have paid the amount within the stipulated period. However, the learned counsel for the respondent asserted that the amount was not paid within the stipulated period though such assertion has not been made in specific terms in the counter affidavit. We, however, find that the petitioners have not come out with clarity as to when they had actually paid the amount and whether they had paid the amount within the stipulated period contemplated under first and second proviso to Section 11AC of the Act. We also find that the petitioners' application for refund of the 75% of duty is pending consideration, namely, the application dated 2.7.2009.
28. In the light of the aforesaid, we allow the writ petition in part and dispose of the writ petition holding that the order of Settlement Commission quantifying the amount of penalty almost to the extent of 100% of the duty determined was incorrect and was not in consonance with the first and second proviso to Section 11AC of the Act. The order of the Commission stands modified to the extent that, in the event, the petitioners pays the duty and interest determined within the stipulated period as provided under the first and second proviso to Section 11AC of the Act and the petitioners also pays 25% of the penalty so determined within the stipulated period as provided in the second proviso, in which case the petitioners would be entitled for the refund of the excess amount.
29. We, accordingly, direct the Assistant Commissioner, Central Excise, Division-I, Allahabad and/or the competent authority dealing with the application dated 2.7.2009 to process the same and if it finds that the amount of duty, interest and penalty has been paid within the stipulated period, as per the first and second proviso to Section 11AC of the Act, the balance amount would be refunded. Such processing and order including the actual payment of refund, if any, shall be passed within six weeks from the date of presentation of a certified copy the order.
30. In the circumstances of the case, parties shall bear their own cost.
Dated :30.9.2015
AKJ
(Surya Prakash Kesarwani,J.) (Tarun Agarwala,J.)