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2012 Latest Caselaw 506 Bom

     ASN                            1/13                        WP-3613-11.doc


           IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                   CIVIL APPELLATE JURISDICTION
                   WRIT PETITION NO.3613 OF 2011




                                                                     
     M/s. Indorama Synthetics (India) Ltd.




                                             
     A company incorporated within the meaning of
     Companies Act,1956 and having its office
     at A-31, MIDC Industrial Area Butibori,




                                            
     Nagpur 441122.                             ..Petitioners.
                       v.
     1     Union of India,




                                  
           through the Secretary,
           Ministry of Finance,
                     
           Department of Revenue, North Block,
           New Delhi- 110001.
                    
     2     Settlement Commission,
           Customs & Central Excise,
           Utpad Shulk Bhavan,
      


           Bandra Kurla Complex, Bandra (E),
   



           Mumbai-400 051.

     3     Commissioner of Central Excise,
           Nagpur Commissionerate,





           Telangkhedi Road, Civil Lines,
           Nagpur 441 122.

     4     Directorate General of Central Excise Intelligence,





           Mumbai Zonal Unit, III floor, NTC House,
           15 N.M. Marg, Ballard Estate, Mumbai 400 001.
                                             ..Respondents.




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      ASN                            2/13                           WP-3613-11.doc


     Mr. Sridharan, Sr. Advocate with Mr. Prakash Shah i/by PDS
     Legal for the Petitioners.
     Mr. Vijay Kantharia with Mr. J.B.Mishra for the Respondent.




                                                                        
                            CORAM : J.P. DEVADHAR AND




                                                
                                    M.S. SANKLECHA, JJ.

                             DATE          : 19th December, 2012




                                               
     JUDGMENT (Per M.S.SANKLECHA, J.)

This petition under Article 226 of the Constitution of

India challenges the order dated 8/2/2011 of the Settlement

Commission, Customs and Central Excise (Settlement

Commission) to the extent it (i) rejects the claim of the petitioner

for reduction of demand of Rs.29,65,850 from and out of the

demand of duty of excise on special discount; (ii) imposes a

penalty of Rs.15 lacs on the petitioner; and (iii) directs payment of

simple interest at the rate of 10% from the period settled amount

is due till the date of payment. However, at the hearing, Mr.

Sridharan, the learned Senior Counsel appearing for the petitioner

has made submissions only challenging imposition of penalty of

ASN 3/13 WP-3613-11.doc

Rs.15lacs by the impugned Order.

2) Consequent to a search, show cause notice dated

30/11/2005 demanding in the aggregate a duty of Rs.3.30 crores

was issued to the petitioner. The notice alleged that during the

period April, 2001 to September,2002 the petitioner had cleared

partially oriented yarn (POY) of higher grade by downgrading the

variety of POY in its invoices and thus discharging duty on a

lower value. Further during the period from 2000-01 to 2002-03

the petitioner had allowed special discount to certain select

customers so as to reduce the value of its goods. This resulted in

paying duty on lower value. However, these special discounts

were received back by the petitioner from the select customers.

Therefore evasion of duty is alleged. Therefore the petitioner was

called upon to show cause why equivalent penalty under Section

11AC of the Act should not be imposed as valuation fraud was

alleged. The petitioner was also served with another show cause

ASN 4/13 WP-3613-11.doc

notice dated 30/11//2005 seeking to confiscate POY valued at

Rs.44.30 lacs.

3) On receipt of the show cause notice dated 30/11/2005

the petitioner opted to settle the dispute before the Settlement

Commissioner. On 1/6/2006 the petitioner filed a Settlement

Application before the Settlement Commission under Section 32E

of the Act. In its application the petitioner accepted the duty

liability of Rs.1.89 crores as against the total demand of Rs.3.30

crores while praying for immunity from penalty, interest and

prosecution. In its application for settlement, the petitioner has

admitted and accepted the allegations contained in the show

cause notice.

4) The Settlement Commission by order dated 8/2/20111

settled the dispute directing the revenue to rework the amounts

after granting the petitioner the benefit of cum duty price in

respect of the differential price. The impugned order dated

ASN 5/13 WP-3613-11.doc

8/2/2011 while granting immunity from prosecution, imposed a

penalty of Rs.15 lacs on the petitioner besides waiving interest in

excess of 10% simple interest.

5) Mr. Sridharan, learned Senior Counsel in support of

the petition invites our attention to the Paragraph 15 of the

impugned order which reads as under:

"15- The applicant has come forward with the

plea that the duty demands in respect of the two situations discussed above have not

been substantiated and that the liabilities have been admitted to avoid prolonged litigation and in the spirit of settlement. In respect of the flow back of the special

discount amount, it has been submitted that

the payments were against outstanding dues by the respective customers. Further no flow back has been alleged in respect of lower invoicing of good quality POY as non

standard material. Leniency in the terms of settlement have been sought on these plea.

The Bench, however, does not find it necessary to go into details of these claims

as the applicant has already admitted the duty liability, but for the claim of quantity discount and cum duty price benefit as discussed above. The bench also does not

ASN 6/13 WP-3613-11.doc

consider it appropriate to disregard the valuation fraud committed by the applicant resulting in evasion of duty on the plea of no

extra realization from the customers.

Accordingly the Bench finds no reason to

alter the quantum of penalties and the extent of immunities granted by commission in the earlier order dated 18/1/2008".

(emphasis supplied).

On the basis of the above he submits that the impugned order has

imposed penalty without considering the submissions of the

petitioner. It is submitted that the Settlement Commission is a

statutory body and obliged to pass reasoned orders. It is Mr.

Sridharan's submission that the breach of law on the part of the

Petitioner was not deliberate and thus the impugned order is bad.

It is submitted that the petitioner had sought settlement only with a

view to avoid prolonged litigation. It was next submitted that

merely because duty liability has been admitted by a party it does

not follow that the penalty is imposable. In support of the aforesaid

submission, he relied upon a decision of the Supreme Court in the

ASN 7/13 WP-3613-11.doc

matter of Sir Shadi Lal Sugar & General Mills Ltd. and anr. v.

Commissioner of Income Tax reported in (1986) 169 ITR

Page 705. The decision making process has been vitiated and

therefore this court should exercise its jurisdiction and set aside

the impugned order to the extent it has imposed a penalty of

Rs.15 lacs without any discussions.

6) As against the above, Mr. Vijay Kantharia, Counsel

appearing for the revenue relies upon the order of the Settlement

Commission and submits that impugned order calls for no

interference. This is particularly so as the petitioner has itself

opted to forgo the normal process of adjudication and seek

settlement. Further, the impugned order has exercised discretion

and imposed a penalty of Rs.15 lacs and not an equivalent

penalty as proposed in the show cause notice.

7) We have considered the submissions. It is an

undisputed position that the petitioner had opted to go before the

ASN 8/13 WP-3613-11.doc

Settlement Commission to settle the dispute when show cause

notices dated 30/11/2005 issued to it were pending adjudication

before the Commissioner of Central Excise, Nagpur. The

Settlement Commission has been constituted as an extra ordinary

measure to enable a defaulting person to make a full and

complete disclosure/confession to have the matter settled. It is not

a place where one can challenge the show cause notice on

merits. In this case the petitioner has made a conscious decision

of not going ahead with pending adjudication proceeding but

availing the remedy of settlement provided under the Act. Full

and complete disclosure is a sine qua non to invoke the

jurisdiction of the Settlement Commission. In an application made

under Section 32E of the Act, an applicant has to make a full and

true disclosure of his duty liability including admission of short levy

on account of misclassification, under valuation etc. In light of the

above admissions, made by the petitioner in its application for

ASN 9/13 WP-3613-11.doc

settlement as set out in Paragraph 1 thereof is as under :

"1- Details of information which has not been

correctly declared in the monthly return: The applicants submit that during the period

from April 2012 to Sept.2002 they had cleared partially oriented yarn of higher grade by down grading the variety and by discharging duty on

the lower value. The invoices showed the down graded variety of POY whereas the packing slip and other documents showed clearance of

higher grade. Further, during the period from 2000-01 to 2002-03 the applicants had allowed

special discounts to select customers and duty was paid on the reduced value. The special

discount allowed was received back from the customers. On these two amounts the applicants had not discharged duty as proposed in the show cause notice at the time of removal

of goods."

Further, in the application for settlement and seeking immunity

from penalty, interest and prosecution the petitioner has submitted

in Paragraph 38 of its application as under:

"The applicant submit that the present

application is being filed before this Hon'ble Settlement Commission admitting and accepting the allegations contained in the show cause notice".

      ASN                           10/13                          WP-3613-11.doc




     It is very pertinent to note that the show cause notice                  dated




                                                                       

30/11/2005 has alleged deliberate mis-declaration i.e. valuation

fraud and the manner in which it was done. Thus the acceptance

of undervaluation and the allegation of a deliberate and fraudulent

undervaluation is an accepted position.

8) In the light of the above, once the allegations in the

show cause notices are admitted by the petitioner, it is not open to

the petitioner to contend that the Settlement Commission ought to

have passed a detailed reasoned order before imposing a penalty

of Rs.15 lacs. It is also important to note that the Settlement

Commission in the impugned order while settling the matter

proceeded on the basis of the admission of the petitioner and

applied the same test while imposing penalty. It is most relevant to

note that in the spirit of settlement the Settlement Commission

has imposed a penalty of only Rs.15 lacs and not equivalent

penalty as proposed in the show cause notice issue for

ASN 11/13 WP-3613-11.doc

adjudication.

9) The contention of the petitioner by relying upon the

Apex Court in the matter of Sir Shadi Lal Sugar and General Mills

Ltd. (supra) that even if the duty liability is accepted, penalty is not

ipso facto imposable is inappropriate in the present facts. In the

above case the Apex Court was dealing with the order of

Tribunal which is a final fact finding and adjudicatory body under

the Income Tax Act. While considering the order of the Tribunal,

the Apex Court held that any admission for the purpose of tax

would not necessarily lead to the conclusion that it was also an

admission that amount was concealed. It was held that, in such

cases, the revenue has to prove mens-rea on the part of the

assessee before imposing any penalty. In this case there is an

admission on the part of the petitioner with regard to conduct

which alleges deliberate mis-declaration under valuation. Thus in

the present facts mens rea was an admitted position and therefore

ASN 12/13 WP-3613-11.doc

not an issue before the Settlement Commission. Therefore, the

Apex Court order in Sir Shadi Lal Sugar and General Mills Ltd.

(supra) would have no application. Further we find that the

impugned order does indicate/disclose the reasons for imposing a

penalty. In para 15 of the impugned Order the Settlement

Commission decided not to consider/examine the pleas of the

petitioner on merits of duty demand as the same was admitted by

the petitioner and for that very reason also does not disregard the

valuation fraud for the purposes of imposing penalty. In the

circumstances, there has been no breach of law in the decision

making process and the order imposing penalty does disclose the

mind of the Settlement Commission in imposing penalty. In any

case in view of the admission of the petitioner, no prejudice is

caused to it in case a penalty of Rs.15 lacs is imposed.

Therefore, we find that there is no fault with the decision making

process and are not inclined to interfere.

      ASN                            13/13                        WP-3613-11.doc


     10)          We wish to make it clear that in the peculiar facts of

this case we have not examined the issue whether it is open to

challenge a part and accept the other part of the order of the

Settlement Commission even when admittedly an order of the

Settlement Commission is in the nature of a package deal.

11) In view of the above, we see no reason to entertain the

petition. The petition is dismissed with no order as to costs.

     (M.S.SANKLECHA, J.)                     (J.P. DEVADHAR, J.)