2016 (4) TMI 932 - HC - Central Excise

High Court upholds penalty in Central Excise Act case, denies refund petition

Commissioner of Central Excise, Customs & Service Tax, Bhubaneshwar-I Versus M/s. Vedanta Aluminium Limited & Ors.

The Calcutta High Court held that the writ petition was maintainable as part of the cause of action arose within its jurisdiction due to the location of ... Maintainability - Whether the writ petition is maintainable - Offices of the writ petitioner is situated in Orissa and major part of the cause of action arose outside the jurisdiction of the Calcutta High Court - Held that:- the Additional Bench of the Commission at Kolkata, under the statutory rules, having jurisdiction over the entire eastern zone, which includes the State of Orissa, after hearing, had passed the order. The appellant had participated in the proceedings. Hence, keeping Article 226(2) of the Constitution in mind, as a part of the cause of action had arisen within the territorial limits of the Calcutta High Court, the learned Single Judge was justified in holding that the writ petition is maintainable. Whether the learned Single Judge was justified in setting aside the order of penalty imposed by the Commission holding it as severable and legally unsustainable - Held that:- in view of the provisions in section 32E(1) of the Act, the respondents, “to have the case settled,” and “before adjudication” , instead of filing a reply to the notice and having the case adjudicated, filed applications before the Commission for settlement. So the respondents opted for settlement before the Commission, - a statutory forum created for the said purpose. Thus having opted for settlement and having accepted the amount of excise duty payable by them, the respondents cannot now turn back and challenge the penalty imposed by filing a writ petition because it would mean arguing the case on merit which under Section 33 of the Act can only be dealt with and decided by an adjudicating authority. Had there been adjudication and had duty liability been established, under section 11AC the respondents might have faced prosecution from which the Commission had granted immunity. Whether the order directing imposition of penalty is severable or not - Held that:- since section 32K speaks of “immunity from prosecution for any offence under this Act and also either wholly or in part from the imposition of any penalty and fine” (emphasis supplied), the order of penalty cannot be severed from the order of prosecution. It is a composite order. The words “and also” make the order of prosecution and penalty inseverable. Since an order passed by the Commission is an agreement in a statutory form, the respondents, having been granted immunity from prosecution, cannot challenge the imposition of penalty only. Under the statute the order of penalty is not segregable. As the order of penalty and prosecution cannot be segregated, either the applicant accepts the order in its entirety or the settlement fails. Admittedly a package, an order passed by the Commission, should be read as a whole. It is to be noted that the learned Judge even while holding penalty being segregable and unsustainable held “It is true that ordinarily the settlement comes as a package and composite tax statement is either to be accepted or rejected. The settlement tax cannot be accepted only in part.” Whether payment made pursuant to an order passed by the Commission can be conditional - Held that:- After order was passed by the Settlement Commission, the respondents had deposited the penalty, without prejudice to their rights available under the law. In our view since the respondents had filed applications for settlement admitting the allegations in the notice and having accepted immunity from prosecution and as the order is inseparable, such reservation of rights is unacceptable. It is against the scheme of the Act which shall make section 32K(2) otiose. In our view payment made pursuant to an order passed by the Commission cannot be conditional as it goes against the basic principles of settlement. Levy of penalty imposed by the Commission is set aside and direction for refund of penalty amount paid and/or realised from the writ petitioners, is also set aside and quashed. - Decided partly in favour of appellant Issues Involved:1. Maintainability of the writ petition.2. Severability of the order of penalty passed by the Commission.3. Justification of the learned Single Judge in directing the refund of penalty imposed.Issue-Wise Detailed Analysis:1. Maintainability of the Writ Petition:The primary contention was whether the Calcutta High Court had jurisdiction to entertain the writ petition. The appellant argued that the petitioner's office was in Orissa and a major part of the cause of action occurred outside the Calcutta High Court's jurisdiction. However, the Additional Bench of the Settlement Commission, which passed the order, was located in Kolkata. The Court held that since the Commission's order was passed in Kolkata, and considering Article 226(2) of the Constitution, a part of the cause of action arose within the territorial limits of the Calcutta High Court. Thus, the writ petition was maintainable.2. Severability of the Order of Penalty Passed by the Commission:The Court examined whether the penalty imposed by the Commission could be severed from the rest of the order. The respondents had admitted the allegations in the show cause notice and accepted the duty demanded. The Court noted that a 'settlement' implies an official agreement ending an argument, and the respondents opted for settlement before the Commission instead of adjudication. The Court emphasized that under section 32K of the Central Excise Act, the order of penalty and prosecution is inseparable as it is a composite order. The words 'and also' in the statute make the order of prosecution and penalty inseverable. Hence, the respondents could not challenge the penalty imposed while accepting immunity from prosecution. The Court concluded that the order of penalty is not segregable and must be accepted in its entirety or not at all.3. Justification in Directing Refund of Penalty Imposed:The learned Single Judge had set aside the penalty imposed by the Commission and directed a refund. The Court found that the respondents had admitted the allegations and the duty liability in their applications for settlement. The learned Single Judge erred in holding that the allegations were bald and vague. The Court noted that the respondents, having accepted the duty liability and opted for settlement, could not now challenge the penalty imposed. The payment made pursuant to the Commission's order could not be conditional as it goes against the principles of settlement under the Act. The Court also observed that the learned Single Judge proceeded as if adjudicating the matter, which was incorrect. Therefore, the Court set aside the judgment to the extent it directed the refund of the penalty amount and upheld the penalty imposed by the Commission.Conclusion:The judgment under appeal was partially set aside, specifically the part that set aside the levy of penalty and directed the refund of the penalty amount. The appeal was allowed in part, and the application was disposed of with no order as to costs.