2016 (4) TMI 932 - HC - Central Excise

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

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 ... Jurisdiction of High Court under Article 226(2) - maintainability of writ where part cause of action arises within territorial limits - settlement before the Customs and Central Excise Settlement Commission as a statutory package under sections 32E/32F - inseverability of immunity from prosecution and penalty in a settlement order under section 32K - estoppel by admission in settlement applications - exclusive scope of adjudication under section 33 - payment pursuant to a settlement order cannot be conditionalJurisdiction of High Court under Article 226(2) - maintainability of writ where part cause of action arises within territorial limits - Maintainability of the writ petition before the Calcutta High Court - HELD THAT: - The Additional Bench of the Settlement Commission at Kolkata, having jurisdiction over the eastern zone including Orissa, heard and passed the impugned settlement order; the appellant participated in those proceedings. In view of Article 226(2) of the Constitution, because part of the cause of action arose within the territorial limits of the Calcutta High Court and the Commission's Bench at Kolkata had conducted the proceedings, the learned Single Judge was justified in entertaining the writ petition. Authorities relied upon by the appellant were distinguished on their facts where the locus of substantial cause of action lay elsewhere or where matters related to statutory appeals rather than settlement proceedings.Writ petition was maintainable before the Calcutta High Court.Settlement before the Customs and Central Excise Settlement Commission as a statutory package under sections 32E/32F - inseverability of immunity from prosecution and penalty in a settlement order under section 32K - exclusive scope of adjudication under section 33 - Whether the penalty component of the Settlement Commission's order is severable from the rest of the settlement and legally challengeable in isolation - HELD THAT: - The statute contemplates settlement as a composite statutory scheme. Section 32K authorises immunity from prosecution and either wholly or partly from imposition of penalty and fine; the language and statutory scheme indicate that immunity from prosecution and the penalty component form an inseparable part of the settlement package. Having opted for settlement under section 32E and having accepted the admitted duty and procedure under section 32F, the applicants could not subsequently challenge the penalty by seeking merits adjudication in the writ, since the merits on duty liability fall within the exclusive domain of adjudication under section 33. To permit severance would render the statutory package meaningless and make the immunity provision otiose.Penalty in the settlement order is not severable and cannot be challenged in isolation; the settlement must be accepted or rejected as a whole.Estoppel by admission in settlement applications - payment pursuant to a settlement order cannot be conditional - Whether respondents' admissions in settlement applications and subsequent conditional payment entitled them to challenge the penalty and obtain refund - HELD THAT: - The respondents, in their settlement applications, explicitly admitted the allegations in the show cause notice and accepted the duty demand and deposited the settled amounts. After the Commission's order they deposited the penalty 'without prejudice' to rights, but the Court held such conditional payment inconsistent with the statutory scheme: once settlement is accepted and amounts paid pursuant to the Commission's order, reservations inconsistent with the settlement are unacceptable. Because the applicants had admitted liability and accepted the settlement process and payments, they could not later impugn the penalty component by invoking supposed vagueness of allegations; the Single Judge erred by effectively adjudicating merits contrary to the statutory settlement regime.Admissions in the settlement applications estop the respondents from challenging the penalty; payment pursuant to the settlement cannot be made conditional and then be sought to be refunded.Final Conclusion: The Single Judge's judgment is set aside insofar as it quashed the levy of penalty and directed refund; the appeal is allowed in part. The Calcutta High Court was properly seised, but the Settlement Commission's order is a statutory package-penalty and immunity are inseverable-and admissions and payments under the settlement preclude the respondents from obtaining a refund of the penalty. 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.