2019 (1) TMI 774 - HC - Central Excise

Settlement Commission Bound by Powers: Disclosure Key for Successful Settlement Applications

The court held that the Settlement Commission cannot act as an adjudicating authority to decide show cause notices and determine demands raised, ... Full and true disclosure - jurisdictional pre-conditions for settlement - settlement order not an adjudication order - power of Settlement Commission to remit case - exclusive jurisdiction of Settlement Commission upon admission - order under Section 32F(5) of the Central Excise ActFull and true disclosure - jurisdictional pre-conditions for settlement - settlement order not an adjudication order - Whether the Settlement Commission can proceed to adjudicate and determine the demand in a show cause notice after recording that the applicant has not made 'full and true' disclosure and has not disclosed the manner in which the duty liability was derived. - HELD THAT: - The Court held that the statutory scheme makes 'full and true' disclosure of undisclosed duty liability and disclosure of the manner in which it was derived jurisdictional pre-conditions for the Settlement Commission to pass a settlement order. Those pre-conditions cannot be waived and, where not satisfied, the Settlement Commission lacks jurisdiction to decide the show cause notice as an adjudicating authority. The Settlement Commission's power to examine records and reports and to determine matters covered by an application does not convert it into an original adjudicating authority; a settlement order is distinct from an adjudication order and cannot be used to substitute for proceedings before the Central Excise Officer when the pre-conditions are unmet. The Court emphasised that ineligible cases must be returned to the Central Excise Officer for adjudication (paras 12, 13, 14). [Paras 12, 13, 14]Settlement Commission cannot adjudicate the show cause notice where it records failure of the applicant to make 'full and true' disclosure and to disclose the manner of derivation of duty liability; such matters must be relegated to the adjudicating authority.Power of Settlement Commission to remit case - remit to adjudicating authority - What is the appropriate procedural consequence when the Settlement Commission finds lack of full and true disclosure? - HELD THAT: - The Court held that upon a finding that the applicant has not made the required 'full and true' disclosure the Settlement Commission should reject the settlement application and remit/relegate the matter to the Central Excise Officer for adjudication under the Act. The Chapter provides for sending back the case and permits the Central Excise Officer to use materials produced before the Settlement Commission; consequently, normal adjudication proceedings must follow (paras 9, 20, 23, 45). [Paras 20, 45]Where the Settlement Commission records non-satisfaction of jurisdictional pre-conditions, the case must be sent back to the Central Excise Officer for adjudication; the Settlement Commission should not decide the show cause notice on merits.Order under Section 32F(5) of the Central Excise Act - exclusive jurisdiction of Settlement Commission upon admission - Validity of the impugned settlement orders which, despite recording failure of disclosure, proceeded to determine and confirm demands raised in show cause notices. - HELD THAT: - Applying the statutory scheme and controlling authorities, the Court found that the Settlement Commission in the three writ petitions had itself recorded that petitioners had not made 'full and true' disclosure yet proceeded to adjudicate and confirm the demands. That exercise exceeded the Commission's jurisdiction. The Court therefore quashed the impugned orders to the extent they adjudicated and confirmed show cause notice demands, while leaving intact the Commission's findings on non-disclosure (paras 45-47). [Paras 45, 47]Impugned settlement orders are quashed insofar as they adjudicate and confirm the demands in the show cause notices; the Commission's findings that petitioners failed to make full and true disclosure are not disturbed.Use of materials produced before Settlement Commission - Incidental procedural consequence concerning subsequent adjudication and limitation. - HELD THAT: - The Court directed that proceedings pursuant to the show cause notices shall commence before the Central Excise Officer and that the period from filing of the settlement applications until this pronouncement shall be excluded for the purposes of limitation. Statements, reports and materials from settlement proceedings may be read and taken into account in accordance with law by the adjudicating authority (para 48). [Paras 48]Show cause proceedings shall proceed before the Central Excise Officer; the period of settlement proceedings is excluded from limitation and materials/statements from settlement proceedings may be considered in the adjudication as permitted by law.Final Conclusion: Writ petitions partly allowed: impugned Settlement Commission orders are quashed to the extent they adjudicated and confirmed demands in the show cause notices after recording failure of 'full and true' disclosure; findings that petitioners did not make full and true disclosure are left intact; matters are remitted to the Central Excise Officer for fresh adjudication, with the period of settlement proceedings excluded for limitation and with liberty to use materials from the settlement proceedings as permissible by law. Issues Involved:1. Jurisdiction and authority of the Settlement Commission under the Central Excise Act, 1944.2. Requirement of 'full and true' disclosure by the applicant for settlement.3. Adjudication of disputed facts by the Settlement Commission.4. Procedural aspects of the Settlement Commission's operations.5. Specific findings and directions in individual cases.Detailed Analysis:1. Jurisdiction and Authority of the Settlement Commission:The primary legal issue addressed was whether the Settlement Commission, after determining that the applicant failed to make a 'full and true' disclosure of duty liability and the manner in which such liability was derived, could act as an adjudicating authority to decide the show cause notice issued by the Central Excise Officer and determine the demand raised. The court emphasized that the Settlement Commission is not an adjudicating authority and does not have the power to pass an order-in-original as a Central Excise Officer. The Settlement Commission must function within the powers conferred under Chapter-V of the Act and cannot adjudicate the show cause notice on merits.2. Requirement of 'Full and True' Disclosure:The court highlighted that the Settlement Commission's satisfaction on the assessee's 'full and true' disclosure of the undisclosed duty liability and the manner in which the liability was derived is a sine qua non legislative command that forms the jurisdictional preconditions to obtain an order of settlement. The court referred to several precedents, including the Supreme Court's decisions in *Commissioner of Income Tax (Central) v. B.N. Bhattacharjee* and *Ajmera Housing Corporation v. Commissioner of Income Tax*, which emphasized the necessity of 'full and true' disclosure for a valid application under settlement provisions.3. Adjudication of Disputed Facts by the Settlement Commission:The court reiterated that the Settlement Commission cannot substitute itself for the Adjudicating Officer by deciding highly contested and disputed questions of facts. The basic purpose of the Settlement Commission is to settle the matter, not to adjudicate the issue on which there is a wide variance between the parties. The court cited its own decision in *Picasso Overseas v. Director General of Revenue Intelligence*, which held that the Settlement Commission cannot adjudicate highly contested and disputed questions of facts.4. Procedural Aspects of the Settlement Commission's Operations:The court examined the statutory provisions governing the Settlement Commission's operations, including Sections 32E, 32F, 32I, 32K, 32L, 32M, 32N, and 32O of the Central Excise Act. It emphasized the strict timelines and procedural requirements for the Settlement Commission to follow, including the issuance of notices, calling for reports, and passing orders within specified periods. The court also noted that the Settlement Commission has the power to grant immunity from prosecution and penalty, subject to the applicant's cooperation and 'full and true' disclosure.5. Specific Findings and Directions in Individual Cases:- WP(C) No. 7277/2015 (SDL Auto Pvt. Ltd.):The petitioner had accepted a duty liability of Rs. 60,54,752/- and interest liability of Rs. 19,59,645/-, while the show cause notice demanded Rs. 2,16,70,002/-. The Settlement Commission found that the petitioner had not made a 'full and true' disclosure and upheld the demand raised in the show cause notice. The court held that the Settlement Commission should have remitted the case to the Central Excise Officer for adjudication on merits.- WP(C) No. 8939/2015 (Iceberg Aqua Pvt. Ltd.):The petitioner had admitted a duty liability of Rs. 3,04,001.39/- against a demand of Rs. 3,51,82,322/-. The Settlement Commission found that the petitioner had not made a 'full and true' disclosure and upheld the demand raised in the show cause notice. The court directed that the case be remitted to the Central Excise Officer for adjudication on merits.- WP(C) No. 10013/2016 (KMG Rolling Pvt. Ltd.):The petitioner had admitted a duty liability of Rs. 48,13,658/- and interest of Rs. 56,971/-, while the show cause notice demanded Rs. 57,05,370/-. The Settlement Commission found discrepancies in the petitioner's assertions and upheld the demand raised in the show cause notice. The court held that the Settlement Commission should have remitted the case to the Central Excise Officer for adjudication on merits.Conclusion:The court quashed the impugned orders passed by the Settlement Commission to the extent they adjudicated and confirmed the demands raised in the show cause notices. The court directed that the cases be remitted to the Central Excise Officer for adjudication on merits, excluding the period from the date of filing of the applications for settlement till the present pronouncement for the purpose of limitation. The adjudicating authority/Central Excise Officer was directed to consider the defense and contentions of the petitioners before passing the final order.