2009 (8) TMI 212 - HC - Customs

Settlement Commission Exceeded Jurisdiction in Imposing Penalty: Customs Act Procedural Requirements Not Followed

The Court held that the Settlement Commission exceeded its jurisdiction by imposing a penalty of Rs. 50 lakh without following the procedural requirements ... It is the submission on behalf of the Petitioner that the order of Settlement Commission in imposing a penalty of Rs. 50 lacs., is beyond its jurisdiction under Section 127(C) of the Customs Act. - It is clear that the powers of the Settlement Commission to pass an order must be in accordance with the provisions of the Act, in matters covered by the application and any other matter relating to the cases referred to in the report of the Commissioner - Thus the orders can only be in respect of the matter covered by the application or included in the report of the Commissioner in answer to the application. – Penalty not contained in application for settlement or in report of Commissioner - it is clear that if there be no power under the Act to impose penalty, without complying with the requirements, the settlement commission equally would have no power to impose penalty. – Penalty not imposable on the ground of inconsistent stand of petitioner - The order of the Commission therefore, providing for penalty for settlement of the case is without jurisdiction and to that extent is liable to be set aside. Issues Involved:1. Imposition of penalty by the Settlement Commission.2. Jurisdiction of the Settlement Commission under Section 127(C) of the Customs Act.3. Compliance with procedural requirements under Section 124 of the Customs Act.4. Interpretation of powers under Section 127(F) of the Customs Act.Detailed Analysis:1. Imposition of penalty by the Settlement Commission:The Petitioner contested the imposition of a Rs. 50 lakh penalty by the Settlement Commission, arguing that it was beyond the Commission's jurisdiction under Section 127(C) of the Customs Act. The Petitioner initially admitted a duty liability of Rs. 1,23,81,895/-, which was later revised to Rs. 1,16,49,093/- due to an error in calculation. The Petitioner eventually agreed to pay Rs. 1,21,90,562/- based on a communication from the DGFT. The Settlement Commission settled the case for a Customs duty of Rs. 1,23,33,557/- along with a penalty of Rs. 50 lakh, which the Petitioner challenged.2. Jurisdiction of the Settlement Commission under Section 127(C) of the Customs Act:The Commission's jurisdiction to impose penalties was scrutinized. The Commission argued that its powers were not confined to the show cause notice and that it could pass orders as it deemed fit under Sections 127-C(7) and (9). However, the Court noted that the powers of the Settlement Commission must be exercised in accordance with the Act and could only cover matters included in the application or the Commissioner's report. The Court emphasized that the Settlement Commission's powers are not unlimited and must align with the statutory provisions.3. Compliance with procedural requirements under Section 124 of the Customs Act:Section 124 mandates that no order imposing a penalty can be made without giving the person an opportunity to make representations. The Court observed that the show cause notices issued to the Petitioner did not propose the imposition of any penalty, thus failing to comply with Section 124. The Court highlighted that the Settlement Commission must adhere to procedural requirements, and any penalty imposed without following these procedures is without jurisdiction.4. Interpretation of powers under Section 127(F) of the Customs Act:The Court examined Section 127(F), which grants the Settlement Commission powers vested in Customs officers. However, the Court clarified that even with these powers, the Commission must follow the procedural requirements of the Act. The Court referenced similar provisions in the Income Tax Act, where the Supreme Court had ruled that the Settlement Commission's powers must be exercised in conformity with the Act and not in conflict with its mandatory provisions.Conclusion:The Court concluded that the Settlement Commission had no jurisdiction to impose a penalty of Rs. 50 lakh without adhering to the procedural requirements of the Customs Act. The imposition of the penalty was deemed beyond the Commission's powers, and the order was set aside to the extent of the penalty. The rule was made absolute in terms of the Prayer Clause (a) concerning the penalty.