2025 (11) TMI 543 - HC - Customs

9 May 2024 communication set aside for natural justice failure; settlement applications restored; personal hearings ordered on service dispute.

Vikas Welding Company And Anr. Versus Union of India And Ors.

The HC set aside the impugned communication dated 9 May 2024 for failure of natural justice and restored the petitioners' settlement applications before ... Return of Applications for settlement on the ground that they were not maintainable - the adjudication on this SCN was pending - violation of principles of natural justice and fair play - HELD THAT:- The service of the adjudication order dated 29 March 2024 is a highly disputed issue. Significantly, in the affidavit filed on behalf of the Respondents in this Petitioner, there is no reference to service by email. It is not wished to delve into the issue of the valid service of the adjudication order of 29 March 2024. However, it is observed that this issue is highly disputed and debatable. Arguments have been raised on both sides, and the Settlement Commission was not justified in not affording the Petitioners an opportunity of a personal hearing to make good their version. The Settlement Commission has virtually accepted the Respondents’ version without giving the Petitioners any opportunity to rebut the same. This violates the principles of natural justice and fair play. In M/s. Vishnu Steels [2013 (5) TMI 482 - BOMBAY HIGH COURT] the Division Bench of this Court has held that the Settlement Application filed by the Assessee before the date of the dispatch of the adjudication order is maintainable before the Settlement Commission. This was after taking cognisance of the provisions similar to those in Section 127(A)(b) of the Customs Act, 1962, quoted in the impugned communication. Therefore, the issue of dispatch and service of the adjudication order is crucial. The Settlement Commission should not have decided such an issue without giving the Petitioners a reasonable opportunity to make good their version or to rebut the Respondents' version. Therefore, on the grounds of failure of natural justice, the impugned communication dated 09 May 2024 set aside and the Petitioners’ Applications for settlement before the Settlement Commission restored. The Settlement Commission is now directed to afford the Petitioners and the Respondents the opportunity of a personal hearing, including the production of necessary documents/records regarding the issue of service of the adjudication order dated 29 March 2024. Application disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a Settlement Application under Section 127-B of the Customs Act is maintainable where an adjudication order disposing the underlying show cause notice was passed prior to filing but service/dispatch of that order to the applicant is disputed. 2. Whether the Settlement Commission may summarily return a Settlement Application as not maintainable under Section 127A(b) (definition of 'case') without affording the applicant an opportunity of personal hearing on the disputed question of service/dispatch of the adjudication order. 3. Whether returning the original Settlement Application to the applicant (rather than deciding acceptance/rejection) is permissible under the statute and consistent with principles of natural justice and fair play. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of Settlement Application when adjudication order pre-dates filing but service/dispatch is disputed Legal framework: Section 127A(b) defines 'case' as any proceeding pending before an adjudicating authority on the date on which an application under Section 127-B is made, with proviso excluding proceedings referred back for fresh adjudication. The maintainability of a settlement application depends on whether a proceeding was pending before the adjudicating authority on the date of filing, which in turn depends on the date of dispatch/service of any adjudication order terminating the proceeding. Precedent treatment: A prior Division Bench decision of this Court held that a Settlement Application filed before the date of dispatch of the adjudication order is maintainable before the Settlement Commission. That decision was applied as persuasive authority on the crucial role of dispatch/service timing in determining maintainability. Interpretation and reasoning: The Court emphasises that the temporal question is the date on which the adjudication order was dispatched/served, not merely the date on which it was signed. Where service/dispatch is disputed, the question of maintainability cannot be resolved on mere record assertions; factual determination is required. Because the issue of dispatch/service was contested and evidence on service was absent or challenged, the Court declined to resolve maintainability on the record before it and remitted the dispute for adjudication after hearing. Ratio vs. Obiter: Ratio - where the question of whether a proceeding was pending depends on dispatch/service of an adjudication order, and that factual issue is disputed, the Settlement Commission must determine that fact after affording opportunity to both parties. Obiter - observations on modes of service (email, notice board) remain contextual and not determinative in this case. Conclusions: The maintainability of the Settlement Application could not be resolved in the absence of a proper opportunity to contest service/dispatch. The Settlement Applications are to be restored and the maintainability issue left open for the Settlement Commission to decide after hearing evidence. Issue 2 - Duty to afford personal hearing before returning Settlement Application as not maintainable Legal framework: Principles of natural justice and fair play require that adjudicatory bodies afford parties an opportunity to be heard on material disputed questions of fact or law that affect their rights. The Settlement Commission's acts in relation to acceptance, rejection or return of applications are subject to these principles. Precedent treatment: The Court relied on established principles requiring a reasonable opportunity of hearing where factual disputes, particularly about service/dispatch of orders that affect maintainability, are raised by an applicant. The earlier Division Bench decision emphasises the relevance of dispatch timing, supporting the requirement of a hearing when dispatch is contested. Interpretation and reasoning: The Court found that the Settlement Commission accepted the respondent's version regarding service/dispatch without affording the petitioners a personal hearing to rebut or explain their position. This amounted to a failure of natural justice because the disputed factual premise (whether the adjudication order had been dispatched/served prior to filing) was determinative of maintainability and thus required an opportunity for the applicant to be heard and to produce supporting documents. Ratio vs. Obiter: Ratio - where a contested factual issue is determinative of maintainability, the Settlement Commission must afford a personal hearing before deciding or returning the application. Obiter - the Court's comment that publication on a notice board 'can hardly be regarded as valid service' is an observation tied to the facts here and not a binding holding on all modes of service. Conclusions: The impugned communication was set aside because the Settlement Commission failed to afford a personal hearing on a disputed, dispositive factual issue, thereby violating natural justice. The matter is remitted for hearing on service/dispatch and related maintainability issues. Issue 3 - Permissibility of returning original Settlement Application and appropriate remedy Legal framework: The statutory scheme contemplates disposal of settlement applications in accordance with Section 127-B and related provisions; administrative action must comply with statute and principles of natural justice. Remedies for procedural infirmity include setting aside impugned communications and restoring applications for adjudication consistent with statutory processes. Precedent treatment: No direct precedent holding that return of an application is authorised was cited as validating the practice. The Court noted counsel's submission that there is no provision for return and that applications should be allowed or rejected on merits. Interpretation and reasoning: The Court observed that returning the original application without providing an opportunity to be heard or deciding on maintainability was procedurally improper in the factual matrix before it. Because the return occurred without resolving disputed questions of service/dispatch and without affording the applicants a hearing, the Court concluded that the return could not stand and that the correct course was to restore the applications and direct a hearing. Ratio vs. Obiter: Ratio - returning an application in original without hearing and without statutory basis, where maintainability turns on disputed facts, is contrary to principles of natural justice and must be set aside. Obiter - the Court did not attempt to categorically rule on every instance where returning an application might be permissible under other facts or statutory provisions. Conclusions: The impugned act of returning the applications was quashed. The proper remedy ordered was restoration of the Settlement Applications and direction to the Settlement Commission to afford personal hearings and consider documentary evidence on service/dispatch and maintainability, leaving substantive determinations open for the Settlement Commission to decide expeditiously. Ancillary directions and preservation of issues Legal framework and reasoning: The Court directed that all disputed contentions, including maintainability in light of the statutory definition and modes of service, be left open for the Settlement Commission to decide after hearing. The Court emphasised expedition but did not predetermine outcomes; the Settlement Commission was to follow natural justice and fair play in disposal. Conclusions: The matter is remitted; parties to be afforded personal hearings and may produce documents regarding service/dispatch. All contentions remain open and are to be decided by the Settlement Commission, which is requested to dispose of the applications preferably within three months after production of an authenticated copy of the order.