TaxTMI 
TaxTMI 
2001 (8) TMI 424
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....ssion, New Delhi ordered for Constitution of a Special Bench to resolve the point of difference which centered around the questions as to whether in the facts of the case there is full and true disclosure of applicant's duty liability, and whether the provisions of Section 127B(1) of the Act are satisfied. Accordingly, in terms of Section 32D read with Section 32A(7) of the Central Excise Act, 1944, Order No. 1/2000, dated 14-12-2000 constituting a Special Bench of five Members was issued. The Chairman directed that the case shall be heard by the Special Bench for a decision, inter alia, on the following issues : 1. Does the term 'containing a full and true disclosure of his duty liability which has not been disclosed before the proper officer' appearing under sub-section (1) of Section 127B of the Customs Act, 1962 include the duty assessed under Section 17 or Section 18 in respect of a bill of entry for warehousing as contingent liability or otherwise? What is the extent and scope of the said term? 2. Though the requirement in the application is disclosure of duty liability not already made before the proper officer, yet the said Section 127B of the Customs Act, 1....
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....r, inviting its assistance to the Special Bench to come to appropriate conclusion on the aforesaid issues. 3.0 In response to above note, eleven Advocates/Consultants appeared and argued before the Special Bench. The Special Bench conducted its first sitting at Chennai on 12-3-2001 and 13-3-2001. S/Shri V.T. Gopalan, Additional Solicitor General (ASG), Chennai, Arvind Datar, Senior Advocate, Raghavan, Advocate, A.S. Sundarrajan, Advocate & Consultant, V.S. Jayakumar, Income-tax Practitioner, Doiphode, Advocate and Ramesh, Advocate appeared and argued before the Bench. Shri M. Murugan, Deputy Commissioner, Customs House, Chennai appeared for the Revenue and made his submissions. Another sitting was held on 30-4-2001 at Mumbai, when S/Shri Sridharan, Advocate and M.H. Patil appeared and argued. S/Shri A.G. Kulkarni, C.A. and K.M. Mondal, Consultant filed their written submissions. 4.0 To briefly recapitulate the facts involved in the case covered by the application filed by M/s. Madras Petrochem Ltd., Chennai, they (M/s. Madras Petrochem Ltd.) had imported through Mumbai Port 400 MT of base Mineral Oil V-60. They filed warehousing Bill of Entry (BE for short) No. Imp.....
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....ouse, Chennai had represented the Revenue. 5.0 The arguments and views put forth before the Special Bench by the counsels/consultants on the general issues raised in the reference note on 12th and 13th March, 2001 and 30th April, 2001 were as under. 6.0 Shri V.T. Gopalan, Addl. Solicitor General, Chennai submitted that Section 127B(1) of the Customs Act does not make a distinction between absolute and contingent liabilities, as well as between an into-bond BE and ex-bond BE. Hence, there is no warrant to make a distinction between the two for examining the instant case. Therefore, if the difference of duty disclosed in the into-bond BE and disclosed in the application before the Settlement Commission is in excess of Rs. 2 lakhs, the application can be considered for admission subject to other conditions being satisfied. He also clarified that duty liability is fastened on the goods immediately on import and only the collection gets eclipsed by exemptions, if any. He also highlighted that the duty liability reflected on the into-bond BE and ex-bond BE would be the same, unless otherwise the duty rates have undergone a change since the time of filing the into-bond BE.....
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.... of 'case' contained in Section 127A(b), only cases with regard to levy, assessment and collection of duty can be brought before the Settlement Commission. He pleaded that no guiding ratio should be drawn from the decisions of courts relating to ITSC provisions, for interpretation of Customs and Central Excise Settlement provisions. He pleaded that assessment under Section 17 on an into-bond BE is only for warehousing and hence tentative, whereas final assessment for collection of duty takes place only at the time of clearance for home consumption under Section 68. However, as the goods were removed clandestinely in the instant case, without filing an ex-bond BE for home consumption, assessment has not taken place and the original disclosure should be taken as nil. Disclosures in the form of admission in statements recorded during investigations are not relevant. Therefore, the disclosure made on the into-bond BE cannot be taken as a benchmark for comparison with liability disclosed before the Settlement Commission. As no disclosure was made at the time of removals, the entire disclosure made in the application before the Settlement Commission should be construed to be additional d....
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....sure. 6.6 Shri A.S. Sundar Rajan, Counsel, recounted the scheme of the Customs Act and concluded that mere filing of an into-bond BE, and assessment thereon under Section 17, does not cast a liability and, therefore, the declaration contained in the into-bond BE is not a disclosure for the purpose of levy of duty, and specifically for the purpose of Section 127B. On the other hand, ex-bond Bill of Entry is filed for the purpose of payment of duty on the goods. Only in respect of the taxable event, an assessee is required to permit full and true disclosure. However, he also shared the view that assessment of the into-bond BE and duty indicated thereon cannot be termed as contingent liability, as a taxable event arises only in the event of filing of an ex-bond BE. He also submitted that since in the instant case the applicant had removed the goods from the warehouse without proper permission and discharge of duty, there was an attempt to evade and, therefore, for the purpose of Section 127B there has to be full and true disclosure of the modus operandi. It is this disclosure which would come within mischief of Section 127B. In regard to Section 68(c) 'proper officer' would be....
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....epted under Section 127B(1) is only with reference to, and over and above, the amount already paid by the applicant. He pleaded that as held by the Apex Court in the case of Pali Devi v. Chairman, Managing Committee - [1996 (3) SCC 296] forms prescribed under the statute can be looked into for interpreting statute. Accordingly, he relied on the contents of Form S.C.(C)-1 prescribed for applying to the Commission, wherein it is brought out that additional liability admitted should be out of that demanded in the SCN. In conclusion, the Counsel reiterated that the declaration of duty at into-bond BE stage is irrelevant and only that made on the ex-bond BE would be material. In view of the non-filing of ex-bond BE in this case, there was a NIL disclosure at the time of removal clandestinely from the warehouse. 6.8 Shri N.H. Patil, Advocate urged that the applicant could not have made a full and true disclosure of duty liability while presenting into-bond Bill of Entry. Hence, it will be only a contingent liability. Only the officer having jurisdiction over the warehouse would be the proper officer, and duty disclosed in the ex-bond BE will be the benchmark disclosure. Duty liab....
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....de, Advocate answered in the negative. Shri Arvind Datar also highlighted that it is an accepted law, upheld by Supreme Court, that duty leviable is a liability of today, to be discharged later, and hence the duty assessed on the into-bond BE cannot be considered a contingent liability. He also submitted that levy refers to a taxable event and gets fastened on the goods immediately on their import, and warehousing only defers the moment of collection. Shri Raghavan, Advocate, categorized the assessment, on an into-bond BE as a provisional liability, while Shri Doiphode, advocate considered it a tentative liability. Shri Sridharan, Advocate pleaded that the question was irrelevant, in view of the fact that the declaration/disclosure in the into-bond BE is not the material benchmark for ascertaining the quantum of additional disclosure before the Commission. However, S/Shri Ramaesh and M.H. Patil advocates, answered in the affirmative, viz. that the duty disclosed on the into-bond BE is only a contingent liability. 7.3 Whether in case the reply to (1) above is in the negative, non-filing of ex-bond BE could be construed to mean nil disclosure and as such duty accepted as paya....
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.... importation or for exportation and clearances of goods for home consumption or for exportation. Chapter VIII provides for transit and transhipment of goods without payment of duty. Chapter IX contains provisions relating to warehousing. The scheme of the Act as reflected in the aforesaid provisions clearly indicate that the conveyances carrying imported goods as also imported goods themselves are subject to various restrictions once they have entered the territorial borders of India. 9.1 Section 12 of the Customs Act provides that duties of Customs shall be levied at rates specified under the Customs Tariff Act, 1975 or any other law for the time being in force on goods imported into India or exported from India. In terms of Section 12, read with the definition of the term "Import" under Section 2(23) and definition of the term "India" under Section 2(27) of the Act; goods brought into the territorial waters of India from a place outside India become dutiable; though the quantification and the rate at which the duty would be chargeable is to be determined at the point of clearance of the goods for home consumption. This is so in view of the provisions of Section 15 of the ....
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....r assessed under Section 17 is required to be reassessed in terms of the rate of duty as may be prevailing on the date when the goods are actually removed from the warehouse. In order to discharge this function and to allow clearance of warehoused goods for home consumption, Section 68 recognizes a proper officer who may be other than the proper officer who had assessed the goods under Section 17. 9.5 The provisions of Section 68 and Section 15(1)(b) are applicable only when goods have been cleared from the warehouse within the permitted initial or permitted extended period as held by the Apex Court in Kesoram Rayon v. CC, Calcutta - 1996 (86) E.L.T. 464 (S.C.). These provisions have no relevance when the goods have been cleared from the warehouse improperly. 9.6 It would thus appear that the scheme of the Act contemplates assessment by a proper officer under Section 17 which is required to be modified so far as the rate of duty is concerned in terms of the provisions of Section 15(1)(b). 10.0 The Supreme Court's orders in the case of Union of India v. Apar Private Ltd. - 1999 (112) E.L.T. 3 (S.C.) and Kiran Spinning Mills v. Collector of Customs - 1999 (113....
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....ence or through inflation of expenditure or claiming of deduction against false vouchers, etc.) is to be given in the application so that continued tax evasion by that assessee is plugged. Sl. No. (i) supra would, therefore, indicate corresponding undisclosed income. 12.0 As per Section 127B(1) of the Customs Act the application to Settlement Commission, should contain : (a) full and true disclosure of the duty liability not disclosed before the proper officer; (b) the manner in which such duty liability incurred; and (c) the amount of additional duty accepted as payable. 12.1 The Legislature has employed the two phrases "duty liability not disclosed to the proper officer" and "amount of additional duty accepted as payable" and that too in the same Section/breath. Evidently, these two phrases are not synonymous. They do not refer to same thing, but refer to different things. Also, the latter expression refers to "amount of duty". Therefore, evidently, the former expression as such, does not refer to "amount of duty". If so, what do these words "duty liability not disclosed before ....
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....s the expression 'duty liability' in the first portion, it really means the 'liability to duty' i.e. the primary liability of the assessee to customs duty. 12.8 The MP High Court in the case of the Wainganga Club v. CST - 1971 (27) STC 542 has also held that "liability to pay tax" can be used in two senses - one to mean as primary liability to pay tax. 13.0 Statutory form prescribed under the Act also supports the above submission that 'duty liability' employed in Section 127B(1) means liability to duty not disclosed to the proper officer. 13.1 The doubt as to whether the term 'duty liability' means "quantum of duty liable to be paid by the assessee" or "the liability of duty", is resolved by Form SC (C)-1. 13.2 The Form SC(C)-1 inserted by Notification No. 59/99-Cus. (N.T.) has been statutorily prescribed for making application to the Settlement Commission. Of the various particulars to be furnished to the Settlement Commission, the following are relevant for the present discussions : 1. Details of information which has not been correctly declared in the bill of entry/shipping bill. 2.  ....
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....ct as if enacted in the Act [see Hanlon. v. Law Society (1980) 2 All ER 199 (HL) p. 218]. There is additional reason to take the assistance of subordinate legislation in construing a taxing Act for "in the matter of fiscal legislation the initiative is in the hands of the executive" (see J.K. Steel Ltd. v. Union of India, AIR 1970 SC 1173, p. 1180 = 1978 E.L.T. (1.355)." 14.0 Further, before we proceed to answer the issues raised for decision of the Larger Bench, it would be relevant to refer to two specific aspects of the submissions made before us. The learned Additional Solicitor General (ASG) relied on the Hon'ble Supreme Court's judgments in the case of CIT v. B.N. Bhattacharjee and Another and CIT v. Express Newspapers so as to emphasise that "the policy of the law as disclosed in Chapter XIXA of the Income-tax Act is not to provide a rescue shelter for big tax dodgers who indulge in criminal activities by approaching the Settlement Commission" and that the said Chapter "is not meant for those who come after the event, i.e. after the discovery of the particulars of income and its source - or discovery of particulars of fraud perpetrated by the assessee, as the case ma....
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....lding the Commissioner's objection under Section 245D(1A). After sub-Section (1A) was omitted from the statute, a fresh application in the same case was held maintainable by the Full Bench of the IT Settlement Commission and this decision was upheld by the Apex Court thereby holding that despite evasion having been detected by the Department, an application was maintainable under Section 245D(1). 15.0 A related question which was raised during the hearing before us was as to whether in a case where the evasion of duty had been unearthed by the Department and a show cause notice has been issued, the assessee is entitled to apply to the Settlement Commission and should the additional liability to be disclosed in the application be more than Rs. 2 lakhs over and above the amount demanded in the show cause notice. We are of the opinion that Section 127B of the Customs Act requires disclosure of duty liability which has not been disclosed before the proper officer and it has nothing to do with the liability as may be tentatively fixed in a show cause notice issued by the Department or the liability as may be unearthed by the Department as a result of their investigation. Under S....
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....proper officer under that section is the material disclosure for comparison with the disclosure before the Settlement Commission and the assessment made thereon under Section 17 represents quantification made of the duty liability disclosed before a proper officer. (II) Whether the duty assesssed in the into-bond Bill of Entry implied only a contingent liability? In view of our findings to (I) above, this question does not arise. Further Section 127B does not make any distinction on the nature of the liability. (III) In case reply to (I) above is in the negative, whether non-filing of the ex-bond bill of entry could be construed to mean 'nil' disclosure and as such, the duty accepted as payable in column 12 of the application be taken as additional accepted liability for purposes of clause (b) of proviso to sub-section (1) of Section 127B of the Customs Act, 1962, keeping in view the evidence relied upon in the Show Cause Notice issued? In view of our reply to (I) above, the question does not arise. 18.0 The order constituting the Special Bench also requires us to decide on the question of Admission of the Settlement Applicati....
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....ion, assessable value under Section 14 of the Act, rate and amount of customs duty, exemption notification claimed, classification for purposes of central excise tariff, value for purposes of Section 3 of the Customs Tariff Act, 1975, the rate and amount of additional duty under Section 3 of the Customs Tariff Act and the total amount of duty as also the invoice value, freight, insurance, rate of exchange and the landing charges so as to arrive at the declared assessable value in respect of the goods in question. Prescribed declarations are also contained. There is an endorsement by the assessing officer to the effect that the bill of entry is assessed provisionally pending TR (Test Report) and discharged quantity. In substance, this bill of entry discloses particulars of the goods in question including all parameters which are necessary to arrive at the total amount of duty leviable thereon. Further there is a letter dated 13-3-1997 from the applicant addressed to the Assistant Commissioner of Customs, Mumbai requesting for permission for bond-to-bond transfer of the goods in question to their factory premises at Chennai. There is a double duty bond executed by the applicant under....
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....to such Bill of Entry a Show Cause Notice should have been issued to him by the proper officer. In this case, the applicant has filed a BE at Mumbai Custom House. Of course, it was only an into-bond BE, the import having commenced once they reached the territorial waters of India. Even if the said import was not complete till clearance of the goods for home consumption, the facts of the earlier BE filed at Mumbai Custom House and assessment thereof cannot be wished away. As for: the allied condition, viz. that in relation to such BE a SCN should have been issued to the applicant by the "proper officer" amongst others, the Bench observes that a SCN (dated 16-3-2000) has been issued, to the applicant by the Commissioner of Customs (Sea), Chennai. It does refer to the BE for warehousing filed at Mumbai Customs House, while recounting the facts of the case leading to the proposed demand. However, the said Notice itself cannot be considered to have been issued in relation to the BE for warehousing filed at Mumbai. Rather, the notice had been necessitated on account of contravention of the provisions of Section 72 of the Customs Act and consequent evasion of duty at Chennai, inasmuch as ....
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....no application. The Hon'ble Supreme Court viewed that it is not correct to say that the expression 'levy' in Rule 10 means actual collection of some amount. On the question whether the expression 'short-levied' means that some amount should have been levied as duty or whether that expression will cover even cases where assessment is a nil duty, the Hon'ble Supreme Court held that "..........even in cases where there has been a nil assessment due to one or other of the circumstances in Rule 10 and if subsequently it is found that duty is payable, then the entire amount of duty should be considered to have been short-levied". (Para 23 of judgment). Thus, the issues settled in the aforesaid case by the Hon'ble Supreme Court is not on all fours with the facts of the present case. In the instant case, there was complete omission to file a BE and that cannot be taken as a nil disclosure. To this extent, reliance of the Counsels/Consultants to plea that because of the non-filing of BE before the proper officer in respect of warehoused goods at the time of their clearance for home consumption, the entire disclosure/duty accepted in the application before the Commission should be considered....
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....in relation to provisions in the Customs Act, 1962 reveals certain interesting legal canon. Section 12 ibid. deals with dutiable goods whereas Section 15 ibid. about date for determination of rate of duty and tariff valuation of imported goods. The other relevant provisions are Section 46 ibid. i.e. entry of goods on importation and Section 47 ibid. clearance of goods for home consumption. Chapter IX of the Customs Act starting from Sections 57 to 73 deals with warehousing of imported goods and disposal thereof. Sections 68 and 72 of the said chapter are very relevant as they deal respectively with clearance of warehoused goods for home consumption and goods improperly removed from the warehouse. The important principles that emerge from these statutory provisions are that the interest of revenue i.e. levy of duty of customs is protected till the imported goods are warehoused and certificate thereof is received by the customs authority at the port of importation. Thereafter, the customs authority in charge of the warehouse becomes the proper officer for levy, assessment and collection of customs duty thereon. The levy of duty of customs on imported goods vests on the proper officer....
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.... result of the Collector's order is that the appellants were asked to contact Collector of Customs (Appeals), Bombay if they are aggrieved about the imposition of the C. V. duty. In our opinion this was not correct. Section 47 of the Customs Act, 1962 provides for an order of clearance of goods for home consumption if all the conditions are fulfilled including the payment of import duty. Section 68 provides for the clearance of warehoused goods for home consumption subject to the conditions laid down therein one of which is payment of import duty. Therefore, the effective remedy of the appellants is in Ludhiana and the appellate authorities having jurisdiction over the place. The assessment at Bombay was only for the purpose of knowing the amount of duty so that a bond twice the amount could be executed by the importers, under Section 59 of the Customs Act. Since no duty was paid at Bombay there was no clearance under Section 47 at that place. Effective clearance took place only at Ludhiana. In this view we set aside the impugned orders and remand the matters to the Collector of Customs (Appeals) for considering the appeals on the question of merits. Original documents if any....
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....fficer" under Section 68 ibid. (d) This issue has come up before the Hon'ble Supreme Court on number of occasions. In the case of Garden Silk Mills Ltd. & Anr. v. Union of India [1999 (113) E.L.T. 358 (S.C.)], the Court has held that : "the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed." In the case of Kesoram Rayon v. Commissioner of Customs, Calcutta [1996 (86) E.L.T. 464 (S.C.)] with reference to relevant date for the goods improperly removed from the warehouse the Supreme Court has held that in view of provisions of Section 72 of the Customs Act, 1962 warehoused goods which are not removed from the warehouse within permissible or extended period are treated as goods improperly removed from the warehouse. In such a case, the importer is required to pay the full amount of duty chargeable on the imported goods together with interest, pen....
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....eft etc. that might have occurred during the time the goods are imported and stored in the port till the time the goods are warehoused in the warehouse under the warehouse keeper. Thereafter any loss, damage, theft, pilferage etc. to the imported goods is the responsibility of the warehouse keeper and the "proper officer" of the warehouse shall take action for any such loss. In fact the warehouse keeper maintains a register of the goods warehoused and the quantity of goods cleared. The difference between the two become accountable for purpose of collection of duty thereon. (V) (a) In other words, the officer in charge of the warehouse in course of re-assessment has not only to assess the case with reference to rate of duty but also in relation to valuation, classification etc. if any which comes to his notice or brought to his notice while examining the bill of entry produced to him. In the case of Ferro Alloys Corporation Ltd. v. Collector of Customs (Appeal) Bhubaneshwar [1995 (77) E.L.T. 310 (Tri.)] Larger Bench of the Tribual has held that : "For clearance of warehoused goods the jurisdiction demand for their levy or refund on re-assessment wi....
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.... that they are competent to do so." (V) (d) In the case of Collector of Customs, Madras v. Tungabhadra Fibres Ltd. [1994 (71) E.L.T. 655], the Hon'ble High Court has only looked into provisions of Section 15 of the Customs Act, 1962 and not as to the continued validity or otherwise of the warehousing Bill of Entry. The Court has held that rate of duty applicable shall be the rate as prevalent on the date of clearance of the goods from the warehouse with respect to the Bill of Entry for home consumption filed under Section 68 of the Act. (VI) (a) Perhaps the concept of levy and assessment at the time of clearances for home consumption need a detailed elaboration. The levy on imported goods is attracted the moment import takes place. For purpose of assessment the importer has to file necessary documents. The "proper officer" examines the documents and thereafter assesses such documents to duty. The assessed duty is paid by the importer. While assessing to duty, the officer is not only to examine the classification, valuation, rate of duty etc. but also the prohibition, restriction etc. imposed on such imported goods with reference t....
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....f an import duty, by and large, results in a condition which must be fulfilled before the goods can be brought inside the customs barriers i.e. before they form part of the mass of goods within the country. It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time of when the goods reach the customs barriers and the bill of entry for home consumption is filed." (VI) (d) It is evident that with reference to taxable event, the court has held that the imported goods have to pay duty. This is because the taxable event starts with the import and ends with consumption of such imported goods. The taxable event in case of warehoused goods is at the warehouse and not otherwise. In the case of DCM v. Union of India [1999 (109) E.L.T. 12 (S.C.)] the Hon'ble Apex Court has examined the provisions of Sections 15, 46 and 69 of the Customs Act, 1962 and has observed as below : "A reading of Sections 15, 46 and 68 makes it clear that they provide an option to the import....
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.... warehousing BE was final. The Tribunal has observed as below : "We observe that the Larger Bench had held that 'For the reasons discussed above, it has to be held that in the circumstances of this case, the jurisdiction for raising demand for short levy will therefore be with the proper officer having jurisdiction over the EOU and not the Customs' House where the goods were assessed on an into-bond Bill of Entry for the purpose of being warehoused. "Moreover in the instant case there was structural change in the customs tariff inasmuch as it was aligned with the HSN and therefore the classification of the imported goods had to be redone. We respectfully agree with the decision of the Larger Bench that the Asstt. Collector Kota in charge of the CWC, Kota had jurisdiction for raising demand for short levy and was the proper officer having jurisdiction over the CWC, Kota and not the Customs House, Bombay". (VII) (b) From the aforesaid it is apparent that the taxable event was the date of entry at the port of importation. The taxable event has undergone the change for imported goods warehoused. For such of the imported goods which are warehoused the taxable event is the da....