TaxTMI 
TaxTMI 
2019 (11) TMI 900
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....red clandestinely, either without payment of duty or on short payment of duty, during the period 1st April, 2010 to 15th July, 2012, be not demanded and recovered, under Section 11A(4) of the Central Excise Act, 1944 (hereinafter referred to as "the Act"), (ii) interest, on the said amount, be not demanded from them under Section 11AA of the Act, (iii) penalty be not imposed on them under Section 11AC of the Act and Rule 25 of the Central Excise Rules, 2002 (hereinafter referred to as "the Rules"), (iv) redemption fine, in lieu of confiscation of the excisable goods, clandestinely removed by Respondents No.1 and 2, during the period 1st April, 2010 to 15th July, 2012, valued at Rs. 107,56,15,784/-, be not imposed under Section 34 of the Act, as the goods themselves were not available for confiscation, (v) the amount of Rs. 70,00,000/-, deposited by Respondents No.1 and 2 be not appropriated towards the aforesaid duty liability, (vi) duty of Rs. 10,32,559/- be not demanded, and recovered, from Respondents No.1 and 2 , under Section 11A of the Act, on the goods found short in the factory premises of Respondent No.1, which appeared to have ....
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....y, the Settlement Commission has given Respondents No.1 and 2 the option to redeem the seized goods, on payment of redemption fine of Rs. 5,00,000/-. 4. Subject to compliance with the above directions, for payment, the Settlement Commission has, vide the aforesaid Final Order dated 2nd September, 2014, granted immunities, to the respondents (i.e. the applicants before the Settlement Commission), under Section 32K(1) of the Act which reads thus: "32K. Power of Settlement Commission to grant immunity from prosecution and penalty. - (1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 32E has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his duty liability, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act and also either wholly or in part from the imposition of any penalty and fine under this Act, with respect to the case covered by the settlement : Provided that no such immunity shall be granted by the Settlement Commission in cases where ....
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....treet from Respondent No.1, informed that unbranded finished goods and veneer were being sent to, and received from Respondent No.1, which was its sister unit, against kachcha parchis (rough slips). Respondent No.2 was not registered with the Central Excise authorities. (vi) Flush doors, and plywood, which were unaccounted, were found in a godown, located at 548/4, Swarn Park, Udyog Nagar, Mundka, Delhi, of Respondents No.1 and 2. Mr. Amit Mittal, caretaker of the said godown, clarified that no stock register, or purchase bills, relating to the said flush doors and plywood, was available. (vii) Scrutiny of documents revealed that Respondents No.1 and 2 were raising invoices, against goods cleared and sold by them, of lesser amounts, and receiving the differential payment in cash. These documents were recovered, inter alia, from the office at A-90, 3rd floor, Saraswathi Vihar. Para 3 of the Show Cause Notice reproduces a sample of such evidence, in the form of a computer printout. Mr. Govind Pareek, in his statement dated 19th July, 2012, deposed that the entries in the computers were being made using FCA software. He decoded the aforesaid sample computer printout ....
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....d the balance consideration was received in cash. He explained how cash entries were made in the computer, and also provided a detailed methodology of the manner in which Respondents No.1 and 2 undervalued their clearances. The rate was entered on "per square metre" basis, instead of "per square foot". Effectively, the rate entered in the excise invoice was far lower than the actual rate of the goods, resulting in huge undervaluation. The actual amount received, against each consignment, he deposed, was recorded in the sales register and the sales summary. Surendra Pareek further elaborated that the cash books, which were written in hand, contained the dates and amount of cash received and the dates and amount of cash delivered. Even while doing so, the entries were not made in full, but after dividing the actual amounts by 100. He also identified the cash books resumed from the Paharganj office on 19th July, 2012, as the cash books which they used to maintain. He also deposed that the entries, in the said cash books were made either by Shyam Joshi or by him. By way of example, he explained the entries made in one of the pages of one of the cash books resumed from the Paharganj off....
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...., deposed, on 19th July, 2012, that the quantity of finished goods found short in the factory, vis-à-vis RG-1 entries, had been clandestinely removed, under the directions of Manish Kedia. He further admitted that finished goods, produced between 13th and 18th July, 2012, were not entered in the RG-1 register, and that no production slip, in respect thereof, had been prepared. (xv) The statement of Amar Aggarwal, Senior Accountant of Respondent No.1, was also recorded on 3rd October, 2012, wherein he acknowledged that he was managing all accounts of Respondents No.1 and 2. He admitted that the challans, contained in File 131, resumed from A-90, 3rd Floor, Saraswati Vihar, related to sales effected from the factories of Respondents No.1 and 2 . He acknowledged that production, in these factories, was carried out, without bifurcating the production, factory-wise, in the records, and that no separate accounts and stocks were kept for the said factories. He agreed with the statement, dated 19th July, 2012, of Manish Kedia, and admitted that the office at A-90, 3rd Floor, Saraswati Vihar, was a secret office of Respondents No.1 and 2. He further admitted that the full va....
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....emises of the buyers of Respondents No.1 and 2 , and relevant records were resumed therefrom. The details of the said investigations may be enumerated thus: (a) Anil Mendiratta, proprietor of M/s Lakshmi Enterprises admitted, in his statement, dated 5th November, 2012, that the prices reflected in the invoices, received from Respondent No.1, were less than the actual value of the goods, and that the differential amount was paid, by him, in cash, to Surendra Pareek or Shyam Joshi. He stated that no record, of such payment in cash, was retained by him. He also agreed with the statement dated 19th July, 2012, of Manish Kedia, wherein undervaluation of the clearances, on invoices and bills, and receipt of the differential amount in cash was admitted. He further confirmed that goods were also received, by him, from Respondents No.1 and 2, under challans which did not reflect the value thereof. On his attention specifically being invited to the documents, at pages 220 to 223 in File No. 5, resumed from his premises on 11th September, 2012, he confirmed that these documents covered the same consignment, to which the challans, at page no. 9 in file No. 131 resumed from A-90, 3rd F....
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....with the statement dated 19th July, 2012, of Manish Kedia, regarding underinvoicing and receipt of differential amount in cash. (e) Dinesh Kumar Aggarwal, proprietor of M/s Amit Veneer & Plywood, similarly agreed, in his statement, dated 5th December, 2012, with the statement, of the same date, of Manish Kedia, in which underinvoicing and receipt of differential amount in cash were admitted. He, too, confirmed that the cash was collected by Surendra Pareek and Shyam Joshi. (xviii) Investigation was also conducted at the end of raw material suppliers. (a) Sonu Arora, of M/s Shree Rattan Timbers, who supplied core (a major raw material for manufacture of plywood), in his statement, dated 10th December, 2012, deposed that the bills, raised by him, on Respondents No.1 and 2, reflected a price lower than the actual value of the goods, and that, the differential amount was paid, to them, by Respondents No.1 and 2, in cash, of which they did not keep any account. (b) Deepak Rawat, proprietor of M/s ISS Corporation, who supplied chemicals to Respondents No.1 and 2, similarly admitted, in his statement dated 10th December, 2012, that he was forced to supp....
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....thout central excise invoice and without payment of duty. The investigation revealed that in most of the duty evaded by M/s ADPL and M/s ADDP was by way of undervaluation wherein lesser value is shown in the invoices and in some of the cases they clear the goods without accounting for the central excise invoice (which were destroyed after delivery of goods and same number of invoice was again prepared for another clearance) as admitted by various key personnel. The clearances made without bills were identified by tallying the party wise clearances shown in the computerized sheets and central excise invoices accounted for in the record." (xxiii) Tallying of the record revealed that, during the relevant period, finished goods valued at over Rs. 12 crores were clandestinely removed and sold, by Respondents No.1 and 2 , to M/s Sunmica House, Paharganj, though summons, issued to the said buyer, did not meet with any response. (xxiv) Raghunath Prasad Kedia, father of Manish Kedia and a Director in Respondents No.1 and 2, also admitted, in his statement dated 3rd January, 2013, the fact of evasion of duty, by Respondents No.1 and 2 , under the directions of Manish Kedia,....
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....aw material suppliers, kachcha slips which were recovered from the premises of the said respondents, details contained in the computer printouts recovered from the office of the said respondents in the presence of their authorised personnel, and a detailed exercise of comparison and tallying of these various records, that Show Cause Notice, dated 16th January, 2013, came to be issued, calling upon the Respondents to show cause, in the terms already set out in para 1 hereinabove. 8. As has already been noted hereinabove, the respondents chose, instead of submitting themselves to adjudication, to move the Settlement Commission, for settlement of the case arising from issuance of the aforesaid Show Cause Notice dated 16th January, 2013. 9. Out of the total duty demand of Rs. 11,80,12,105/-, along with interest, (being the sum total of the demands of Rs. 11,43,09,554/-, Rs. 10,32,559/- and Rs. 26,86,992/-) as demanded and proposed in the Show Cause Notice, the settlement application admitted duty liability of Rs. 1,56,11,930/- and interest of Rs. 44,17,956/-. 10. The grounds, on which the petitioner sought to limit its admission of duty liability of Rs. 1,56,11,930/-, as again....
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....ing for the Central Excise invoices (which were destroyed after delivering goods and same number of invoice was again prepared for another clearance) as admitted by various key personnel. (e) Despite of this fact having revealed during investigation that the applicant, in maximum number of cases was issuing bills for the goods sold by them though for a lower value, the department to note this observation while calculating duty demand on the basis of RUC 10 which reflects the sale the approx. three times the invoices issued by the applicant. (f) During the searches at the premises of the buyers know where the department noticed anomaly in the stocks as their stock was matching with the records and this fact mentioned in their respective panchnamas." (Emphasis supplied) 11. Consequent on receipt of notice from the Settlement Commission, regarding filing of the aforesaid settlement application by the respondents, the petitioners submitted detailed para-wise comments, before the Settlement Commission. 12. Apart from reiterating the various assertions contained in the Show Cause Notice, the parawise comments, furnished by the petitioners, to the Settlement Com....
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.... 2005 SC 3820 and R.M. Malkani v. State of Maharashtra (1973) 1 SCC 471. (v) The settlement application also sought to contend that the figures, in RUD-10, on the basis whereof duty demand had been worked out, did not reflect the actual transactions of Respondents No.1 and 2, and were highly inflated. This assertion was denied. It was pointed out, in the para-wise comments, that the collective clearances of Respondents No.1 and 2, for the period April, 2010 to 15th July, 2012 were recorded in the data contained in the printouts recovered on 19th July, 2012, from A-90, 3rd Floor, Saraswati Vihar. Reliance was also placed, in this context, on the statements of Manish Kedia, which already stand paraphrased hereinabove, and which were never retracted. (v) For the same reason, the assertion, in the settlement application, that duty liability was required to be worked out on the basis of the figures contained in the note books recovered under panchnama dated 19th July, 2012, drawn at the Paharganj office of Respondents No.1 and 2, was also denied. (vi) The settlement application also sought to contend that, with the equipment found in their premises, it was imp....
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.... the legal submissions advanced by the applicants in the settlement application. 15. Vide the impugned Final Order, dated 2nd September, 2014, the Settlement Commission has allowed the settlement application filed by the respondents and has, accordingly, settled the case arising from the aforementioned Show Cause Notice, dated 16th January, 2013, in the terms set out in para 3 hereinabove. 16. The impugned Final Order of Settlement Commission reflects the following submissions, as having been advanced, before it, on behalf of the applicants, i.e. the respondents in the present writ petition: (i) The Revenue had "produced no evidence for clandestine removal". No evidence was "cited to establish purchase of raw material or consumption of electricity or other parameters to establish that finished goods of a quantity to match the value of Rs. 146 crores had in fact been manufactured" (ii) The data contained in the computer printouts was not corroborated by any corresponding investigation. Investigation was primarily conducted in respect of the diary entries. The nature of investigation conducted, to establish authenticity of the data contained in the computer pr....
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....eld on 01.09.2014, the Representative of Revenue admitted that other than the entry in the computer printout there is no other evidence of clandestine removal. 24.3. The applicant also claimed that the installed capacity of their units was incapable of producing the quantity of goods alleged by Revenue. To this the response of Revenue was that the installed capacity indicated in the panchnama related to the situation obtaining on the date of search, whereas the alleged evasion covered a period from April 2010 to July, 2012. The implication being that there were more machines and higher manufacturing capacity at other times during the period of 27 months during which the alleged excess clearance took place. However, this claim of the Revenue is not supported by any evidence nor is it backed by higher quantities of inputs purchased clandestinely or higher quantities of unrecorded sales. The Bench observed that Revenue has, in their latest comments sent on 29.08.2014 submitted that the computer printout is a sales account whereas the diaries are a record of cash received from such buyers. Only in case of M/s. Sunmica is there a large volume of transaction for which bills were....
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....ained in the diary seized on 19th July, 2012, which stood admitted, in toto, by his clients. 23. In these circumstances, Mr. Malhotra submits that no occasion arises for interference, by this Court, with the impugned Final Order of the Settlement Commission. He, therefore, prays that the writ petition be dismissed. Analysis 24. We have set out, hereinabove, in somewhat excruciating detail, the allegations in the Show Cause Notice issued to the respondents, the submissions advanced by them in their Settlement Application, and the response, of the petitioners, thereto, only to ensure that the scope and ambit of the controversy, and the issues that arose for consideration therein, and which would have fallen for consideration by an adjudicating authority - had the matter proceeded to adjudication - are readily appreciated. We are required to assess whether these issues could have been settled, by the Settlement Commission, in the manner in which the impugned Final Order, dated 2nd September, 2014, proceeds to settle them, and on the terms recorded therein. 25. As would be apparent from the discussion that follows hereinafter, our view is that the answer to both these queri....
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....cessary, direct further investigation by the Commissioner (Investigation) and, thereafter, proceed to pass an order, in terms of sub-section (5). Sub-sections (4) and (5) of Section 32F are reproduced herein below: "32F. Procedure on receipt of an application under section 32E. - ***** (4) Where a report of the Commissioner called for under subsection (3) has been furnished within the period specified in that sub-section, the Settlement Commission may, after examination of such report, if it is of the opinion that any further enquiry or investigation in the matter is necessary, direct, for reasons to be recorded in writing, the Commissioner (Investigation) within fifteen days of the receipt of the report, to make or cause to be made such further enquiry or investigation and furnish a report within a period of ninety days of the receipt of the communication from the Settlement Commission, on the matters covered by the application and any other matter relating to the case: Provided that where the Commissioner (Investigation) does not furnish the report within the aforesaid period, the Settlement Commission shall proceed to pass an order under sub-s....
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....e of such hearing shall be communicated by the Settlement Commission to the applicant and the Commissioner of Central Excise within a period not exceeding 2 months from the date of receipt of such application, unless the presiding officer of the Bench extends the time, recording the reasons in writing." After substitution, Section 32F(1) reads as under: "32F. Procedure on receipt of an application under section 32E. - (1) On receipt of an application under section 32E, the Settlement Commission shall, within seven days from the date of receipt of the application, issue a notice to the applicant to explain in writing as to why the application made by him should be allowed to be proceeded with, and after taking into consideration the explanation provided by the applicant, the Settlement Commission, shall, within a period of fourteen days from the date of the notice, by an order, allow the application to be proceeded with, or reject the application as the case may be, and the proceedings before the Settlement Commission shall abate on the date of rejection : Provided that where no notice has been issued or no order has been passed within the aforesaid period by th....
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....etermine whether the Settlement Commission should or should not accept the additional custom duty which the applicant, says is acceptable to him. ***** (i) The expression "settlement" is in contradistinction to "adjudication" The very scheme of the provisions of Chapter XVA is settlement and not adjudication. ***** 11. We now refer to provision of Section 127F sub-Section (2) which has been relied upon by the counsel for the respondents. This provision states that Settlement Commission has the power to perform the function of an officer of customs under the Act, in relation to the case. We feel that these words as found in sub-section must be read in accordance with the scheme of Chapter XVA and its object and on so reading the aforesaid words used in sub-Section (2) we find that they are basically to give finality to the order of the Settlement, Commission as an order under the provision of the Act and similar to what an Adjudicating officer does. In fact, the expression "exclusive jurisdiction to exercise the power and perform the function of any officer of customs" is basically to look at the evidence and call for such evidence in ord....
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.... adjudication of such facts". In paragraph 9 the following principles were set out :- (i) The Settlement Commission cannot substitute itself for the adjudicating officer by deciding complicated and highly disputed or contentious questions and issues of facts themselves, because the expression "settlement" is used in the Customs Act in contra-distinction with "adjudication" and the very scheme of the settlement provisions is to settle and not adjudicate. (ii) All the provisions make it abundantly clear that what is required of the Settlement Commission is a decision when there are terms of settlement agreed to by the applicant and a duty liability which is accepted by him; he could not be fastened with the liability which he never intended as accepted to be payable by him. (iii) Section 127(1) as it stood then, used the expression "complexity of the investigation" which shows that highly complex and contentious questions of fact cannot even be admitted for processing. 50. It was thus held that if the case involves highly complex and disputed questions of fact for which detailed inquiry is necessary, the Settlement Commission should refer the matte....
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....ailable to the respondents. 37. It is required to be remembered that a Show Cause Notice is the terminus a quo of the adjudicatory process, and not the terminus ad quem thereof. Leading of evidence, by the Revenue, in support of the case sought to be made out in the Show Cause Notice, and production of evidence, by the assessee, in reply thereto, are incidents of adjudication. The exercise of production of evidence, reliance thereupon, and appreciation thereof, would arise only in adjudication proceedings, by the competent adjudicating authority. Having, by moving the Settlement Commission, not allowed the adjudicatory process to take off, it was not open to the respondents to urge - or, for that matter, for the Settlement Commission to hold - that the Revenue had failed to produce evidence in support of its case. 38. On receipt of the Show Cause Notice, the respondents had, before them, one of two options. They could either subject themselves to adjudication, or could approach the Settlement Commission. There is no gainsaying the position, which is apparent on a plain reading of the Show Cause Notice issued to the respondents in the present case, that the case built up by th....
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....ed during investigation, and other evidence marshalled by the Revenue and cited in the Show Cause Notice. Expressed otherwise, the respondents, undoubtedly, had a right to question the reliability of the statements recorded during investigation, or of the computer printouts and other evidence, which was vouchsafed by the said statements. The opportunity to exercise such a right would, however, present itself, to the respondents, during adjudication, and not in settlement proceedings. In an adjudicatory process, the adjudicating authority would have an opportunity to examine whether, in the context of Section 9-D of the Act, the statements, relied upon, by the Revenue, in the Show Cause Notice, were required to be admitted in evidence and, in case they were so admitted, the petitioners would have an opportunity to test the said material, by way of cross-examination of the deponents of the statements, or any other means known to law. 40. The Act does not contemplate any such exercise by the Settlement Commission. Wealth of evidence stands cited, in the Show Cause Notice, against the respondents, though, unquestionably, the bulk thereof relates to the data contained in the computer....
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....ses to do so, however, the assessee must always act "in the spirit of settlement". While it is open to an applicant, before the Settlement Commission, to question the legality of the demand, proposed in the Show Cause Notice, on points of law, or the like, an applicant, before the Settlement Commission, cannot wish away the effect of the evidence, on which reliance is placed in the Show Cause Notice. Questioning of the value, or the quantum or sufficiency, of the evidence cited in the Show Cause Notice, necessarily requires subjection, of the assessee, to the adjudicatory process. 43. We are of the view that the Settlement Commission had no jurisdiction, under the Act, to return the findings contained in paras 24.1 to 24.4 of the impugned Final Order. In the said paragraphs, the Settlement Commission finds that (i) the data obtained from computer printouts had not been corroborated from investigations, (ii) the entries in the computer printouts could easily have been verified, particularly in the context of inquiries with the buyers, which did not reveal any supply of goods without any invoices, (iii) while the evidence, in the form of statements of th....
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....ura and 2909, Gali No. 4, Chuna Mandi, Paharganj, (iv) shortage of finished goods, in the premises of Respondent No.1, vis-à-vis the record and balance in the RG-1 register, (v) seizure of unaccounted finished goods, from the godown of Respondents No.1 and 2 at 548/4, Swarn Park, Udyog Nagar, Mundka and (vi) the recovery of kachcha parchis, whereunder such removals were allegedly effected. The impugned Final Order of the Settlement Commission completely ignores this evidence. Apropos the computer printouts, the Settlement Commission has also failed to note the fact that the figures in the computer printouts had been compared with other records and had been found to tally. The Settlement Commission could not have held that the Revenue had failed to adduce evidence - particularly in the context of production capacity of Respondents No.1 and 2 - as the occasion to produce any such evidence would have arisen only during adjudication proceedings. 45. We are also unaware of any law, which entitles Respondents No.1 and 2 , to compute demand, for the period not covered by the diaries, on a "pro rata" basis. Removal of excisable goods does not take place on "pro rata" basis, but i....
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....ission is required to forebear itself from undertaking, such an exercise being contemplated, by the statute, only by a competent adjudicating authority, in accordance with the procedure prescribed in the Act, the relevant rules, and judicial precedents, in that regard. 49. We are, therefore, unable to sustain the impugned Final Order, or the findings of the Settlement Commission, as reflected in the paras 24.1 to 24.4 thereof. In our opinion, the Settlement Commission fell into serious error of jurisdiction, in settling the case arising from the Show Cause Notice, dated 16th January, 2013 supra, for an amount of Rs. 11,80,12,105/-, along with interest, as it has chosen to do. 50. Mr. Malhotra also sought to advance a faint submission that the Revenue, not having chosen to challenge the order, of the Settlement Commission, allowing the application of the respondents to be proceeded with, was estopped from contesting the correctness of the Final Order of the Settlement Commission. 51. We are unable to agree. The order, allowing the application to be proceeded with, was an interlocutory order. While we do not dispute the entitlement of the Revenue to challenge such an interlo....