AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1015
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....nding application filed under Section 137(3) of the Customs Act, 1962 without granting any opportunity of hearing to the appellant which is the mandate enshrined in the first proviso to Rule 4(3) ibid? 3. The factual matrix reveals that the appellants had filed a common compounding application u/s. 137(3) ibid before the Compounding Authority i.e. Chief Commissioner of Customs, Nhava Sheva on 1.7.2025 for availing one time opportunity for compounding in an ongoing investigation by the Directorate of Revenue Intelligence (DRI), anticipating the launch of criminal prosecution against them upon the culmination of the said investigation. The allegations pertains to mis-declaration of value in respect of freely importable dry fruits namely walnuts, almonds and pistachios through manipulated invoices. These alleged malfeasance, according to revenue, has resulted in the evasion of customs duty and constitutes offences punishable u/Ss. 132 & 135 of the Customs Act, 1962 and there is apprehension of appellants' prosecution at the instance of DRI. At the time of filing the compounding application, prosecution had not yet been launched. However, one of the applicants therein i.e. appli....
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....sed on behalf of revenue regarding the issue of maintainability of these appeals before a Single Member Bench of the Tribunal, citing the alleged duty invasion of Rs.44 crores under investigation. On the merit of the Appeals, it has been argued on behalf of Revenue that the compounding application has not been 'rejected' but merely held 'inadmissible' by the impugned order due to non-payment of the dues such as duty, fine, penalty and interest. According to revenue, Compounding Rules and the circulars mandate the payment of duty, interest and penalty as which is the necessary condition for the compounding application. 8. In response to the preliminary objection concerning the maintainability of the instant appeals before this Tribunal, learned senior counsel for the appellants drew strength from the decision of Hon'ble Gujarat High Court in the matter of CCE vs. Girish B. Mishra; 2016(339) ELT 67 (Guj.). In that case, a similar objection raised by revenue was rejected by the Hon'ble High Court affirming the Tribunal's jurisdiction to hear such appeals against the orders of Compounding Authority. It has been held therein that an order passed by Chief Commissioner while ....
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....ard, Commissioner (Appeals) or Appellate Tribunal:" The definition of adjudicating authority is manifestly, encompassing 'any authority' which passes 'any order or decision under this Act'. This definition unequivocally includes any order that decides the lis of a party. Consequently the Chief Commissioner in deciding the compounding application filed u/s. 137 (3) of the Customs Act, 1962, undoubtedly falls within the aforesaid definition of 'adjudicating authority'. While passing the orders under the Compounding of Offences Rules, 2005, the Chief Commissioner is neither a Board nor Commissioner (Appeals) nor Appellate Tribunal but acts as Adjudicating Authority. The Chief Commissioner as compounding authority is thus an "adjudicating authority". Section 128 ibid permits appeal to Commissioner (Appeals) by any person aggrieved by any decision or order passed under the Act by an officer of customs lower in rank than a Principal Commissioner/ Commissioner of Customs. Whereas Section 129A ibid empowers any person aggrieved by any decision or order passed by an adjudicating authority, to prefer an appeal to the Appellate Tribunal challenging such order, provided the appeal is not bar....
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....posed by him. It is thus, clear that the compounding authority exercises its discretionary power and decides an application filed by the appellant for compounding of offence. By no stretch of imagination, it can be stated that such order either allowing or rejecting the application for compounding is not an order passed by the Commissioner as adjudicating authority as defined under Section 2(a) of the Act. Any such order would certainly be an order passed under the Act....." 12. During the course of hearing learned Senior Counsel submits that an identical issue came up for consideration before the Hon'ble High Court of Andhra Pradesh and Telangana in the matter of Ms. Khan Sadaf vs. UOI, Rep. by Secretary, Revenue (Customs & Central Excise); W.P. No. 8349 of 2017. There, against the order of the compounding authority declining to compound the offence u/s. 137 of the Customs Act, 1962, the Petitioner filed writ petition before the Hon'ble High Court. But the Senior Standing counsel appearing on behalf of Revenue raised the preliminary objection, contending that against the order of the compounding authority the petitioner ought to have filed an appeal before the Tribunal....
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....cation bringing him under the purview of an adjudicating authority. No provision under the Act envisages the decision taken under Section 137(3) or for that matter, a decision taken by the Chief Commissioner would not be an appealable order and that his order would be final, so as to accept the contention of the learned counsel for the appellant that it is only a writ remedy that is available to him. 15. For all the aforesaid reasons, we do not find any infirmity in the order passed by the Tribunal, nor does this Court find sufficient force in the arguments of the learned counsel for the appellant. Moreover, the order of the Tribunal also is not in any manner adverse to the interest of the Department. Where the only direction given is that of remanding the matter back to the competent authority to take a decision afresh. 16. In the factual backdrop, the appeal thus fails and is accordingly, rejected. There shall be no order as to costs." 13. Against the aforesaid order of the Hon'ble High Court, revenue had filed Special Leave Petition before the Hon'ble Supreme Court of India and the same was disposed of by the Hon'ble Supreme vide Order dated 15.04.2024 without inte....
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....enalty and interest which has not yet transpired. A similar issue came up for consideration before the Hon'ble Supreme Court in the matter of Naveen Chemicals Manufacturing & Trading Co. Ltd. Vs the Collector of Customs; 1993(68)ELT 3 (S.C.) and the Hon'ble Supreme Court while interpreting Section 129C ibid has laid down that a member of Tribunal sitting singly can hear appeals where the 'determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment' are not in issue. 16. Following the aforesaid decision in Naveen Chemicals (supra), a Co-ordinate Bench of Tribunal in Chief Commissioner of Customs, Ahmedabad v. Ashapura Garments Limited reported in 2017(346) ELT 599 (Tri.-Ahmd.) while interpreting Section 129C(4) ibid has addressed the issue of jurisdiction of a Single Member Bench in appeal against the order on compounding application under Section 137(3) ibid. The relevant portion of the said decision is extracted hereunder:- "13. We find that the specific and direct issue before us in the appeals herein is whether the order dated 4-22016 of Chief Commissioner of Customs, rejecting Compounding of o....
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....ompounding of Offences Rules, 2005 was challenged before a Single Member Bench of this Tribunal. The Single Member Bench, after entertaining the appeal, remanded the matter back to the Chief Commissioner for adjudication on merits after grating opportunity of hearing to the appellant therein. Significantly, no challenge to the jurisdiction of the Single Member Bench to hear the appeal was raised therein, notwithstanding the serious allegation of illegal import of 57 kgs of gold bars against the appellant. Although the aforesaid order has since been challenged by the Revenue before the Hon'ble Bombay High Court, the jurisdiction of the Single Member Bench has not been questioned by revenue therein and till date the Revenue has not obtained any stay of the said decision. 19. So far as the decision of the Hon'ble Supreme Court, as cited on behalf of Revenue, in the matter of UOI vs. West Coast Paper Mills Ltd.; 2004(164) ELT 375 (SC) is concerned, the issue involved therein pertained to the starting point of limitation for filing Suit-whether it is from the date of Order of Railway Rates Tribunal or from the Order of the Hon'ble Supreme Court dismissing the SLP against the ....
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....Appellate Collector is binding on the Assistance Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistance Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The 'principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subjectmatter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.' [emphasis supplied] 22. In conformity with the principle of judicial discipline, the judgment of the Hon'ble Gujarat High Court in Girish B. Mishra (supra) or order of this Tribunal in Amrutlal Kaluram Purohit (supra) are binding till the time it is stayed or set aside in Appeal. Department has demonstrably failed to produce any order staying the operation o....
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....ing application. As per the aforesaid rule, the compounding authority i.e. learned Chief Commissioner herein was under mandatory obligation (as denoted by the word 'shall') to first call for a report from the reporting authority concerning the particulars furnished in the compounding application, or any other relevant information. The reporting authority, in turn, was required to furnish this report within 30 days from the date of receipt of communication from the compounding authority. It is only after this preliminary step that Rule 4(3) comes into play. However, in the instant appeals, the request for compounding, sought by the Appellants by invoking the statutory provisions of Section 137(3) of the Customs Act, 1962 prior to the institution of prosecution, was summarily denied without even the rudimentary step of calling for a report from the Reporting Authority as mandated by Rule 4(1) ibid. The learned Chief Commissioner has rejected the application under 2nd proviso to Rule 4(3) ibid categorizing it as premature/inadmissible, crucially without even granting any opportunity of hearing to the appellants which is in direct contravention of the clear mandate of first proviso to ....
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....he said Affidavit-in-Reply filed by DRI, has been tendered during hearing by the learned Senior counsel in which it has been stated on oath by Ms. Shweta Suman, Deputy Director, DRI as under:- "8. Moreover, it is important to note that the concerned authority has rejected the application for compounding filed by the applicants herein, vide order dated 3.7.2025. A copy of the Order dated 3rd July, 2025 is annexed herewith and marked as Exhibit A." It is noticed by me also in the written submissions herein dated 9.7.2025, tendered by learned Authorised Representatives on behalf of Revenue, that against point No.1 Issue: Revenue has stated that the appellant filed a compounding application, which was subsequently rejected on the basis of discrepancies. 25. Learned Senior Counsel further submits that the appellants herein have filed anticipatory bail applications before the Hon'ble Bombay High Court on the 1st July, 2025 and the pendency of their compounding application was one of pleas taken therein. According to learned senior counsel this was the sole reason for hurried rejection of their compounding application by the learned Chief Commissioner, without grant....
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....mandate of 1st proviso to Rule 4(3) ibid. 27. So far as the alleged failure to make a full and true disclosure of facts are concerned, in my considered view, it was too early for the learned compounding authority to comment on this aspect without calling for a report from the reporting authority. Moreover it has nowhere come on record whether any such report has, in fact, been called for by the said authority. 28. I have perused the compounding application filed by the appellants before the Compounding Authority. A bare reading of the Application reveals detailed disclosure of facts, particularly at Sr.No.5 pertaining to:- The violations of provisions of Customs Act, 1962 against which prosecution is instituted or contemplated for which application of Compounding- "The Applicants apprehend their prosecution at the instance of Directorate of Revenue Intelligence, on allegations of being involved in mis-declaration of value, by filing manipulated invoices to evade Customs Duty, amounting to commission of offences punishable under Section 132 and 135 of Customs Act 1962. Imports of Dry Fruits such as Walnuts, Almonds and Pistachio were made by the Applicant No....
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....missions in this regard." and in paragraph 13 of the said application they undertook to pay compounding fees as well as customs duty with interest and penalty, finally held as due. The said paragraph is also extracted hereunder: "13. The applicants undertake and state that they shall fully co-operate with this Hon'ble Compounding Authority, and shall pay such compounding fee as may be determined for the purpose of compounding, as well as the customs duty with interest and penalty, as may be finally held as due and payable in accordance with law." Copies of the remand Applications dated 26.06.2025 and 27.06.2025 in File No.DRI/MZU/F/INT-32/Enq-17/2025 had also been annexed by the appellants alongwith their compounding application. In any case, before calling for a report from the Reporting Authority or the issuance of Show Cause Notice and adjudication thereof, it is patently premature to comment on the absence or otherwise of a full and true disclosure of facts. In the matter of Union of India vs Anil Chanana; 2008(222) ELT 481 SC, placed on record by Revenue, the Hon'ble Supreme Court has laid down that the Compounding Authority is bound to discharge the statutor....
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.... been determined so far. The affidavit of DRI further states that admittedly the show cause notice has not been issued and thus application is not maintainable, and it is premature. It is also stated that as per Rule 4(3) of the Compounding Rules, the petitioner's application for compounding, may or may not be allowed by the compounding authority; if it is allowed, the petitioner may get immunity from the prosecution. 20. We have perused the application form. Columns 9 to 12A only require the applicant to disclose whether show cause notice is issued, if it is issued, the details of duty demanded, whether show cause notice is adjudicated, if it is adjudicated, to disclose the duty confirmed and fine and penalty imposed and whether paid or not. No bar on filing an application for compounding before issuance of show cause notice or adjudication thereof is contemplated in the Act. On the contrary, Section 137(3) permits the filing of an application even before the filing of prosecution. It is not the case of the DRI that the prosecution cannot be filed before the issuance of show cause notice. Therefore, we are satisfied that there is no bar in filing the compounding applic....