2014 (5) TMI 1103 - HC - Central Excise

Power of Settlement Commission to grant immunity from prosecution and penalty - Held that - It is true that ordinarily the settlement comes as a package and composite tax statement is either to be accepted or rejected. The settlement tax cannot be accepted only in part. Where, however, the settlement is under different heads, which are segregable there is no reason why the part of the settlement which is legally unsustainable cannot be set aside, if the same is segregable. In the instant case, the Settlement Commission, has allowed the demand of the department in full in respect of Central Excise duty, Education Cess, interest and even penalty and given the writ petitioners relief only from prosecution. The penalty being segregable and legally unsustainable, the same is liable to be set aside by this Court. For the reasons discussed above, the writ petition is allowed. The impugned Final Order passed by the Customs and Excise Settlement Commissioner, Additional Bench, Kolkata, is set aside to the extent it purports to levy penalty on the petitioners. The concerned respondents shall forthwith, and in any case within two months from the date of receipt of a certified copy of this order, refund the penalty amount paid by and/or realized from the respective writ petitioners.

Issues Involved:
1. Challenge to the Final Order of the Customs and Excise Settlement Commission.
2. Determination of the valuation method for excisable goods.
3. Inter-connected undertakings and mutuality of interest.
4. Revenue neutrality and utilization of Cenvat credit.
5. Allegations of misdeclaration and suppression of facts.
6. Immunity from penalty and prosecution under the Central Excise Act.
7. Territorial jurisdiction of the High Court.
8. Judicial review of the Settlement Commission's order.

Detailed Analysis:

1. Challenge to the Final Order of the Customs and Excise Settlement Commission:
The petitioner challenged the Final Order No. F-282/CE/11-SC(KB), dated 23rd September 2011, passed by the Customs and Excise Settlement Commission, Additional Bench, Kolkata. The challenge was specifically against the imposition of penalties of Rs. 4 crores on the petitioner No. 1 and Rs. 5 lakhs each on petitioner Nos. 2 to 5. The petitioner also contested the appropriation order dated 2nd November 2011 issued by the Commissioner of Central Excise, Customs, and Service Tax.

2. Determination of the Valuation Method for Excisable Goods:
Vedanta Aluminium Limited (Vedanta) manufactured calcined alumina and transferred it to its own unit at Jharsuguda and to BALCO. The valuation for stock transfers to its own unit was based on 110% of the cost of production as per Rule 8 of the Central Excise Valuation Rules, 2000. However, for supplies to BALCO, the valuation was based on the London Metal Exchange (LME) price and later on the Alumina Spot Tender Price of NALCO. The department contended that Vedanta should have used the same valuation method for BALCO as for its own unit.

3. Inter-connected Undertakings and Mutuality of Interest:
Vedanta and BALCO were inter-connected undertakings as per Section 2(g) of the MRTP Act, but the petitioners argued that there was no mutuality of interest, and thus, they could not be regarded as "related persons" under Section 4(3)(b) of the MRTP Act. The valuation for supplies to BALCO was not determined under Rules 9 and 10 of the Valuation Rules because the entire quantity of calcined alumina was not sold to or through the inter-connected undertaking.

4. Revenue Neutrality and Utilization of Cenvat Credit:
The petitioners argued that the excise duty paid by Vedanta was available as Cenvat credit to BALCO, making the entire transaction revenue-neutral. Vedanta had substantial unutilized Cenvat credit that could have been used to pay any differential duty. The Settlement Commission did not find any evidence that the Cenvat credit available with Vedanta was insufficient to meet the differential duty.

5. Allegations of Misdeclaration and Suppression of Facts:
The show cause notice alleged that Vedanta had resorted to under-valuation and misdeclaration with intent to evade duty. However, the petitioners contended that all clearances were accounted for in the daily stock accounts and monthly returns. The entire duty paid was available as Cenvat credit to BALCO, and there was no intention to evade duty.

6. Immunity from Penalty and Prosecution under the Central Excise Act:
The Settlement Commission granted immunity from penalty in excess of Rs. 4 crores to Vedanta and Rs. 5 lakhs each to petitioner Nos. 2 to 4, while granting immunity from prosecution under the Central Excise Act and related laws. The petitioners argued that the Settlement Commission should have granted full immunity from penalty as the conditions under Section 32K of the Central Excise Act were fully satisfied.

7. Territorial Jurisdiction of the High Court:
The respondents objected to the territorial jurisdiction of the Calcutta High Court. However, the Court held that it had jurisdiction to entertain the writ petition as the order of the Settlement Commission was passed in Kolkata, and the Central Excise duty payable by the petitioner had been settled by the Settlement Commission in Kolkata.

8. Judicial Review of the Settlement Commission's Order:
The High Court held that the order of the Settlement Commission is amenable to judicial review. The Court found that the Settlement Commission did not consider the revenue-neutral nature of the transaction and the availability of excess Cenvat credit. The Court set aside the impugned order to the extent it levied penalties on the petitioners and directed the respondents to refund the penalty amount within two months.

Conclusion:
The writ petition was allowed, and the impugned Final Order No. F-282/CE/2011-SC(KB), dated 23rd September 2011, was set aside to the extent it levied penalties on the petitioners. The concerned respondents were directed to refund the penalty amount paid by the petitioners within two months.

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