2011 (3) TMI 1310 - HC - Customs

Difference in duty between the show cause notice and the admitted amount - Demand raised - Held that - As the first respondent has failed to consider the report of the Commissioner (Investigation) and pass appropriate orders and simply shirked its duty by throwing the blame on the petitioner as if the petitioner had been making disclosures many a time each at variance with the other. As pointed out earlier there has been only one disclosure at the time of admission. The clarifications given by the petitioner is only at the time of investigation by the Commissioner (Investigation) who was duly authorised by the first respondent in terms of Section 127C(6). Such clarification or statement cannot be equated to disclosure. Therefore it is for the first respondent to accept the disclosure originally made on the basis of the investigation report and come to the conclusion as to what will be the appropriate amount that should be demanded by way of duty and what will be the penalty and interest which should be levied for the purpose of settlement. In this case this court finds that the Settlement Commission has grossly mislead by itself by failing to consider the investigation report which it had called for and thereby fell into error by accepting the untenable plea of the Revenue that there are inconsistencies in the disclosures. Such finding is based on no evidence and contrary to the records. Merely because there is a huge difference in duty between the show cause notice and the admitted amount the case of the petitioner cannot be thrown out. As the first respondent failed to consider the vital and relevant documents viz. the investigation report which had been called for by the Settlement Commission before deciding the issue finally. The non-application of the mind of the first respondent on this vital relevant document clearly goes to the root of the matter. The order impugned suffers from error apparent on the face of the records - matter remitted back to the first respondent for reconsideration.

Issues Involved:

1. Challenge to the Final Order dated 28-2-2008 by the Settlement Commission.
2. Compliance with Section 127C of the Customs Act.
3. Allegations of inconsistent and incomplete disclosures by the petitioner.
4. Consideration of the Commissioner (Investigation)'s report.
5. Payment and encashment of bank guarantees by the petitioner.
6. Applicability of the Supreme Court decision in Union of India v. Anil Chanana.

Issue-wise Detailed Analysis:

1. Challenge to the Final Order dated 28-2-2008 by the Settlement Commission:
The petitioner sought a writ of certiorarified mandamus to quash the Final Order dated 28-2-2008 issued by the Settlement Commission and to direct the first respondent to reconsider the application on merits with the assistance of the Commissioner (Investigation). The Settlement Commission had remitted the case back to the jurisdictional Customs Officer under Section 127-I of the Customs Act, stating that the petitioner did not make a full and true disclosure of facts, leading to the present writ petition.

2. Compliance with Section 127C of the Customs Act:
The Settlement Commission admitted the petitioner's case and directed an investigation under Section 127C(6). The Commissioner (Investigation) conducted a thorough investigation and submitted a detailed report. The relevant provisions of Section 127C outline the procedure for handling applications, including calling for a report from the Commissioner of Customs, allowing the application to proceed, and conducting further inquiries if necessary. The Settlement Commission is required to pass orders based on the investigation report and materials presented.

3. Allegations of inconsistent and incomplete disclosures by the petitioner:
The Settlement Commission concluded that the petitioner did not make full and true disclosures, citing contradictions and inconsistencies in the information provided. The petitioner contended that the variations in the figures were due to errors in the department's calculations, which were corrected during the investigation. The petitioner argued that there was only one disclosure at the time of application, and the subsequent clarifications were part of the investigation process, not additional disclosures.

4. Consideration of the Commissioner (Investigation)'s report:
The Commissioner (Investigation) submitted a detailed report, which included a working sheet showing the calculations of duty demanded and admitted. The report scaled down the original demand from Rs. 1,69,22,099 to Rs. 70,97,432.42. The Settlement Commission, however, ignored the investigation report and concluded that the petitioner made multiple inconsistent disclosures. The court found that the Settlement Commission failed to consider the investigation report on its merits, which was a crucial error.

5. Payment and encashment of bank guarantees by the petitioner:
The petitioner had paid part of the duty before the issuance of the show cause notice and provided bank guarantees for the balance amount. The Settlement Commission directed the Revenue to encash the bank guarantees, which the department delayed. The investigation report confirmed that the admitted liability was discharged by the petitioner, contradicting the department's claim of non-compliance.

6. Applicability of the Supreme Court decision in Union of India v. Anil Chanana:
The Settlement Commission relied on the Supreme Court decision in Union of India v. Anil Chanana, which dealt with false disclosures in a compounding application under Section 137(3) of the Customs Act. The petitioner argued that this case was not applicable, as the facts differed significantly. The court agreed, noting that the petitioner's case involved admitted liability and compliance with the Settlement Commission's directions, unlike the false disclosures in the Anil Chanana case.

Conclusion:
The court found that the Settlement Commission erred in ignoring the investigation report and wrongly concluded that the petitioner made multiple inconsistent disclosures. The court set aside the Settlement Commission's order and remitted the matter back for reconsideration based on the evidence and the investigation report. The writ petition was allowed, and the connected miscellaneous petition was closed.

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