2013 (1) TMI 100 - HC - Central Excise

Demand of duty of excise on special discount, penalty of Rs.15 lacs and simple interest at the rate of 10% - petitioner opted to settle the dispute before the Settlement Commissioner - submissions only challenging imposition of penalty of Rs.15lacs - Held that - Once the allegations in the show cause notices are admitted by the petitioner, it is not open to the petitioner to contend that the Settlement Commission ought to have passed a detailed reasoned order before imposing a penalty of Rs.15 lacs. It is also important to note that the Settlement Commission in the impugned order while settling the matter proceeded on the basis of the admission of the petitioner and applied the same test while imposing penalty. It is most relevant to note that in the spirit of settlement the Settlement Commission has imposed a penalty of only Rs.15 lacs and not equivalent penalty as proposed in the show cause notice issue for adjudication. There is an admission on the part of the petitioner with regard to conduct which alleges deliberate mis-declaration under valuation. Thus in the present facts mens rea was an admitted position and therefore not an issue before the Settlement Commission. Therefore, the Apex Court order in Sir Shadi Lal Sugar and General Mills Ltd. 1987 (11) TMI 1 - SUPREME COURT as relied by assessee would have no application - in para 15 of the impugned Order the Settlement Commission decided not to examine the pleas of the petitioner on merits of duty demand as the same was admitted by the petitioner and for that very reason also does not disregard the valuation fraud for the purposes of imposing penalty, thus there has been no breach of law in the decision making process and the order imposing penalty does disclose the mind of the Settlement Commission in imposing penalty - writ dismissed.

Summary

Issues:
Challenge to order of Settlement Commission regarding reduction of demand, imposition of penalty, and payment of interest.

Detailed Analysis:

1. Reduction of Demand:
The petitioner challenged the order of the Settlement Commission dated 8/2/2011, which rejected the claim for the reduction of demand of Rs.29,65,850 from the duty of excise on special discount. The petitioner had opted to settle the dispute before the Settlement Commission after receiving a show cause notice alleging duty evasion. The petitioner admitted duty liability of Rs.1.89 crores out of the total demand of Rs.3.30 crores. The Settlement Commission, in its order, granted immunity from prosecution but imposed a penalty of Rs.15 lacs on the petitioner. The petitioner's counsel argued that the penalty was imposed without proper consideration and that the Settlement Commission should have passed a reasoned order before imposing the penalty.

2. Imposition of Penalty:
The main contention revolved around the imposition of a penalty of Rs.15 lacs by the Settlement Commission. The petitioner's counsel argued that the penalty was unjust as the breach of law was not deliberate, and the petitioner sought settlement to avoid prolonged litigation. The counsel relied on a Supreme Court decision to support the argument that admitting duty liability does not automatically warrant the imposition of a penalty. On the other hand, the revenue's counsel contended that the impugned order exercised discretion in imposing a penalty and should not be interfered with. The Settlement Commission imposed a penalty of Rs.15 lacs instead of an equivalent penalty as proposed in the show cause notice.

3. Settlement Process and Admission of Liability:
The Settlement Commission is an extraordinary measure allowing defaulting parties to settle disputes by making full disclosures. The petitioner admitted undervaluation and deliberate misdeclaration in its application for settlement. The Settlement Commission relied on the petitioner's admissions and applied the same standards while imposing the penalty. The Commission considered the spirit of settlement and imposed a penalty lower than the proposed equivalent penalty. The Commission's order disclosed the reasons for imposing the penalty, and the admission of the petitioner regarding deliberate misdeclaration precluded the need to prove mens rea for penalty imposition.

4. Decision and Dismissal of Petition:
The High Court considered the arguments presented by both parties and concluded that the Settlement Commission's decision to impose a penalty of Rs.15 lacs was justified based on the petitioner's admissions. The Court found no fault in the decision-making process and declined to interfere with the Commission's order. The Court dismissed the petition, emphasizing that the Settlement Commission's order should be viewed as a package deal, and there was no reason to entertain the petition further.

In conclusion, the High Court upheld the Settlement Commission's order regarding the penalty imposition, emphasizing the importance of full disclosure in settlement proceedings and the consequences of admitting liability.