2019 (11) TMI 900 - HC - Central Excise

Application to Settlement Commission - recovery of short paid duty - Clandestine removal - undervaluation of manufactured goods - it was prayed that the settlement application be rejected as it did not contain a full and true disclosure of duty liability of Respondents No.1 and 2 - HELD THAT - Section 32I which deals with the powers and procedure of the Settlement Commission provides that on an application being allowed by the Settlement Commission to be proceeded with under Section 32F the Settlement Commission would during the pendency of the application have subject to the provisions of Section 32F(4) exclusive jurisdiction to exercise powers and perform functions of any Central Excise Officer under the Act in relation to the case. The subjection of the power so conferred on the Settlement Commission to don the mantle of a Central Excise Officer qua the case before it by Section 32I(1) and (2) to Section 32F(4) is obviously intended to ensure that buoyed by the said power the Settlement Commission does not transmute itself into an adjudicating authority in respect of the case before it. The conferment on the Settlement Commission of the powers of a Customs officer or the powers of the Central Excise Officer would not ipso facto result in the Settlement Commission metamorphosing into an adjudicating authority. The powers of a Central Excise Officer or the powers of the Customs officer conferred on the Settlement Commission are so conferred to further its aims and objectives i.e. to further the process of settlement and assess whether there has or has not been full and true disclosure of liability by the applicant before the Settlement Commission. The Settlement Commission does not by the conferment of such power become a parallel adjudicating authority adjudicating the Show Cause Notice - We are aware that the specific statutory stipulation in Section 32F(1) of the Act providing for complexity of the investigation as a specific ground for the Settlement Commission to decide or to reject the application filed before it does not find place in Section 32F as substituted by Section 122 of the Finance Act 2007. This however does not change the legal position and amounts basically to deletion of a statutory superfluity. A perusal of the case predicated by the respondents before the Settlement Commission reflects that they questioned the manner in which available evidence had been appreciated in the Show Cause Notice dated 16th January 2013. The repeated refrain of the respondents before the Settlement Commission was that the evidence in the Show Cause Notice was insufficient to make out a case of clandestine removal or undervaluation to the extent alleged therein - These very submissions by themselves indicate that the Settlement Commission ought not to have proceeded with the case let alone settle it for less than one-tenth of the demand proposed in the Show Cause Notice. Having not chosen to submit themselves to adjudication the contention that the Revenue had not been able to produce evidence to support its case of clandestine removal and under valuation against Respondents No.1 and 2 to the extent alleged in the Show Cause Notice was entirely unavailable to the respondents. 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 printouts recovered from the premises of Respondents No.1 and 2 and retrieved in the presence of the personnel of the said respondents - The extent to which the effect of such evidence could be ignored in the light of Section 36B of the Act is also an aspect which could been examined if the respondents choose to subject themselves to adjudication. The findings recorded in the impugned Final Order in fact amount to a truncated adjudication of the Show Cause Notice without the trappings of the regular adjudicatory process which would have included admission of the evidence cited in the Show Cause Notice rebuttal thereof by the respondents adducing of evidence by the respondents in their favour and rebuttal thereof by the Revenue. Such a summary adjudication as has been undertaken by the Settlement Commission is unknown to the Act or to any other law governing the field. The Settlement Commission fell into serious error of jurisdiction in settling the case arising from the Show Cause Notice dated 16th January for an amount of Rs. 11, 80, 12, 105/- along with interest as it has chosen to do - petition allowed.

Summary

Issues Involved:
1. Allegations of clandestine removal and undervaluation of goods.
2. Demand for Central Excise duty and associated penalties.
3. Settlement of the case by the Settlement Commission.
4. Jurisdiction and authority of the Settlement Commission.
5. Admissibility and reliability of evidence, including computer printouts.
6. Compliance with the principles of natural justice.

Detailed Analysis:

1. Allegations of Clandestine Removal and Undervaluation of Goods:
The case originated from a Show Cause Notice issued by the Directorate General of Central Excise Intelligence (DGCEI) alleging that the respondents had engaged in clandestine removal and undervaluation of goods. The Show Cause Notice detailed several allegations, including the recovery of significant amounts of cash, discrepancies in stock, and evidence from computer printouts and statements of various individuals indicating that the respondents were involved in evasion of duty through under-invoicing and clandestine removal of goods.

2. Demand for Central Excise Duty and Associated Penalties:
The Show Cause Notice demanded recovery of Rs. 11,43,09,554/- in evaded duty, along with interest and penalties under various sections of the Central Excise Act, 1944, and the Central Excise Rules, 2002. Additionally, it proposed the imposition of redemption fines and the confiscation of goods and cash, which were allegedly the proceeds of clandestine sales.

3. Settlement of the Case by the Settlement Commission:
The respondents opted to approach the Customs, Central Excise and Service Tax Settlement Commission for settlement of the case. The Settlement Commission, in its Final Order dated 2nd September 2014, settled the case on the condition of payment of Rs. 1,56,11,930/- as duty, along with interest and penalties. The Commission granted immunities under Section 32K(1) of the Central Excise Act, 1944, subject to compliance with the payment directions.

4. Jurisdiction and Authority of the Settlement Commission:
The High Court examined whether the Settlement Commission had overstepped its jurisdiction by effectively adjudicating the case rather than settling it. The Court emphasized that the Settlement Commission is not a substitute for the adjudicating authority and should not engage in detailed analysis and appreciation of evidence, which is the domain of the adjudicating authority.

5. Admissibility and Reliability of Evidence, Including Computer Printouts:
The High Court scrutinized the Settlement Commission's findings that the data from computer printouts was not corroborated by investigation and that there was no evidence of clandestine removal other than the computer printouts. The Court noted that the Show Cause Notice was supported by statements from various individuals, recovery of unaccounted cash, discrepancies in stock, and other evidence. The Court held that the Settlement Commission should not have disregarded this evidence without a formal adjudicatory process.

6. Compliance with the Principles of Natural Justice:
The High Court directed that the respondents be given an opportunity to respond to the Show Cause Notice and that the adjudicating authority should proceed with the adjudication of the case, ensuring compliance with the principles of natural justice, including providing an opportunity for a personal hearing.

Conclusion:
The High Court quashed the Final Order of the Settlement Commission, directing the respondents to file their response to the Show Cause Notice within four weeks and instructing the adjudicating authority to conclude the proceedings within six months, ensuring adherence to the principles of natural justice. The amounts deposited by the respondents were to be retained and subject to the outcome of the adjudication proceedings.