2022 (7) TMI 715 - HC - Central Excise

Clandestine Removal - suppression of production of processed fabric - imposition of penalty by Settlement Commission - HELD THAT - This court is not court of appeal but this court in its jurisdiction under Article 226 is entitled to consider whether the Authority has exercised its discretion correctly. Whether to impose penalty and to what extent is purely discretionary order and we would not in normal circumstances, interfere with such discretionary order. It is true that a party will approach a Settlement Commission and has to either accept the opinion of the Settlement Commission in its entirety or not accept but when the Settlement Commission has exercised its discretion to impose penalty of Rs. 10,00,000/-, we would have expected the Settlement Commission to at least give some reasons, if not, very elaborate detailed reasons to indicate why it had imposed penalty of Rs. 10,00,000/-. This is particularly in view of the fact that the Settlement Commission has, in the impugned order, appreciated the conduct of petitioner and held that petitioner s claim for duty benefit was well founded and petitioner had made full and true disclosure of its duty liability, that petitioner has already deposited the admitted amount and co-operated with the Settlement Commission in the proceedings before it. The Settlement Commission has also concluded that petitioner was entitled to cum duty benefit and settled the case at Rs. 57,49,970/- as against the demand made by the department of Rs. 69,63,995/- and it was petitioner s case that only Rs. 54,89,101/- was payable and the petitioner had already deposited that amount. With such a background simply saying Bench grants immunity from penalty to the applicant in excess of Rs. 10,00,000/-, will not suffice. Right to reason is an indispensable part of sound judicial system. Reasons, at least sufficient to indicate an application of mind or the rationale in imposing penalty, should be given in the order. It is also not the case of respondents that petitioner was a habitual offender. The impugned order passed by the Settlement Commission to the extent of imposing the penalty of Rs. 10,00,000/-, needs to be interfered - petition disposed off.

Summary

Issues:
1. Allegation of suppression of production and short payment of Central Excise duty.
2. Application to Settlement Commission admitting duty liability and seeking relief.
3. Final order of Settlement Commission granting cum duty price benefit, immunity from penalty in excess of Rs.10 lakhs, and imposing a fine.
4. Issuance of corrigendum rectifying typographical errors in calculation of duty liability.
5. Challenge to penalty imposition by Settlement Commission.
6. Arguments regarding the legality and discretion of the Settlement Commission's decision.

Analysis:

1. The petitioner, engaged in manufacturing gray fabric, faced allegations of suppressing production and short payment of Central Excise duty based on an investigation by DGCEI. The show-cause notice demanded duty payment, leading the petitioner to deposit a sum during the investigation.

2. Upon receiving the show-cause notice, the petitioner applied to the Settlement Commission, admitting a reduced duty liability and highlighting errors in the notice regarding cost and processing charges. The Commission admitted the application and passed a final order adjusting the duty liability, granting immunity from penalty, and imposing a fine.

3. A corrigendum was issued to rectify calculation errors in the duty liability, which the petitioner complied with by paying the differential duty and interest as directed by the State Government.

4. The petitioner challenged the penalty imposition by the Settlement Commission, arguing that the lack of detailed reasoning for the penalty of Rs.10 lakhs was unjustified, especially considering the petitioner's cooperation and full disclosure of duty liability.

5. In response, the respondent contended that the High Court's role was not to act as an appellate authority but to review the legality of the procedure, emphasizing that detailed reasons for penalty imposition were not always necessary for administrative orders.

6. The High Court, while acknowledging its limited appellate role, found that the Settlement Commission's discretion in imposing the penalty should be correctly exercised. The Court noted the lack of specific reasons for the penalty imposition despite the petitioner's cooperation and full disclosure, leading to interference with the Commission's decision to impose the penalty.

7. Ultimately, the Court made the rule absolute, disposing of the petition and directing the cancellation and return of the bank guarantee provided by the petitioner. Additionally, an erroneous reference in the order was noted and clarified.