2019 (1) TMI 774 - HC - Central Excise

Scope and ambit of settlement order - Whether the Settlement Commission can after holding that the applicant has failed to make full and disclosure of his duty liability and the manner in which such liability was derived, act as an adjudicating authority to decide the show cause notice issued by the Central excise Officer and determine the demand raised? Held that - The Settlement Commission did not accept the claim of the three petitioners that they had made full and true disclosure of the duty liability. It had also opined on the petitioners failure to disclose the manner in which the said duty liability was derived. Two essential pre-conditions for invoking jurisdiction of the Settlement Commission were therefore not satisfied. In the given facts, the Settlement Commission should have rejected the settlement applications and referred the case to the Central Excise Officer to decide the show cause notices issued to the parties on merits. However, notwithstanding the failure and non-satisfaction of the jurisdictional pre-conditions, the Settlement Commission proceeded to act as an adjudicating authority and has decided the show cause notice. This would be beyond the scope and power of the Settlement Commission, for the Settlement Commission is not an adjudicatory authority substituting the Central Excise Officer. The Settlement Commission must function under the four corners of the powers conferred under Chapter-V of the Act. The Settlement Commission, after expressing and recording the finding on the failure of the petitioners to make full and true disclosure of the duty liability and the manner in which it was derived, should have rejected the settlement application. The petitioners should have been relegated to suffer and undergo adjudication mechanism and procedure as per the provisions of the Act. The writ petitions are partly allowed, quashing the impugned orders passed by the Settlement Commission to the extent they adjudicate and confirm the demand raised in the show cause notice.

Issues Involved:
1. Jurisdiction and authority of the Settlement Commission under the Central Excise Act, 1944.
2. Requirement of "full and true" disclosure by the applicant for settlement.
3. Adjudication of disputed facts by the Settlement Commission.
4. Procedural aspects of the Settlement Commission's operations.
5. Specific findings and directions in individual cases.

Detailed Analysis:

1. Jurisdiction and Authority of the Settlement Commission:
The primary legal issue addressed was whether the Settlement Commission, after determining that the applicant failed to make a "full and true" disclosure of duty liability and the manner in which such liability was derived, could act as an adjudicating authority to decide the show cause notice issued by the Central Excise Officer and determine the demand raised. The court emphasized that the Settlement Commission is not an adjudicating authority and does not have the power to pass an order-in-original as a Central Excise Officer. The Settlement Commission must function within the powers conferred under Chapter-V of the Act and cannot adjudicate the show cause notice on merits.

2. Requirement of "Full and True" Disclosure:
The court highlighted that the Settlement Commission's satisfaction on the assessee's "full and true" disclosure of the undisclosed duty liability and the manner in which the liability was derived is a sine qua non legislative command that forms the jurisdictional preconditions to obtain an order of settlement. The court referred to several precedents, including the Supreme Court's decisions in *Commissioner of Income Tax (Central) v. B.N. Bhattacharjee* and *Ajmera Housing Corporation v. Commissioner of Income Tax*, which emphasized the necessity of "full and true" disclosure for a valid application under settlement provisions.

3. Adjudication of Disputed Facts by the Settlement Commission:
The court reiterated that the Settlement Commission cannot substitute itself for the Adjudicating Officer by deciding highly contested and disputed questions of facts. The basic purpose of the Settlement Commission is to settle the matter, not to adjudicate the issue on which there is a wide variance between the parties. The court cited its own decision in *Picasso Overseas v. Director General of Revenue Intelligence*, which held that the Settlement Commission cannot adjudicate highly contested and disputed questions of facts.

4. Procedural Aspects of the Settlement Commission's Operations:
The court examined the statutory provisions governing the Settlement Commission's operations, including Sections 32E, 32F, 32I, 32K, 32L, 32M, 32N, and 32O of the Central Excise Act. It emphasized the strict timelines and procedural requirements for the Settlement Commission to follow, including the issuance of notices, calling for reports, and passing orders within specified periods. The court also noted that the Settlement Commission has the power to grant immunity from prosecution and penalty, subject to the applicant's cooperation and "full and true" disclosure.

5. Specific Findings and Directions in Individual Cases:

- WP(C) No. 7277/2015 (SDL Auto Pvt. Ltd.):
The petitioner had accepted a duty liability of ?60,54,752/- and interest liability of ?19,59,645/-, while the show cause notice demanded ?2,16,70,002/-. The Settlement Commission found that the petitioner had not made a "full and true" disclosure and upheld the demand raised in the show cause notice. The court held that the Settlement Commission should have remitted the case to the Central Excise Officer for adjudication on merits.

- WP(C) No. 8939/2015 (Iceberg Aqua Pvt. Ltd.):
The petitioner had admitted a duty liability of ?3,04,001.39/- against a demand of ?3,51,82,322/-. The Settlement Commission found that the petitioner had not made a "full and true" disclosure and upheld the demand raised in the show cause notice. The court directed that the case be remitted to the Central Excise Officer for adjudication on merits.

- WP(C) No. 10013/2016 (KMG Rolling Pvt. Ltd.):
The petitioner had admitted a duty liability of ?48,13,658/- and interest of ?56,971/-, while the show cause notice demanded ?57,05,370/-. The Settlement Commission found discrepancies in the petitioner's assertions and upheld the demand raised in the show cause notice. The court held that the Settlement Commission should have remitted the case to the Central Excise Officer for adjudication on merits.

Conclusion:
The court quashed the impugned orders passed by the Settlement Commission to the extent they adjudicated and confirmed the demands raised in the show cause notices. The court directed that the cases be remitted to the Central Excise Officer for adjudication on merits, excluding the period from the date of filing of the applications for settlement till the present pronouncement for the purpose of limitation. The adjudicating authority/Central Excise Officer was directed to consider the defense and contentions of the petitioners before passing the final order.

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