2022 (5) TMI 498 - HC - Customs

Validity of order of settlement commission - Demand of differential duty - undervaluation - whether the Settlement Commission committed any error in passing the impugned order? - HELD THAT - In view of the settled position of law, the principal contention canvassed on behalf of the writ applicant that the Settlement Commission ought not to have gone into the merits of the show-cause notice. If the Settlement Commission was of the view that the writ applicant failed to make full and true disclosure of the duty liability, it should have rejected the settlement application. The writ applicant should have been relegated to suffer and undergo the adjudication mechanism and procedure as per the provisions of the Act. The impugned order passed by the Settlement Commission to the extent the same adjudicate and confirm the demand raised in the show-cause notice is hereby quashed. The legal consequences as postulate in law would follow. The proceedings pursuant to the show-cause notice before the concerned authority shall commence - this writ application is partly allowed.

Issues Involved:
1. Validity of the Settlement Commission's order.
2. The Settlement Commission's jurisdiction to adjudicate disputed questions.
3. The correctness of the duty liability assessed by the Settlement Commission.
4. The applicability of revenue neutrality in the settlement proceedings.
5. The procedural correctness of the Settlement Commission's handling of the case.

Detailed Analysis:

1. Validity of the Settlement Commission's Order:

The writ applicant challenged the order passed by the Settlement Commission, Delhi, which rejected the applicant's claim for deduction and confirmed the duty liability along with interest and penalties. The applicant sought quashing of the Final Order No.F-3458-3459/CUS/2018 SC (PB) dated 26.12.2018 and the letter dated 28.05.2019, arguing that the Settlement Commission committed a serious error by deciding on disputed questions that should have been adjudicated by the appropriate authority.

2. The Settlement Commission's Jurisdiction to Adjudicate Disputed Questions:

The court referenced previous judgments to emphasize that the Settlement Commission does not have the jurisdiction to adjudicate disputed questions. The court cited the case of Eagle Corporation Pvt. Ltd. & Anr. vs. Union of India & Ors., which stated: "The Settlement Commission is established for settlement of the disputes between the parties and to have settlement without following the normal procedure of adjudication of leading evidence, etc." The court further noted that if the Settlement Commission finds that the applicant has not made a full and true disclosure, it should reject the settlement application and the matter should revert to the adjudicating authority.

3. The Correctness of the Duty Liability Assessed by the Settlement Commission:

The Settlement Commission had assessed a duty liability of Rs.3,07,03,348/- based on the valuation of imported goods. The applicant contended that the Commission should not have adjudicated the disputed valuation and duty liability issues. The court agreed, referencing the Delhi High Court's decision in SDL Auto Pvt. Ltd. vs. Commissioner of Central Excise, Faridabad, which held that the Settlement Commission should not act as an adjudicating authority if the preconditions for invoking its jurisdiction are not satisfied.

4. The Applicability of Revenue Neutrality in the Settlement Proceedings:

The applicant argued that the demand was revenue-neutral, as the Special Additional Duty (SAD) and Countervailing Duty (CVD) paid would have been available as a refund or credit. The court noted that the Settlement Commission did not adequately address this argument. The court referenced the Bombay High Court's judgment in Fairy Footwear vs. Union of India, which stated that if no settlement is possible, the matter should be relegated to adjudication.

5. The Procedural Correctness of the Settlement Commission's Handling of the Case:

The court found procedural errors in the Settlement Commission's handling of the case. Specifically, the Commission should have rejected the settlement application if it found that the applicant did not make a full and true disclosure. The court held that the Settlement Commission should have remitted the matter to the adjudicating authority for a decision on the show-cause notice.

Conclusion:

The court concluded that the Settlement Commission erred in adjudicating the disputed questions and should have rejected the settlement application if it found that the applicant did not make a full and true disclosure. The court quashed the Settlement Commission's order to the extent that it adjudicated and confirmed the demand raised in the show-cause notice. The matter was remitted to the adjudicating authority for a decision on the show-cause notice on its own merits. The court clarified that it had not decided the show-cause notice on merits and there would be no order as to costs.

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