Legal principle

The Settlement Commission under Chapter XIV-A can entertain all kinds of settlement applications — including those involving fraud or mis-declaration — provided the mandatory conditions of Section 127B(1) are met (bill of entry/shipping bill, a show cause notice in relation thereto, full and true disclosure of undisclosed duty liability, and additional duty exceeding Rs. 2 lakhs), the words 'short levy on account of misclassification or otherwise' being only a matter of particulars and not a limit on jurisdiction.

Court decision

The Court held that the Settlement Commission has jurisdiction to entertain all kinds of applications for settlement, including cases involving fraud, smuggling or deliberate mis-declaration, provided the mandatory requirements of Section 127B(1) are satisfied — filing of a bill of entry or shipping bill, issuance of a show cause notice in relation to such bill, full and true disclosure of duty liability not earlier disclosed, the manner in which the liability was incurred, the additional duty accepted as payable (exceeding Rs. 2 lakhs), and particulars including dutiable goods in respect of which short levy on account of misclassification or otherwise is admitted. The reference to 'short levy on account of misclassification or otherwise' was held to be procedural (concerning particulars/rules), not a jurisdictional limitation. Rule was discharged in the five Government petitions (115/2004, 1636/2004, 9995/2004, 507/2004 and 2379/2004) and made absolute in the five private-party petitions (4381/2005, 671/2005, 2430/2004, 1051/2005 and 2/2004) — the private parties prevailed and the Department's narrow reading was rejected.

Facts

Ten writ petitions were before the Bombay High Court raising a common issue on the jurisdiction of the Settlement Commission constituted under Chapter XIV-A of the Customs Act, 1962 — five filed by the Union of India (Customs Department) and five by private parties. In Writ Petition No. 115/2004, the respondents imported duty-free raw material under the DEEC Scheme which was not used in the manufacture of export products, showed inflated wastage of about 12% against an admitted 4.16%, and allegedly sold imported goods in violation of licence conditions, evading duty through systematic fraud and manipulation of records over several years. The Customs Department issued seven show cause notices to those respondents under Sections 111(d), 111(m), 111(o), 112, 113, 114, 144-A and 117 read with Section 28 of the Customs Act. Two of the seven show cause notices involved amounts below Rs. 2 lakhs, over which the Settlement Commission admittedly had no jurisdiction. After investigation and issuance of the show cause notices, the respondents approached the Settlement Commission under Section 127B.

Key provisions

• Section 127, Customs Act, 1962 — Award of confiscation or penalty by customs officers not to interfere with other punishments
• Section 127B, Customs Act, 1962 — Application for settlement of cases
• Section 124, Customs Act, 1962 — Issue of show cause notice before confiscation of goods etc
• Section 28, Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 125, Customs Act, 1962 — Option to pay fine in lieu of confiscation
• Section 127A(b), Customs Act, 1962 — Definitions
• Section 127H(1), Customs Act, 1962 — Power of Settlement Commission to grant immunity from prosecution and penalty
• Section 113, Customs Act, 1962 — Confiscation of goods attempted to be improperly exported
• Section 112, Customs Act, 1962 — Penalty for improper importation of goods
• Section 114, Customs Act, 1962 — Penalty for attempt to export goods improperly etc
• Section 144, Customs Act, 1962 — Power to take samples
• Section 111(d), Customs Act, 1962 — Confiscation of improperly imported goods etc