Rebello F.I., J.
1. Petitioner imported capital goods for the purpose of processing polyester waste. A show cause notices dated 31.7.1998 and 7.8.1998 were served on the petitioner. Both the show cause notices called upon the petitioner to show cause why penalty should not be imposed. The petitioner filed a reply to both the notices and showed cause.
2. On 29.3.2000 petitioner filed a settlement application being No. 9 of 2000, under Section 127-B of the Customs Act, 1962. In this application, the petitioner admitted the duty liability as Rs. 1,23,81,895/-. The petitioner prayed for inter alia (1) waiver of interest, (2) release of two bank guarantees dated 7.9.1994 and 23.1.1995 deposited with the DGFT Mumbai, (3) Permission to pay duty liability in installments, (4) to grant immunity from imposition of any fine and penalty, (5) immunity from prosecution and (6) permission to pay C.V.D. Separately.
3. The application was fixed for admission on 10.5.2000. The petitioner submitted that there was error in calculation of actual amount of duty payable and considering the export obligation performed, the obligation for payment of duty would be Rs. 1,16,49,093/-. Respondent No. 3 on 8.5.2000 submitted report as required under Section 127-C(1) of the Customs Act, 1962 on the application filed by the petitioner. The report sated that the application filed by the petitioner was liable to be rejected under Section 127-C, since it did not disclose any new duty liability which was not known earlier. It was also sated that the petitioners request for the waiver of interest was not acceptable and further the Act did not allow any power on the Commissioner of Customs to allow payment of duty in installments. The report did not include any demand by way of penalty. By an order dated 8.6.2000 the respondent No. 2 allowed the application filed by the petitioner, to be proceeded with and directed the petitioner to pay Rs. 20 lacs., within one month from the date of receipt of the order. Petitioner paid the sum of Rs. 20 lacs., on 30.6.2000.
4. Petitioner thereafter on 3.7.2000 filed a revised claim and admitted duty liability as Rs. 1,16/49,093/- as on 31.3.2000. On 11.9.2000 the petitioner paid Rs. 12,98,093/- towards admitted duty liability and on 30.10.2000petitioner paid Rs. 83,57,000/- on encashment of bank guarantee. Thus paid all admissible duty liability. DGFT by its communication had informed the petitioner that the duty liability was Rs. 1,21,90,562/- and Rs. 1,79,07,000/- towards interest.
Petitioner by communication of 24.10.2001agreed to pay duty of Rs. 1,21,90,562/-. Respondent No. 2 settled the case for payment of Customs duty of Rs. 1,23,33,557/- and along with penalty of amount of Rs. 50 lacs. Petitioner has approached this Court against the imposition of penalty amounting to Rs. 50 lacs.
5. It is the submission on behalf of the petitioner that the order of respondent No. 2 in imposing a penalty of Rs. 50 lacs., is beyond its jurisdiction under Section 127-C of the Customs Act.
6. Reply has been filed on behalf of the Deputy Commissioner of Customs supporting the order passed by the Commission. It is submitted that the provisions of the Customs Act do not indicate in any manner that the Settlement Commission has to confine itself to the show clause notice. As mandated by the provisions of Section 127-C(7) and (9), settlement commission itself can settle the case and pass such order as it deems fit, providing for demand of duty, interest and penalty. It is submitted that the word 'as it deems fit' clearly indicates that irrespective of the fact that the show cause notice proposes only a certain item, say tax, the settlement commission can include items like penalty. The powers of the settlement Commission it is submitted are not circumscribed by the show cause notice as show cause notice is merely one of the requirements for applying for settlement.
7. We have heard the parties and perused the order of the settlement commission.
Under Section 124 of the Customs Act, no order confiscating any goods or imposing any penalty on any person shall be made under Chapter XTV unless the owner of the goods or such person is given an opportunity of making representations in writing, informing the grounds on which it is proposed to impose the penalty. Admittedly in the instant case, both the show cause notices did not provide to show cause as to why penalty should not be imposed. The relevant provision regarding show cause notice as it then stood reads as under:
Section 124 Issue of show-cause notice before confiscation of goods, etc. No order confiscating any goods or imposing any penalty on any person shall be made under this Chapter unless the owner of the goods or such person--
(a) is given a notice in 1 [writing with the prior approval of the officer of customs not below the rank of a Deputy Commissioner of Customs, informing] him of the grounds on which it is proposed to confiscate the goods or to impose a penalty;
(b) is given an opportunity of making a representation in writing within such reasonable time as may be specified in the notice against the grounds of confiscation or imposition of penalty mentioned therein; and
(c) is given a reasonable opportunity of being heard in the matter:
Provided that the notice referred to in Clause (a) and the representation referred to in Clause (b) may, at the request of the person concerned be oral.
8. Chapter XIV-A provides for settlement of case. 'Case' has been defined amongst others to mean any proceedings for the levy, collection and customs duties under Section 127-A(b) of the Act. Under Section 127-B an application can be made for settlement of the case in the circumstances set out therein. The application must contain full and true disclosure of duty liability which has not been disclosed in the manner in which such liability has incurred, additional amount of customs duty accepted to be payable and such other particulars as may be specified by the rules. The first proviso sets out that no such application shall be made unless the applicant has filed a bill of entry or shipping bill, in respect of import or export of such goods, as the case may be or a show cause notice has been issued by the proper officer. Sub-sections (7) and (9) of Section 127(C) which are relevant read as under:
(7). After examination of the records and the report of the Commissioner of Customs received under Sub-Section (1), and the report, if any, of the Commissioner (Investigation) of the Settlement Commission under Sub-section (6), and after giving an opportunity to the applicant and to the Commissioner of Customs having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Customs or the Commissioner (Investigation) under Sub-section (1) or Sub-section 16).
(9) Every order passed under Sub-section (7) shall provide for the terms of settlement including and demand by way of duty penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud, or misrepresentation of facts.
(Emphasis supplied)
It would therefore, be clear that the powers of the Settlement Commission to pass an order must be in accordance with the provisions of the Act, in matters covered by the application and any other matter relating to the cases not covered by the application but referred to in the report of the Commissioner of Customs or the Commissioner (Investigation) under Sub-section (1) of Section 6. Thus the orders can only be in respect of the matter covered by the application or included in the report of the Commissioner in answer to the application. Further under Sub-section (9) the order made under Sub-section (3) must make provision for the terms of settlement, manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective.
8-A. Section 127-F also is relevant and we may reproduce the same.
Section 127-F Power and procedure of Settlement Commission
(1) In addition to the powers conferred on the Settlement Commission under Chapter V of the Central Excise Act, 1944 (1 of 1944), it shall have all the powers which are vested in an officer of the customs under this Act or the Rules made thereunder.
(2) Where an application made under Section 127-B has been allowed to be proceeded with under Section 127-C, the Settlement Commission shall, until an order is passed under Sub-section [(7)] of Section 127-C, have, subject to the provisions of Sub-section (6) of that section, exclusive jurisdiction to exercise the powers and perform the functions of any officer of customs or Central Excise Officer as the case may be, under this Act or in the Central Excise Act, 1944 (1 of 1944), as the case may be, in relation to the case.
(3) In the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matter other than those before the Settlement Commission.
(4) The Setdement Commission shall, subject to the provisions of Chapter V of the Central Excise Act, 1944 (1 of 1944) and this Chapter, have power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers, or of the discharge of its functions, including the places at which the Benches shall hold their sittings.
Under Section 127-F thus the Settlement Commission has all the powers which are vested in the officer of the Customs under the Act and the Rules made there under. Until an order is passed under Section 127(C)(7) subject to the provisions of Sub-section (6), the commissioner has the exclusive jurisdiction to exercise powers and perform functions of any officer of Customs or Central Excise Officer as the case may be under the Customs Act or Central Excise Act in relation to the case.
9. The Income Tax Act has also similar provisions in the matter of settlement. A similar provision under that Act had come up for interpretation in C.I.T. v. Anjum H. Ghaswala and Ors. : 2001 DGLS (soft) 1324 : 252 I.T.R. (1) : 2002 (1) S.C.C. 633. The Supreme Court observed as under:
23. The commission in the impugned order placed strong reliance on the wording of Section 245-D(6) the language of which, according to the commission, empowers it to waive or reduce statutory interest because the reintroduction of the expression 'interest', in that sub-section. According to the finding of the commission, the inclusion of the expression 'interest' clearly indicates that the Statute has permitted it to pass such orders as it deems fit in regards to payment of interest when an order under Sub-section (4) of Section 245-D is made by it. This assumption of the commission proceeds on the hypothesis that Sub-section (6) of Section 245-D is a substantive provision. We are unable to agree with this view of the commission. The substantive provision in regard to settlement in Chapter XIX-A, in our opinion, is sub-Section (4) of Section 245-D. It is under this provision of the Act that the commission will have to pass orders as it thinks fit on the matters covered by the application. In our opinion, Sub-section (6) of Section 245-D is only procedural in nature. It provides for fixing the terms by which the amount settled in Sub-section (4) will have to be paid. It is not a section which empowers the Commission either to waive or reduce the interest. At the cost of repetition, we must point out that apart from the fact that there is no specific empowerment of waiver or reduction of tax in Chapter XIX-A, it is also clear from the use of the expression 'in accordance with the provisions of this Act' found in Sub-section (4) of Section 245-D, the settlement will have to be in conformity with the Act and not contrary to or in conflict with it.
Similarly in C.I.T. v. Hindustan Bulk Carriers : (2003) 3 S.C.C. 57, this is what the Court observed:
13. The commission's power of settlement has to be exercised in accordance with the provisions of the Act. Though the Commission has sufficient elbowroom in assessing the income of the applicant and it cannot make any order with a term of settlement which would be in conflict with the mandatory provisions of the Act like in the quantum and payment of tax and the interest. The object of the legislature, as noted by the Constitution Bench, in introducing Section 245-C is to see that protracted proceedings before the authorities or in courts are avoided by resorting to settlement of case. In this process an assessee cannot expect any reduction in amounts statutorily payable under the Act. Under Section 245-H, the Commission has the power to grant immunity to the assessee from prosecution and penalty. The immunity extends not only to penal provisions of the Act but to offences under the Indian Penal Code, 1860 (in short 'the I.P.C), or under any other Central Act for the time being in force. Benefit of waiver or reduction in the imposition of penalty under the Act with respect to the cases covered by the settlement is extended as provided under Section 245-H(1). Here again, the immunity is not available in cases where the proceedings for prosecution for the indicated offences have been instituted before the date of receipt of the application under Section 245-C. The immunity granted stands withdrawn in case of failure to pay sum specified in the order of settlement passed under Sub-section (4) of Section 245-D within the specified time or the extended time.
It would thus be clear from the reading of the ratio of the two judgments that no order can be made which will be in conflict with the mandatory provisions of the Act.
Was it then open to the commission to impose penalty when the application for settlement, the 'case' before it, there was no demand for penalty, nor in the report of the commissioner.
10. The provisions for penalty are contained in Chapter XIV of the Act. Section 112 provides for a penalty for improper importation of goods. Section 114 provides for penalty for improper exports of goods. Section 114-A provides for penalty in cases of duty not been levied or short levied or interest harged as set out therein. Section 114-AA introduced w.e.f. Also provides for penalty in circumstances set out therein. We are not concerned with that provision. Section 116 provides penalty for not accounting for goods. Section 117 provides penalty for contravening the provisions under the Act or abatement not specifically mentioned. These are the provisions under which the penalty can be imposed. We are concerned with an application which was moved on 3.3.2000. The only reason given by the Settlement Commission for imposition of the penalty is on the ground that disclosures made by the applicant are not consistent. We may only note that the petitioner in the application initially had disclosed and admitted duty liability in the sum of Rs. 1,23,81,895/-. That was subsequently revised on the ground of error of calculation to Rs. 1,16,49,093/-. The petitioner thereafter on 24.10.2001 agreed to pay Rs. 1,21,90,562/- as admitted duty. This was based on the computation made by G.D.F.T. by letter dated 15.10.2001.
11. Even if we assume that considering the provisions under Section 127-F the exclusive jurisdiction to exercise powers and perform functions of the officer of Customs or Central Excise can be exercised by the commission. Nonetheless, that power had to be exercised in the manner set out under the Act which would include complying with the requirements under Section 124 of the Act. In the instant case, the petitioner had come to the Court based on show cause notices issued under powers conferred on the authorities. Show cause notices which were issued were under Section 124. Show causes notices as already set out earlier only demanded duty and interest both in terms of notice dated 31.7.1998 and notice dated 7.8.1998. Even assuming for a moment that section 117 was attracted, which prima facie in our opinion, there was failure to comply with the requirements under Section 124 of the Act.
The powers to settle is based on the application made by the applicant. It is also open to the commission to consider any claim made in the report filed in reply to the application by the Commissioner. The Commissioner in its reply did not make any claim for penalty as set out earlier.
12. Having so held, in our opinion, it is clear that if there be no power under the Act to impose penalty, without complying with the requirements, the settlement commission equally would have no power to impose penalty. Even if the power is spelt out in the Commission, then that power has to be exercised in the manner laid down under the Act. In the instant case, the only reason given by the Commission in imposing penalty is the purported inconsistent stand of the petitioner. No notice was issued by the commission to the petitioner assuming it could have done so. In our opinion, because a inconsistent stand is taken before the Commission, assuming it to be so, that cannot result in imposing penalty, because no provision is made under the Act for imposing penalty on that count. Penalty could only be imposed in terms of the Act and in terms provided by the Act. In our opinion, there being no power and even assuming there is power, there was failure to comply with the provisions of the Act. The order of the Commission therefore, providing for penalty for settlement of the case is without jurisdiction and to that extent is liable to be set aside.
For the aforesaid reasons, rule made absolute in terms of Prayer Clause (a) to the extent of penalty of Rs. 50 lacs only.