Rajes Kumar, J.
1. In the present writ petition petitioners have mainly prayed for quashing the order dated 13.8.2001 passed by respondent No. 2 and for the direction in the nature of mandamus or prohibition restraining or prohibiting from realizing the penalty of Rs. 5 lacs, each imposed upon the petitioners and for the direction in the nature of mandamus directing the respondent No. 2 to give the benefit of the waiver of penalty to the petitioners in view of the benefit of waiver having been given to the firm, M/s. Ashoka Boot Factory, Agra of which the petitioners are partners of any other direction as may be deem fit and proper in the circumstances of the case.
2. The brief facts of the case are that the petitioners are partners of the firm M/s. Ashoka Boot Factory, Agra engaged in the manufacturing of footwear. As a result of some investigation respondent No. 3 issued a show cause notice dated 21.6.1995 demanding the central excise duty from M/s. Ashoka Boot Factory, Agra to the extent of Rs. 40,08,312 under Rule 9(2) of the Central Excise Rules (hereinafter referred to as 'Rules') read with proviso to Section 11-A of the Act and also proposed to impose penalty on the firm under Rule 9(2), 52-A, 173Q and 226 of the Rules. After considering the reply, filed by the firm including the petitioners, respondent No. 3 passed an order dated 14.1.1998 confirming the demand duty of Rs. 39,86,152 on the firm, Respondent No. 3 imposed a penalty of Rs. 15 lacs on the firm under various Rules. Respondent No. 3 also imposed penalty of Rs. 5 lacs on each of the petitioners under Rule 209-A of the Rules. Against the aforesaid order of the respondent No. 3 confirming the demand of duty and penalty, partnership firm as well as the petitioners filed separate appeals before Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (in short 'CEGAT').
3. During the pendency of the appeals before CEGAT vide Finance (No. 2) Act, 1998, Kar Vivad Samadhan Scheme, 1998 was enacted (hereinafter referred to as 'Scheme') for the settlement of tax arrears. Broadly speaking in respect of indirect taxes, this scheme provided that on payment of 60% of tax arrears, penalty, interest and criminal procedure etc. shall be waived. Partnership firm, M/s. Ashoka Boot Factory filed declaration-dated 15.10.1984 with the respondent No. 3 in terms of Section 88 of the scheme. On the above declaration, respondent No. 3 passed order dated 21.12.1998 under Section 90(1) of the scheme directing the firm to make payment of Rs. 13,91,576 toward full and final settlement of its tax arrears. It is made clear that the petitioners have not filed any separate declaration and, therefore, in the order under Section 90(1) it has been observed that the case relating to the petitioners will remain alive. Firm deposited Rs. 13,91,576 on 30.1.1999 and on such deposit respondent No. 3 issued certificate dated 18.2.1999 certifying the receipt of the payment from the firm towards full and final settlement of tax arrears and also granting immunity from prosecution and imposition of penalty in respect of matters covered in the declaration. That in the meantime, in exercise of powers conferred under Section 97(1) of the scheme respondent No. 1 issued the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998 deemed to have been made effective from 1.9.1998. The order provided as follows:
'Whether a declaration to the designated authority has been made in respect of tax arrear in relation to indirect tax enactment for the amount of duties (including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty which constitutes the subject matter of a demand notice or a show cause notice issued on or before the 31st day of March 1998 but remaining unpaid, and pending determination on the date of making a declaration and, where, in respect of the same matter stated in the said declaration, a show cause notice has also been issued to any other person and is pending adjudication on the date of making the declaration, then, no civil proceeding for imposition of fine or penalty shall be proceeded with against such other person and in such cases the settlement in favour of the declarant under Sub-section (1) of Section 90 shall be deemed to be full and final in respect of such other person also on whom a show cause notice was issued on the same matter covered under the declaration.'
A trade notice No. MF(DR) CBE&C; (F. No. 275/33/98-CX.8A) dated 9.12.1998 was issued by Board in the form of instructions relating to Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998 under Section 92 of the Finance (No. 2) Act, 1998. Annexure-II of the Trade Notice reads as follows:
'Having due regard to the aims and objects of the Scheme, the Government have decided to issue an order for removal of difficulties in terms of the provisions of Section 97(1) of the Finance (No. 2) Act, 1998. It has been inter alia, clarified that no civil proceedings for imposition of fine or penalty shall be proceeded with against the co-noticees and in such cases the settlement in favour of the declarant under the Scheme shall be deemed to be full and final in respect of other persons also on whom show cause notices were issued on the same matter.'
4. When the appeals of the petitioners came up for hearing before Tribunal, it was mainly argued that in view of the Trade Notices No. 36/98 dated 9.12.1998, the petitioner would not be liable for penalty and in terms of Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998. Tribunal rejected the appeals and rejected the plea of immunity under Kar Vivad 'Samadhan Scheme for penalty. Tribunal held as follows:
'We have carefully perused the Trade Notice and find that it covers the stage prior to adjudication when notices have not been adjudicated. We, therefore, are unable to bring ourselves to agree with the learned counsel that the Trade Notice cited covers the present case where notices have been adjudicated and the result of the adjudication is imposition of penalties on the partners (emphasis given). The next submission of the learned counsel is that the partnership firm is not a distinct legal entity separate from the partners who constitute the firm and, therefore, once there has been a penalty upon the firm, penalties cannot be imposed upon the partners. However, this argument is not tenable in view of the Tribunal's decision and High Court decisions which have taken a view that if the role of a particular partner brings out in judgment in an offence........... penalised under Rule 209-A of the Central Excise Rules. The last submission of the learned counsel relies upon the decision of the Tribunal in the case of Quality Fabricators and Erectors v. Commissioner of Central Excise, Baroda, 1999 (33) RLT 722 where the Tribunal has set aside the penalty on the job worker when the principal manufacturer had settled the matter under the Kar Vivad Samadhan Scheme, paying the duty determined. However, this decision is distinguishable from the facts of the present case since we are today concerned with the liability to penalty on partners of a firm, which has been held to be liable to pay duty and penalty (which matter has been settled in so far as the firm is concerned, under the Kar Vivad Samadhan Scheme). We therefore, see no reason to interfere with the penalties imposed by the Adjudicating authority upon the appellants herein and accordingly uphold the same and reject these appeals.'
Thereafter, petitioners filed an application for the rectification of mistake under Section 35-C(2) of the Act. Application was filed for the following reasons:
(a) If an order has been passed by the Hon'ble CEGAT which is plainly and obviously inconsistent with and contrary to the express statutory provision, it is an error apparent on the face of the record and the same is ground for rectification.
(b) The final order has been passed by the CEGAT without noticing the express statutory provision contained in the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998 dated 8.12.1998. In particular, the CEGAT has not noticed the expression 'pending' employed in the Removal of Difficulties Order, 1998.
(c) If the order passed by CEGAT is contrary to the well settled position of law, then it is an error apparent on the fact of the record. It is well settled position of law that appeal is a continuation of original proceedings. It is also well settled legal position that the expression 'pending' would cover 'pending in appellate proceedings' also since appeal is continuation of original proceedings. In the impugned order, the CEGAT has held that 'pending' would apply to only those pending before the adjudicating authority and not the appellate authority. Since this is contrary to the well settled legal position, it is error apparent on the record which requires rectification.
(d) The appellant contended before the CEGAT that despite the firm having settled its case under the Kar Vivad Samadhan Scheme, the appellant is in a position to establish that it is not liable to penalty under Rule 209-A of the Rules since the ingredients required for imposition penalty under Rules 209-A of the Rules are not present. The CEGAT has proceeded on the footing that since the firm has settled its case under the Scheme, the appellant, being a partner in the firm is not entitled to independently establish that penalty is not imposable on him under Rule 209-A of the Rules. The CEGAT has assumed that since the firm has settled the case under KVSS, the charges against the partner appellant also stand establishes and, therefore, the appellant cannot contest it. In this regard, the CEGAT has held as under;
'It is fairly decided that liability to penal action cannot be sustained by them in view of the operation of the Kar Vivad Samadhan Scheme.' The above finding of the CEGAT is based on its assumption and no judgment has laid down such a legal position. In fact, no such decision has also been cited in support of such a finding. Therefore, this assumption of the CEGAT is an error apparent on the fact, of the record which required rectification.'
CEGAT vide impugned order dated 13.8.2001 rejected the application. Tribunal has rejected the application with the following observations:
'Combined reading of the two would clearly show that Trade Notice does not deviate or depart from provisions of the Kar Vivad Samadhan Scheme, (Removal of Difficulties) Order, 1998. The Order refers to show cause notice pending adjudication on the date of making declaration. The Trade Notice also refers to pending show cause notice. Therefore, we do no see any force in the submissions of the applicants that final order has been passed without noticing express statutory provisions contained in the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998. We also do not agree that the applicants were stopped from arguing on merits against imposition of penalty upon them. In this case, we find that what was argued before the Bench was only that the applicants were covered by the Kar Vivad Samadhan Scheme and that the partnership firm is not distinct legal entity separate from the partners and, therefore, once penalty has been imposed upon the firm, penalty cannot be imposed upon the partners. These arguments have been considered and findings have been given thereon. Therefore, we are of the view that no mistake apparent from the record arises in the Final Order, Therefore, we reject ROM applications.'
5. Heard learned counsel for the parties.
6. Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998 came up for consideration before Division Bench of Kerala High Court in the O.P. No. 16334 of 1999 in the case of Shri Tom K. Thomas, 253, Hill Garden P.O. Kuttnallur, Trichuri v. Union of India and Ors., Division Bench of Kerala High has upheld the validity of the Kar Vivad Samadhan Scheme and Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998 but has interpreted the expression 'pending adjudication' as follows:
'The object of the Scheme appears to be to shorten the litigation and settle the dispute between the parties. It is with this end in view, the Scheme has been promulgated. Tax arrears has been defined with regard to indirect enactment as the amount of duties, cesses, interest, etc., determined as due or payable under that enactment as on the 31st day of March 1998 but remaining unpaid as on the date of making a declaration under Section 88. Under Section 88 of the Scheme where a person makes a declaration to the designate authority in accordance with the provisions of Section 89, then the liability shall be discharged as per the Scheme. It can be seen that so far as the sections were concerned, no distinction is there made with regard to a principal notices or a co-noticee. All are entitled to get the benefit of the Scheme whether the matter is pending in appeal or not. The removal of Difficulties Order was issued because where the principal noticees had settled the matter under the scheme, what should be done with regard to the co-noticees. It is in that context, Ext. P3 was issued. In Ext. P3 it is stated that much (sic) co-noticees are entitled to the benefit of the Scheme provided the show cause notice is pending adjudication on the date of making of the declaration. In the explanatory note, it is stated that a settlement in favour of the declarant under the Scheme shall be deemed to be full and final in respect of other persons also on whom show cause notices were issued on the same matter. Shri K. Ramakumar for the respondent argued that petitioners cannot compel as to how the Government should extend the benefit of the scheme. According to Shri K. Ramakumar it is only in cases where show cause notices are pending adjudication that the benefit of the Scheme can be given.
Before we try to interpret Ext. P3 we have to find out the meaning of the expression 'is pending adjudication'. Now, before any action is taken under the Excise laws or under the Direct Tax laws, notices are issued to the parties by the primary authority. The primary authority then considers the matter and dispose of the same by his order. It is a known fact that most of these Acts provide remedies against the orders passed by the primary authority. Appeals, Second Appeals or Revisions are provided against final orders. It is also a fact which does not require any proof that an appeal is a continuation of the original proceedings. Even though in appeal what the Appellate Authority considers is the correctness or otherwise of the order passed by the Primary Authority, the entire matter is before the Appellate Authority and in that sense we can say that the adjudication has not become final and is pending consideration. It can also be said that what is pending before the Appellate Authority is the adjudication of the show cause notice.
Thus, the expression 'is pending adjudication' should be interpreted to take in also cases where appeals against adjudication proceedings are also pending. In that case, petitioners will be entitled to the benefit of the Scheme and their claims cannot be rejected because the matter is pending in appeal.
Considering the above circumstances, we allow the Original petitions, declare that co-noticees like the petitioners are also covered by the Order dated 8.12.1998 notwithstanding the fact that the show cause notices has been adjudicated upon in relation to the co-noticees as well as the declarant under Section 90(1) of the Finance Act, 1998.
Now the matter has been finally decided by the Apex Court in the case of Union of India and Ors. v. Onkar S. Kanwar and Ors., 2002 (83) ECC 731 (SC) : 2002 (7) SCC 591. Apex Court has upheld the view taken by Division Bench of Kerala High Court. Hon'ble Supreme Court held as follows:
'We have heard the parties. In our view, a reading of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order shows that where a declaration has been made in respect of a tax arrear and where in respect of the same matter a show-cause notice has also been, issued to any other person, then the settlement in favour of the declarant has to be deemed to be full and final is respect of other persons on whom show-cause notices had been issued. It is settled law that when an appeal is pending there is no finality to the proceedings. The proceedings are then deemed to be continuing. Undoubtedly, at one place the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order seems does state that the show-cause notice should be pending adjudication. However, the same Order also talks of the show-cause notice being in respect of the same matter on which the show-cause notice has been issued to the main declarant. Then the Order provides that a settlement in favour of the declarant will be deemed to be full and final in respect of other persons also. This Order has to be read as a whole. If read as a whole, it is clear that a settlement by the main declarant is to operate as full and final settlement in respect of all other persons on whom show-cause notice was issued in respect of the same matter. Thus read as a whole the words 'pending adjudication' cannot be read to exclude cases where the proceedings are still pending in appeal. Even otherwise the Order has to be read alongwith the Kar Vivad Samadhan Scheme. Under the Kar Vivad Samadhan Scheme, a party can file a declaration so long as the proceedings are pending. Thus, even though the show-cause notice may have been adjudicated upon the (sic) an appeal is pending, a party could still take the benefit of the Kar Vivad Samadhan Scheme and file a declaration. The object of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order is to give benefit of a settlement by the main party (i.e. the Company in this case) to all other co-noticees. This being the object, a classification, restricting the benefit only to cases where the show-cause notice is pending adjudication, would be unreasonable. If read in this manner the Order would be discriminatory. An interpretation which leads to discrimination must be avoided. An interpretation, as suggested by Mr. Ganesh, would also be against the object of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order. It is therefore not possible to accept the submissions of Mr. Ganesh, in our view the reasoning given by the High Court of Kerala is correct and need to be upheld.'
7. In view of the decision of the Apex Court, order of Tribunal dated 13.8.2001 and the Order dated 17.11.1999 cannot be sustained. It is held that even in a case where show cause notice is adjudicated and the appeal was pending, the petitioners was entitled for the benefit of Kar Vivad Samadhan Scheme (Removal of Difficulties) Order and no penalty could be sustained against the petitioners being a co-noticee of the show cause notice alongwith the partnership firm, in which the declaration under the Scheme was accepted under Section 90 (1) of the Scheme.
8. In the result, writ petition is allowed. The order dated 13.8.2001 and 17.11.1999 are set aside and it is held that the petitioners are not liable for penalty.