The Central Government vide Finance Bill, 2017 proposed certain amendments under Customs Act, 1962 in order to give legal backing for specific disputes, already decided by judicial precedents, and also to widen the powers of Settlement Commission.
In past, two specific disputes raised questioning the power of settlement commission, which are: -
(i) Whether the settlement commission has power to review its own order / or rectifying an error apparent on record of the order passed by it or not?
(ii) Whether an application of co-noticee can be entertained even after the case of the main-noticees is settled by the Settlement Commission under Section 127B of the Customs Act, 1962?
Settlement Commission – Power to Review
The first dispute came before the Settlement Commission in Reference: Manhar Audiotronics (P) Ltd reported at 2002 (140) ELT 310 (Sett. Comm.). The Settlement Commission vide its decision dated 23.11.01 held that it has no inherent power to review its terms of Settlement.
Identical question came up before the Hon'ble Bombay High in Union of India Vs. Sai Impex reported at 2003 (160) ELT 128 (Bom.). The Hon'ble High Court held power to review is not an inherent power and it must be conferred by law either specifically or by necessary implication. Settlement Commissioner has no such power of review.
The aforesaid view followed in another decision of the Hon'ble Bombay High Court in Haji N Abdulla 2007 reported at TIOL-686-HC-MUM-IT. Ultimately, the dispute was put to rest by the Constitutional Bench of the Hon'ble Supreme Court in Brijlal and Ors Vs. CIT reported at 2010-TIOL-81-SC-IT-CB, wherein, the Hon'ble Court has held that the Settlement Commission has no power to reopen a proceedings concluded by a final order.
Thus, the Settlement Commission was unable to review its order / or unable in order to correct an error apparent on face of such order. This has ultimately led to unnecessary burden on higher judicial forums and have also added to existing huge pendency before the higher judicial forums.
The Central Government within intent to extend power to Settlement Commission to rectify any error in apparent on the face of record and to reduce burden on higher judicial forums, has proposes to insert a new sub-section in Section 127B of the Customs Act, 1962, after new sub-section (5) of Section 127B. The proposed new sub-section (5A) reads as under: -
"(5A) The Settlement Commission may, at any time within three months from the date of passing of the order under sub-section (5), may amend such order to rectify any error apparent on the face of record, either suo motu or when such error is brought to its notice by the jurisdictional Principal Commissioner of Customs or Commissioner of Customs or Principal Additional Director General of Revenue Intelligence or Additional Director General of Revenue Intelligence or the applicant:
Provided that no amendment which has the effect of enhancing the liability of the applicant shall be made under this sub-section, unless the Settlement Commission has given notice of such intention to the applicant and the jurisdictional Principal Commissioner of Customs or Commissioner of Customs or Principal Additional Director General of Revenue Intelligence or Additional Director General of Revenue Intelligence, as the case may be, and has given them a reasonable opportunity of being heard." … [Emphasis Supplied]
To our view, the aforesaid proposal is a welcome change which will ultimately reduce the burden on higher judicial forums and will also save litigation cost of the assessee. Therefore, it is a win-win situation of both assessee and revenue. It is should be noted that the aforesaid amendment being substantive in nature would not have retrospective applicability.
Relief to Co-Noticee to approach even after settlement of matter for main-noticees
One other dispute came up before the Settlement Commission in Reference: Jagmohan Singh reported at 2002 (142) ELT 490 (Sett. Comm.)
namely when the case is settled by the Settlement Commission in respect of the application filed by the main noticee, whether the case of co-noticees stands decided automatically even without filing a separate application. The Settlement Commission held that the case will be settled for the main applicant who filed application before it and not to other co-noticees who have not approached the Commission. Further, it was held that the adjudicating authority is free to deal with the case so far as it relates to the co-noticees who are not applicants in that case.
Similar dispute came up before the Hon'ble CESTAT, Mumbai Bench in S.K. Colombowala Vs. CC (Import), Mumbai reported at 2007 (220) ELT 492. The Hon'ble CESTAT on reference to third member by majority held that the question as to who played the main role is irrelevant for the reason that once the case is settled by the Settlement Commission, it is settled in its entirety and such a case then cannot be adjudicated qua other co noticees. The case against all co-noticees comes to an end once the order of settlement is passed in respect of the person entitled to file an application before the Settlement Commission and therefore penalty imposed upon the appellants cannot be sustained and is set aside. The Hon'ble Bench followed the decision of the Hon'ble Supreme Court in the case of Union of India Vs. Onkar S. Kanwar reported at 2002 (145) ELT 266 (SC).
However, the Hon'ble CESTAT, Chennai Bench in K.I. International Ltd. Vs. CC reported at 2012 (282) ELT 67 (Tri.) following the decision of the Hon'ble Supreme Court in S.P. Chengalvaraya Naidu Vs. Jagannath reported at (1994) 1 SCC 1took the view that orders passed by the Settlement Commission in the case of importers are not binding on CESTAT to grant relief to assessee' s who were not before the Settlement Commission.
Considering the contrary view, the Hon'ble CESTAT, Chennai Bench in Rajesh Vs. CC reported at 2013 (296) E.L.T. 520 (Tri. - Chennai)placed the matter before the Larger Bench. The Hon'ble Larger Bench of CESTAT declined to decide on the reference as the expected determination by the Hon'ble High Court of Madras would provide a wider jurisdictional guidance.
Thereafter, the Hon'ble CESTAT, Mumbai Bench in CC Vs. Mahendra Kumar Dharewala reported at 2016 (340) ELT 727 (Tri. – Mumbai) followed the decision of the CETSAT in Re S.K. Colombowala case supraon the ground that that decision emanating from reference to a Third Member on account of difference of opinion has the same status as that of a Larger Bench. Accordingly, it was held that co-noticees cannot be proceeded against once the main noticee has settled the demand before the Settlement Commission.
Meanwhile, the Special Bench of the Hon'ble Settlement Commission vide its Order No.01/SB/CEX/2012 dated 18.6.12 in Oriflame India held that on the principle of equity the application of a co-noticee should also be entertained even if it is filed after issue of the final order in the case of the main noticee, provided that the case against the co-noticee is still pending for adjudication.
In light of the judicial precedents, the view prevail is that co-noticees cannot be proceeded with once the case of main noticee is settled by the Settlement Commission even though co-noticee has not approached to the Settlement Commission separately.
The Central Government in order to remove ambiguity proposed to insert a new sub-section in Section 127B of the Customs Act, 1962, after new sub-section (5) of Section 127B. The proposed new sub-section (5A) reads as under: -
"(5) Any person, other than an applicant referred to in sub-section (1), may also make an application to the Settlement Commission in respect of a show cause notice issued to him in a case relating to the applicant which has been settled or is pending before the Settlement Commission and such notice is pending before an adjudicating authority, in such manner and subject to such conditions, as may be specified by rules.''.
The aforesaid proposal makes it clear that each co-noticee is required to file a separate application before the Hon'ble Settlement Commission in order to settle the case. Further, co-noticee may approach Settlement Commission even after matter is settled against main-noticee.
We are of the understanding that the aforesaid proposal makes it clear that matter will not be considered as settled against all noticees, if main-applicants
files the application before the Settlement Commission and its case is settled only. Each co-noticee who wishes to settle their case is required to approach Settlement Commission by way of a separate application. It is pertinent to note that application for settlement shall be rejected by Settlement Commission if such co-noticee is already penalised by the Settlement Commission in some other application by it.