By TIOL News Service

NEW DELHI, APR 22, 2014: THE petitioner was served a SCN dated 06.09.2013 u/s 124 of the Customs Act which alleged that he admitted to smuggling, into India, 36565.33 grams of gold jewellery and coins valued at Rs.9,79,77,154/- and involving customs duty at the applicable baggage rate of 36.50%, which had, consequently, become liable to confiscation u/s 111 of the Act. Consequently, the said show cause notice called upon him to show cause against confiscation of the articles as well as the packing material and two bags in which they were alleged to be contained. The notice further proposed penalty under Sections 112 and 114AA of the Act.

Before the Delhi High Court the petitioner claims that he is desirous of approaching the Settlement Commission u/s 127 of the CA, 1962, however, he is handicapped from doing so on account of clause (c) of the first proviso to Section 127B, which prohibits making of any settlement application unless the applicant has paid the additional amount of customs duty accepted by him along with interest due under Section 28AB of the Act. It is argued that in this case, the SCN does not propose any duty liability, and thus, in the absence of any demand having been made at this juncture, the application to the Settlement Commission cannot be supported by any payment. While the petitioner admits duty liability for the gold sought to be brought into India, it is argued that the said duty is payable only if redemption of the gold jewelry and coins is allowed by the Settlement Commission.

It is submitted that as the SCN does not propose any duty demand, no liability has yet arisen and, therefore, any precondition for payment to approach the Settlement Commission is not justified under law; that in the peculiar circumstances the requirement to deposit must be excluded, so as to provide Section 127B a workable meaning.Reliance is placed on the decision in Jagdish Cancer and Research Centre, 2002-TIOL-119-SC-CUS.

The counsel for the Revenue submitted that the jurisdiction of the Settlement Commission is barred under the terms of Section 127B itself, which undercuts the arguments made in the writ petition. It is argued that Section 127B only covers cases of misclassification, and excludes misdeclaration, which involves situations of suppression, distortion and misrepresentation. Inasmuch as since in this case the gold was not declared at all by the petitioner, and sought to be smuggled into India, the jurisdiction of the Settlement Commission - which must remain within the four corners of Section 127B - is excluded.

The issues before the High Court:

Whether Section 127B of the Act bars the jurisdiction of the Settlement Commission for cases of mis-declaration?

Observations:

++ The Madras High Court (in Collector of Customs v. Customs & Central Excise Settlement Commission, 2003-TIOL-36-HC-MAD-CUS Commissioner of Customs v. A. Mahesh Raj, 2006 (195) ELT 261 (Kar) were of the opinion that Chapter XIVA cannot be extended to cases of mis-declaration. The Karnataka High Court held that the third proviso to Section 127B expressly excludes from the purview of the Settlement Commission applications in respect of goods to which Section 123 applies i.e. goods notified for the purpose of raising initial presumption against the possessor that they (such goods) are smuggled, unless the person in possession is in a position to establish the proper import of the goods into the country.

++ The Bombay High Court, in Union of India vs. Hoganas India Ltd & Ors 2005-TIOL-135-HC-MUM-CUS held that a restrictive interpretation cannot be given to Section 127B. The Revenue advanced the argument that the words "or otherwise" which appear in Section 127B after the words "short levy on account of misclassification" would mean similar acts like misclassification. In other words, it was argued that the principle of ejusdem generis would apply. The Bombay High Court rejected the argument, holding that there was no mandate to limit the jurisdiction of the Settlement Commission in such a manner.

++ The Bombay view is echoed by a decision of this Court in Commissioner of Customs v. Ashok Kumar Jain, 2013 (292) ELT 32 (Del) .

++ The Madras High Court had relied on the Supreme Court's decision in Commissioner of Income Tax, Madras v. Express Newspapers Limited, 1994 (2) SCC 374 and Kuldeep Industrial Corporation v. Income Tax Officer, AIR 1991 SC 3631. Those two decisions of the Supreme Court, however, deal with the authority of the Settlement Commission under Section 245D of the Income Tax Act, 1961.

++ The purpose of Section 245D is to enable voluntary discourse of income that has escaped assessment, and of which the Revenue has not notice or knowledge. However, such a rationale cannot regulate Section 127B of the Customs Act.The rationale behind Section 245D of the Income Tax Act, i.e. voluntary disclosure, which animated the decisions in Kuldeep Industrial Corporation (supra) and Express Newspapers (supra) does not apply to the Customs Act. Those decisions, therefore, do not regulate this field.

++ For these reasons, the Court differs with the judgment of the learned Single Judges of the Madras and Karnataka High Courts, concurring with the view taken by the Single Judge of the Bombay High Court.

Held: Applications concerning misdeclaration are admissible under Section 127B.

Whether the petitioner is required to deposit any amount as a pre-condition to approaching the Settlement Commission, although no demand has yet been raised?

Observations:

++ Clause (c) of the first proviso to Section 127B, reads: "Provided that no such application shall be made unless … (c) the applicant has paid the additional amount of customs duty accepted by him along with interest due under section 28AB." The argument advanced by the petitioner is that this amount becomes "due under Section 28AB" only when a duty demand is raised by the Revenue. Since the show cause notice served on the petitioner in the present case does not propose any duty liability, but only considers confiscation of the articles, the petitioner claims that in this peculiar circumstance, there is no amount "due", and thus, this pre-condition does not apply in this case. It is argued that this is the only workable interpretation of Section 127B in the specific circumstances before the Court today.

++ Reliance is placed on the decision of the Supreme Court in Jagdish Cancer and Research 2002-TIOL-119-SC-CUS for the proposition that in cases where confiscation under Section 124 is proposed, duty becomes 'due' only on redemption of goods under Section 125.

++ The Court finds this argument unpersuasive. Clause (c) to the first proviso mandates a pre-condition to approaching the Settlement Commission. The duty "accepted by" the applicant must be paid, before the matter can even be considered by the Settlement Commission. …The argument advanced by the petitioner in this case seeks to excuse the applicant to pay this minimum amount, but still avail the beneficial regime of Chapter XIVA. This cannot be the case. Neither does the text support such an argument. Sub-clause (c) bars an application till "the applicant has paid the additional amount of customs duty accepted by him along with interest due under section 28AB." The applicant must therefore, first, pay the duty "accepted by him", along with the "interest due under Section 28AB." …In cases where the show-cause notice does not contain a figure, the applicant must use a best-judgment standard to determine the amount, and at the very least, deposit that amount. The use of the words "accepted by him" clearly include such a situation, and support the use of a self-assessment to require the applicant to deposit what he or she thinks is the duty payable, since that in any case, is due in law, and cannot be waived by the Settlement Commission. …the self-assessment standard is also prescribed in Section 28(b), as an alternative to the duty ascertained by the Revenue.

++ After distinguishing the decision in Jadish Cancer and Research (supra), the High Court observed - …the content of a Section 28 notice - which imposes duty liability - is replicated in clause (2) of the Section 125. The duty to pay customs liability is a minimum obligation both Sections 28 and 125 uniformly accept. In this case, the notice for confiscation has been issued under Section 124 (and does not refer to Section 28). But this does not mean that a minimum duty liability - which arises is either circumstance - is not payable to the Settlement Commission. Instead of the duty assessed by way of a notice under Section 28, along with interest under Section 28AB, the applicant must pay the duty as admitted by him, since such amount is anyway payable even under the Section 124/125 regime. To hold to the contrary would create an unmerited distinction between goods on which duty was not levied earlier under Section 28 and goods which were confiscated because of that reason under Section 124, insofar as neither condones payment of the duty demand .

++ There is no disagreement with the position that once served with a show-cause notice under Section 124, the proper officer under Section 28 cannot simultaneously issue a notice. This does not mean, however, that minimum duty is not payable on approaching the Settlement Commission under Section 127B. The reference to "interest due under Section 28AB" is disjunctive from the phrase "paid the additional amount of customs duty accepted by him" . The latter may arise under Section 28 or under Section 124/125. The customs duty, either the amount required by a Section 28(b), or the amount self-assessed under a Section 124 notice, must be paid under clause (c). In case it is the former, clause (c) further mandates that this must be accompanied by interest under Section 28AB, since it may otherwise be argued that such amount payable only includes the principal duty and not the interest under a different section. The interpretation provided by the petitioner leads to the incoherent conclusion that if there is no interest under Section 28AB, no duty is payable. However, whilst duty may not be payable under Section 28, but is certainly payable under Section 125. The minimum condition of pre-depositing such amount before the Settlement Commission remains intact.

Held : Even in cases where there is a notice under Section 124, which does not propose a customs duty, the applicant must self-assess the liability and pay such amount as a pre-condition. This issue is thus decided against the applicant.

++ If one of the many conditions prescribed by the first proviso to Section 127B cannot be complied with, albeit because of statutory disability - even assuming the petitioner is right in its contention that there is a statutory disability in calculating the interest due under Section 28AB - the result would be that such a case was not intended to be covered by the section; it is not open to the petitioner to argue that because of the statutory disability (whatever that may be) one of those conditions cannot be complied with but yet the petitioner should be permitted to approach the Settlement Commission.

Holding that there is no merit in the petition, the same was dismissed.

(See 2014-TIOL-549-HC- DEL-CUS)