2005 (98) ECC 109 (Settl. Commn.)

SETTLEMENT COMMISSION : CUSTOMS & CENTRAL EXCISE

Principal Bench : New Delhi

Shri N. Rajagopalan, Chairman, Shri S.P. Srivastav, Member and Shri N. Raja, Member

Chawla Enterprises

Versus

Revenue

Settlement Application No. S.A. (C) No. 32/Cus/2001-SC(PB) and Misc. Application

Miscellaneous Final Order No. M-17/Cus/2004-SC(PB) dt. 9.7.2004

Settlement

Interest to be charged -- Assessee contended that the entire duty calculation had been subject to challenge before the Delhi High Court and hence the earlier order of 7.8.2002 had not attained finality. Held, that the interest liability under Sec. 127 C(10) of the Act would not arise in respect of the earlier order of 7.8.2002 and that the liability would arise only prospectively on the basis of this current order.

Settlement

Demand -- Additional CVD -- on a plain reading of the amendments made to Rule 57E of the erstwhile C.Ex. Rules, 1944, the bar for availment of modvat on account of any revision of the additional duty on account of any fraud, collusion or any wilful mis-statement etc. under Customs Act was made only from 1.9.97. As the offences committed in this case relate to the Customs Act only, the bar stipulated in Rule 57E (3) would apply only from the period subsequent to 1.9.97 -- Rule 57E (3) of Erstwhile CER, 1944.

Settlement

Immunity -- Conditions -- Orders passed by Commission -- The provisions of the sub-Sec.(10) of Sec. 127 C of the Act so far as the payment of duty required under this order is concerned. Settlement arrived at under this order shall be void if it is subsequently found by the Commission that it has been obtained by fraud or misrepresentation of facts. -- Sec. 32 F of CEA.

PRESENT :

S/Shri M. Chandrasekhar, Sr. Adv., S. Sunil, Perul Vir, Advs., Shri J.M. Sharma, Consultant, Shri H.S. Chawla, Jt. M.D., Shri J.S. Chawla, Jt. M.D. and Shri M. Mohan, Accountant for the appllicant.

Shri K.M. Mondal, Consultant and Shri Deepak Picardo, I.O., DRI for the Revenue.

MISCELLANEOUS (FINAL) ORDER

This order disposes of the miscellaneous application dated 30.5.2003 filed by M/s Chawla Enterprises, Plot No. 14, Sector 18, Maruti Industrial Complex, Gurgaon (hereinafter referred to as the Applicant) filed on the basis of the order dated 1.5.2003 of the Hon'ble High Court of Delhi in C.W.P. No. 5870/2002.

2. The facts of the case are that the applicant is a manufacturer of electronic alarm clocks, quartz movement for clocks, wall clocks and table clocks and the like for which the applicant had been importing various components from Hongkong. The Directorate of Revenue Intelligence (DRI) had carried out search and seizure operations in the applicant's premises in Sep. 1997 and October, 1998. Though till the filing of the application for settlement on 9.2.2001, no Show Cause Notice by DRI had been issued though 180 days were over from the date of search and seizure, the applicant came forward and admitted an additional amount of duty of Rs. 48,52,382.01 on account of under-invoicing of the goods imported by him. After hearing, the application was admitted by the Commission and allowed to be proceeded with and liberty was given to DRI to investigate further and issue show cause notice, if necessary. Subsequently, DRI issued three Show Cause Notices on 31.12.2001, 9.1.2002 and 14.1.2002 demanding duty cumulatively amounting to Rs. 3,91,60,885.32 basically on the ground that the goods imported by the applicant had been under-invoiced. The DRI had worked out the duty on the basis of evidences received from Hongkong customs in respect of 36 out of 107 consignments involving duty of Rs. 1,20,53,871 and in respect of the remaining 71 consignments they had applied/derived values from the evidences of the said 36 consignments. On this basis, the duty for the 71 consignments worked out by DRI was Rs. 2,71,07,014. Hence, the total demand in respect of 107 consignments came to be Rs. 3,91,60,885.

3. The case was finally heard on 14.6.2002. After considering of the verbal and written submissions by the applicant as well as Revenue, the Commission came to the conclusion that the applicant had not made the full and true disclosure of additional duty liability and had tried to confuse the issue for the purpose of taking benefit on technical grounds. The Bench accordingly considered the approach of the applicant inconsistent with the requirements of the law of settlement.

4. The Bench held that the additional duty liability with regard to the 36 consignments in question to be Rs. 1,20,53,871 and rejected the disclosure amount of Rs. 48,52,382 by the applicant. Further, in respect of 71 consignments, it held the duty liability to be Rs. 2,71,07,014 after finding that the approach adopted by DRI to be reasonable. Thus, the Bench held the duty liability to be Rs. 3,91,60,885 as demanded in the three show cause notices. The Bench further held that the applicant did not disclose their full duty liability and hence did not fulfil the conditions for grant of immunities under Section 127H of the Customs Act, 1962 (hereinafter referred to as the Act). Though immunity was granted from prosecution for the offences committed under the Act, a penalty of Rs. 40 lakhs was imposed on the applicant. Further, the applicant was directed to pay simple interest at 10% per annum from the date the duty became payable in respect of the 36 consignments in question till the date of payment.

5. Aggrieved by the above order, the applicant filed a Writ Petition No. 5870/2002 before the Hon'ble High Court at Delhi. The applicant challenged the orders of Settlement Commission mainly on three grounds:

(i) Since the application filed by the applicant initially related only to 28 consignments, the Commission did not have the jurisdiction to deal with the other consignments covered in the 3 show cause notices.

(ii) There was no evidence with the Commission regarding under-valuation in respect of 71 bills of entry for which the Commission had determined applicant's additional liability for duty.

(iii) The Commission had failed to grant relief of MODVAT against the CV duty demanded.

6. The Hon'ble High Court disposed of the Writ Petition dismissing the contention mentioned at (i) & (ii) of para 5 above. However, in respect of the applicant's contention regarding relief of Modvat, the Hon'ble High Court directed as follows:

"34. What now remains to be considered is the plea of the petitioner that the Commission has failed to grant relief of modvat against the additional customs duty demanded. We find that in the impugned order there is no discussion on the issue. Although the stand of the revenue is that the petitioner is not entitled to MODVAT credit as they have not paid any CV duty on the under-invoiced components but without recording any final opinion on the issue, we permit the petitioner to move an appropriate application before the Commission in respect of the said claim. We are confident that as and when such an application is moved the Settlement Commission shall deal with it on its own merits".

7. Following the Order of the Hon'ble High Court, the applicant filed the instant miscellaneous application dated 30.5.2003 requesting that their claim for grant of modvat of the additional duty of customs paid on the imported components used in the manufacture of end products cleared from the factory might be considered in terms of the orders of the Delhi High Court. Apart from the above, the applicant also pointed out certain clerical mistakes in the computation of duty made by DRI. The applicant contended that these mistakes were pointed out to the Commission during the course of final hearing, but the Commission had not passed any orders on the same and that this aspect was also taken up before the Hon'ble High Court. Since the High Court did not pass appropriate orders and that as such the matter has been taken up before the Hon'ble High Court of directions by way of CMP No. 4870/2003 in CWP No. 5870/2002 which was pending at the time of filing of the miscellaneous application by the applicant on 30.5.2003. Later on the applicant submitted a copy of the order dated 25.8.2003 of the Hon'ble High Court in which it was directed as follows:

"............................................... in the event of the petitioner moving an application before the Settlement Commission for correction of the computational errors touching upon their duty liability, the Settlement Commission shall consider the same on its own merits, uninfluenced by the fact that a writ petition against their order has been dismissed by this Court".

8. Thus, in brief the applicant in his miscellaneous application which is the subject matter of this order had sought review of the final order earlier passed by the Commission on 7.8.2002 on two grounds:-

(i) for giving relief of modvat in respect of additional customs duty (CVD) on the imported goods; and

(ii) for rectification of errors which had entered into the computation of duty in the said final order.

9. In response to the miscellaneous application, the revenue (DRI) in its submission dated 9.12.2003 had admitted computational errors in respect of 14 invoices amounting to Rs. 20,86,440. Besides it also accepted excess demand in respect of 8 invoices which amount to Rs. 42,195. The applicant's claim in respect of remaining 16 invoices was not accepted by the Revenue. So also, the claim for relief of modvat was not accepted.

10. Commenting on the submission of the revenue, the applicant vide their submission submitted on 9.1.2004, mentioned that they had reconsidered their claim in respect of the remaining 16 invoices and decided not to dispute the reasoning given by the DRI in respect of 5 out of 16 invoices where the claim of the applicant was not accepted by the revenue. However, the claim in respect of 11 invoices, involving an excess duty demand of Rs. 72,69,385, was wrongly rejected by the revenue. In respect of the claim for relief on the ground of Modvat the applicant contended that had the actual duty been paid at the time of import, the applicant would have taken the CVD component towards Modvat credit and utilized the same for payment of C. Ex. duty on the final product. In the absence of the same, the applicant had to pay Excise duty on final product in cash from PLA. Hence, the applicant requested the Commission to order that the duty paid from PLA may be considered as duty paid out of Modvat account and the consequential excess amount of PLA may kindly be adjusted against the duty payable on the enhanced value.

11. The Bench directed Commissioner (Investigation) to verify the claims of the applicant and to submit report on the same. As a result, the total excess duty demanded was quantified by Comm (Inv) as Rs. 93,82,531.44

12. Copies of the report of Commissioner (Investigation) were made available to the revenue as well as the applicant. Revenue vide their comments dated 19.4.2004 accepted the findings of Commissioner (Investigation) and hence accepted that there was an excess demand of Rs. 93,82,531.44 in the SCNs on account of computational errors.

13. The matter was finally heard on 26.4.2004. The Ld. Senior Advocate, Shri M. Chandrasekhar who appeared for applicant, submitted that both the sides mutually agreed on the amount quantified by Comm.(Inv.) as due to computational errors. Hence, the only issue that remained was the extension of Modvat credit. He referred to the erstwhile Rule 57A of the C.Ex. Rules, 1944 and said that the said rule permitted Modvat for the additional custom duty paid. On a query from the bench, whether in the light of the provisions contained in the erstwhile Rule 57E (3) of the C.Ex. Rules, 1944 which prohibited availing of Modvat credit where suppression, fraud etc. were involved, the Senior Advocate stated that the credit would be available in respect of the period when the bar under Rule 57E(3) was not in existence and promised to give a detailed submission in this regard. He also prayed that the quantum of penalty be reduced as the total duty demanded and come down by almost Rs. 94 lakhs. He also requested that since the earlier order of the Commission was under challenge before the Hon'ble High Court, the statutory interest of 18% stipulated in Sec. 127 C(10) of the Act would not be attracted and that this provision would be attracted only when the Commission passed the present order on the miscellaneous application.

14. Shri K.M. Mondal, consultant for the revenue mentioned that they had no objection if Modvat was allowed during the period the provisions in Rule 57E(3) was not in existence. He however, opposed the request of the Senior Advocate regarding the question of penalty, on the grounds that the Hon'ble High Court has only permitted to entertain correction of computational errors and the eligibility of the benefit of Modvat credit. To this the applicant's advocate replied that when the High Court had given liberty to the Commission to go into the computational errors, the Commission was naturally expected to go into the other issues including the quantum of penalty.

15. At this juncture, both the revenue and the applicant were asked to verify the period during which the provisions of erstwhile Rule 57E(3) of the C.Ex. rules were not applicable and quantify the credit admissible which both sides have since given.

16. The applicant vide submission dated 1.6.2004 intimated that Rule 57E (3) of the Central Excise Rules was introduced from 1.3.1997. Prior to that there was no bar on adjustment of excess duty demanded towards modvat. The amount of additional duty (CVD) during the period 1.1.97 to 28.2.97 worked out to Rs. 16,32,996, by the applicant. On 1.3.1997 Rule 57E(3) has barred admissibility of additional credit in certain cases of contravention of the provisions of Central Excise Act, 1944 or the Rules made thereunder with the intent to evade payment of duty. Later on 1.9.97, Rule 57E(3) was further amended to include contravention of Customs Act and its rules also. As the present case involved contravention of Customs Act only, the applicant submitted that he is entitled to the CVD of Rs. 25,44,224 pertaining to the period 1.3.97 to 31.8.1997 as modvat credit.

17. The Revenue, while replying to the submissions of the applicant has conceded the amount for the period 1.1.97 to 28.2.97, i.e., Rs. 16,32,996. However, it is not agreeable to the Modvat credit for the period 1.3.97 to 31.8.97, on the ground that for the period 1.3.97 to 31.8.97, although the word Customs Act was not mentioned in Rule 57E(3) of the C.Ex. Rule, yet it covered cases involving recovery of additional amount of duty from the importer of inputs. Hence, according to Revenue what was implicit in Rule 57E(3) during the period 1.3.97 to 31.8.97 was only made explicit w.e.f. 1.9.97 by the specific mention of Customs Act.

18. The Commission has considered the facts of the case and the written as well as oral submissions made during the hearings.

19. The first point is the determination of the correct duty liability. According to the three show cause notices issued by DRI, the total duty demanded from the applicant is Rs. 3,91,60,885.00. Keeping in view that there was an excess demand of Rs. 93,82,531.44 to which revenue as well as the applicant have agreed, the correct duty liability is fixed at Rs. 2,97,78,353.56. Taking into account that the applicant has already paid Rs. 1,20,53,871, the balance duty payable by the applicant works out to Rs. 1,77,24,482.56.

20. The second issue is the interest to be charged. The applicant had pleaded that they should not be charged interest of 18% leviable under Section 127 C(10) of the Act for delayed payment of duty in terms of the final order dated 7.8.2002. His point was that the entire duty calculation had been subject to challenge before the Delhi High Court and hence the earlier order of 7.8.2002 had not attained finality. We concede this point and hold that the interest liability under Section 127 C(10) of the Act would not arise in respect of the earlier order of 7.8.2002 and that the liability would arise only prospectively on the basis of this current order.

21. The third issue for consideration is the quantum of penalty. In the earlier order of 7.8.2002, a penalty of Rs. 40 lakhs had been imposed. Now that the duty liability of the applicant has been revised at Rs. 2,97,78,353.56 as against the earlier duty liability at Rs. 3,91,60,885, we revise the penalty to Rs. 30 lakhs.

22. As far as modvat is concerned, we are not able to agree with the contention of the Revenue that the additional CVD demanded for the period subsequent to 1.3.97 would not be admissible as modvat. On a plain reading of the amendments made to Rule 57E of the erstwhile C.Ex. Rules, 1944, the bar for availment of modvat on account of any revision of the additional duty on account of any fraud, collusion or any wilful misstatement etc. under Customs Act was made only from 1.9.97. As the offences committed in this case relate to the Customs Act only, the bar stipulated in Rule 57E(3) would apply only from the period subsequent to 1.9.97.

23. We do not also agree with the plea of the applicant to offset the modvat amount against the duty liability on the applicant. This is for the reason that the manufacturer is eligible to avail the modvat credit of the additional duty of customs paid on the inputs which are utilized by him in the manufacture of finished goods. This modvat credit can only be used for payment of the excise duty on finished goods. Thus, payment of additional duty of customs has to be first complied with and thereafter the question of availing of modvat credit for the payment of duty on the finished manufactured goods arise. If the modvat credit relating to the CV duty on the imported goods is offset against the customs duty demanded on the very same imported goods, it would indirectly amount to exempting him from the payment of the CV duty on the imported goods. Looked at another way, it would also mean giving cash refund of the CV duty which is barred by the rules. In the circumstances, the correct course for the applicant would be to pay the entire customs duty demanded inclusive of the CV duty and later avail the amount as per the procedure prescribed and utilize the same for payment excise duty on the finished products manufactured out of the imported goods and cleared from the factory. In this connection, we observe that in respect of the period 1.1.97 to 28.2.97, the applicant's claim of modvat amount of Rs. 16,32,996 has been agreed to by revenue. Hence, he can take in the prescribed central excise records this amount as modvat credit, once he pays the admitted duty liability. For the period 1.3.97 to 31.8.97, the applicant has claimed an amount of Rs. 25,44,224. This amount after due verification by the revenue (DRI) can also be taken in his statutory records as modvat credit and utilized for the payment of duty on the goods manufactured by him, in accordance with law.

24. In the light of the above, in modification of the earlier order dated 7.8.2002, the case is settled on the following terms and conditions:

(a) The duty liability is fixed at Rs. 2,97,78,353.56. Taking into account that the applicant has already paid Rs. 1,20,53,871, the balance amount payable by him works out to be Rs. 1,77,24,482.56. He shall pay the said balance amount within 30 days of the receipt of this order, and report compliance.

(b) A penalty of Rs. 30 lakhs is imposed on the applicant. The applicant has already paid a sum of Rs. 12,78,378 on 25.9.2002 towards penalty which shall be verified by the Revenue. The balance amount of Rs. 17,21,622 shall be paid by the applicant within 30 days of the receipt of this order.

(c) As regards modvat, insofar as the period 1.1.97 to 28.2.97 is concerned, the applicant shall take an amount of Rs. 16,32,996 as credit in his statutory books of account for utilization of the same towards payment of the excise duty in accordance with the provisions governing utilization of the credit. As regards the period 1.3.97 to 31.8.97, the applicant's claim to Rs. 25,44,224 towards modvat amount shall be verified by revenue (DRI). Thereafter the applicant can avail of the same for payment of excise duty, as aforesaid. We make it clear that the availment of the modvat credit is subject to the payment of the duty as stipulated in (a) above.

(d) There is no change in the immunity granted so far as prosecution and interest chargeable @ 10% is concerned.

25. Attention of all concerned is drawn to the provisions of the sub-section (10) of section 127C of the Act so far as the payment of duty required under this order is concerned. Settlement arrived at under this order shall be void if it is subsequently found by the Commission that it has been obtained by fraud or misrepresentation of facts.

26. Attention of the applicant is also drawn to the provisions of sub-sections (2) and (3) of Section 127H of the Act so far as the immunities granted to him under this order is concerned.

………………………