# 2 S.C.R. 352 M/S. SANGHVI RECONDITIONERS PVT. LTD v. UNION OF !NOIA AND ORS

- **Citation:** [2010] 2 S.C.R. 352
- **Court:** Supreme Court of India
- **Decided:** 2010-02-05
- **Case number:** Civil Appeal No. 1435 of 2003
- **Bench:** D.K. Jain, T.S. Thakur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2-s-c-r-352-m-s-sanghvi-reconditioners-pvt-ltd-v-union-of-noia-and-ors-26604
- **Pages:** 28

## Headnote

Customs Act, 1962 - ss. 1278 and 127C "'- Settlement -
Duty exemption notification - Appellant-importer suppressed
C
facts to clandestinely avail benefit of the notification - Demand
of duty by Commissioner of Customs besides ;Penalty and
interest - AppeJJ.ant filed application for settlement -
Settlement Commission confirmed the order of adjudication
by Commissioner, but waived penalty and interest and also
o granted total immunity to appellant from prosecution-- Still
aggrieved, appellant filed writ petition and sought to urge
additional ground relating to applicability of ss. 54 and 69 -
High Court did not permit appellant to urge the additional
ground and confirmed the order of Settlement Commission
E
- Justification of - Held: On facts, justified - The order of
Settlement Commission did not suffer from any error, legal
or factual - Having opted to get their customs duty liability
settled by the Settlement Commission, appellant cannot be
permitted to dissect the Settlement Commission's order with
F
a view to accept what is favourable to it and reject what is not
- Additional ground sought to be raised before the High Court
was not only an afterthought, adjudication thereon involved .
investigation into facts and, therefore, the decision of High
Court in not entertaining the additional ground did not suffer
G from any infirmity - Customs Tariff Act, 1975 - Exemption
Notification No. 211183-Cus dated 23rd July, 1983, as
amended - Constitution of India, 1950 - Art. 226.
Circulars/ Government Orders/ Notifications - Exemption
Notification - Interpretation of - Held: Exemption Notifications
H
352
SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF 353
INDIA AND ORS.
have to be strictly construed - A person claiming benefit of A
exemption notification, must show that he satisfies the
eligibility criteria.
It was alleged that the appellant-importer, a registered
ship repair unit, clandestinely availed the benefit of import 8
duty Exemption Notification No.211183-Cus dated 23rd
July, 1983, as amended, on import of multiple
consignments of engineering cargo as "ship spares".
The Commissioner of Customs demanded customs
duty of Rs.68.78 lakhs besides penalty, as also interest C
under Section 28AB of the Customs Act, 1962. Appellant
filed appeal before the Tribunal, but later withdrew the
same and thereafter filed an application under Section
1278 with the Settlement Commission, disclosing and
admitting a duty liability of Rs.20.98 lakhs. The Settlement D
Commission called for the statutory report from the
·. Jurisdictional Commissioner in terms of Section 127C of
the Act. Upon consideration of the information furnished
by the Commissioner, particularly the fact that the
appellant had given details of the "consignee" as the ship E
owners, without disclosing the sale of imported "spare
parts" to one Mis Elektronik Lab, the Settlement
Commission was satisfied'.that there was suppression of
facts on the part of the appellant so as to avail the benefit
of duty exemption fraudulently.
F
Finally, concluding that the Revenue had been able
to produce documentary evidence showing sale of
imported "spare parts" by the appellant to Mis Elektronik
Lab, who in turn sold the same items to ship owRers, the
appellant could not claim any benefit under exemption G
Notification No.211/83, the Settlement Commission
sustained the demand of duty of Rs.68.78 lakhs. Howeve.r,
inter alia, observing that though the appellant had not
H
354
SUPREME COURT REPORTS
[201 O] 2 S.C.R.
A
made a full and true disclosure of their duty liability but
had cooperated with the Settlement Commission, the
Settlement Commission waived penalty in excess of
Rs.18 lakhs and granted total immunity to the appellant
from prosecution. The Settlement Commission also held
B
that since the case of the appellant pertained to a period
prior to April, 1995, when Section 28AB of the Act was
inserted by the Finance Act, 1996, interest on delayed
payment of duty could not be levied on the appellant.

## Text

_Characters 0–39,433 of 55,242. This is a partial read: ask again with offset=39433 for what follows._

A
B
[201 O] 2 S.C.R. 352
M/S. SANGHVI RECONDITIONERS PVT. LTD.
v.
UNION OF !NOIA AND ORS.
(Givil Appeal No.1435 of 2003)
FEBRUARY 05, 2010
[D.K. JAIN AND T.S. THAKUR, JJ.]
Customs Act, 1962 - ss. 1278 and 127C "'- Settlement -
Duty exemption notification - Appellant-importer suppressed
C
facts to clandestinely avail benefit of the notification - Demand
of duty by Commissioner of Customs besides ;Penalty and
interest - AppeJJ.ant filed application for settlement -
Settlement Commission confirmed the order of adjudication
by Commissioner, but waived penalty and interest and also
o granted total immunity to appellant from prosecution-- Still
aggrieved, appellant filed writ petition and sought to urge
additional ground relating to applicability of ss. 54 and 69 -
High Court did not permit appellant to urge the additional
ground and confirmed the order of Settlement Commission
E
- Justification of - Held: On facts, justified - The order of
Settlement Commission did not suffer from any error, legal
or factual - Having opted to get their customs duty liability
settled by the Settlement Commission, appellant cannot be
permitted to dissect the Settlement Commission's order with
F
a view to accept what is favourable to it and reject what is not
- Additional ground sought to be raised before the High Court
was not only an afterthought, adjudication thereon involved .
investigation into facts and, therefore, the decision of High
Court in not entertaining the additional ground did not suffer
G from any infirmity - Customs Tariff Act, 1975 - Exemption
Notification No. 211183-Cus dated 23rd July, 1983, as
amended - Constitution of India, 1950 - Art. 226.
Circulars/ Government Orders/ Notifications - Exemption
Notification - Interpretation of - Held: Exemption Notifications
H
352
SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF 353
INDIA AND ORS.
have to be strictly construed - A person claiming benefit of A
exemption notification, must show that he satisfies the
eligibility criteria.
It was alleged that the appellant-importer, a registered
ship repair unit, clandestinely availed the benefit of import 8
duty Exemption Notification No.211183-Cus dated 23rd
July, 1983, as amended, on import of multiple
consignments of engineering cargo as "ship spares".
The Commissioner of Customs demanded customs
duty of Rs.68.78 lakhs besides penalty, as also interest C
under Section 28AB of the Customs Act, 1962. Appellant
filed appeal before the Tribunal, but later withdrew the
same and thereafter filed an application under Section
1278 with the Settlement Commission, disclosing and
admitting a duty liability of Rs.20.98 lakhs. The Settlement D
Commission called for the statutory report from the
·. Jurisdictional Commissioner in terms of Section 127C of
the Act. Upon consideration of the information furnished
by the Commissioner, particularly the fact that the
appellant had given details of the "consignee" as the ship E
owners, without disclosing the sale of imported "spare
parts" to one Mis Elektronik Lab, the Settlement
Commission was satisfied'.that there was suppression of
facts on the part of the appellant so as to avail the benefit
of duty exemption fraudulently.
F
Finally, concluding that the Revenue had been able
to produce documentary evidence showing sale of
imported "spare parts" by the appellant to Mis Elektronik
Lab, who in turn sold the same items to ship owRers, the
appellant could not claim any benefit under exemption G
Notification No.211/83, the Settlement Commission
sustained the demand of duty of Rs.68.78 lakhs. Howeve.r,
inter alia, observing that though the appellant had not
H
354
SUPREME COURT REPORTS
[201 O] 2 S.C.R.
A
made a full and true disclosure of their duty liability but
had cooperated with the Settlement Commission, the
Settlement Commission waived penalty in excess of
Rs.18 lakhs and granted total immunity to the appellant
from prosecution. The Settlement Commission also held
B
that since the case of the appellant pertained to a period
prior to April, 1995, when Section 28AB of the Act was
inserted by the Finance Act, 1996, interest on delayed
payment of duty could not be levied on the appellant.
The appellant filed writ petition before the High Court,
C
and later filed an application for amendment of the writ
petition, seeking to urge an additional ground to the
effect that some of the consignments of "spare parts"
having been imported under the procedure to be
followed for "transhipment" or for "warehoused goods
D for exportation", hence, no customs duty was payable
by virtue of the provisions contained in Sections 54 and
69 of the Act. Although, the amendmen
as allowed by
the High Court in order to examine
hether the initial
stand, based on the exemption n ification, could go
E
hand in hand with the case now s , ght to be pleaded in
the amended petition, but, ultimately, the High Court did
not permit the appellant to urge the additional ground
relating to the applicability of Sections 54 and 69 of the
Act and dismissed the writ petition. Hence the present
F
appeal.
Dismissing the appeal, the Court
HELD:1. In the pres'ent case, the order of the
Settlement Commission did not suffer from any error,
G
legal or factual, and, therefore, the High Court was fully
justified in dismissing the writ petition. [Para 23] [379-E]
H
Tarini Kamal Pandit & Ors. v. Prafulla Kumar Chatterjee
(Dead) by Legal Representatives (1979) 3 SCC 280; Ajaib
SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF 355
INDIA AND ORS.
Singh v. State of Punjab (2000) 4. SCC 51 O; Municipal A
Corporation of the City of Jabalpur v. State of Madhya
Pradesh & Anr., (1963) 2 SCR 135; Collector of Central
Excise; Ahmedabad v. Pioma Industries and Imperial Soda
Factory (1997) 10 SCC 400; Jyotendrasinhji v. S./. Tripathi
& Ors. 1993 Supp (3) SCC 389; Paul Industries (India) v.
B
Union of India & Ors. (2004) 13 SCC 340; Commissioner of
C. Ex., Visakhapatnam v. True Woods Pvt. Ltd. (2006) 199
E.L.T. 388 (Delhi); Union of India v. Anil Chanana (2008) 222
E.L.T. 481 (S.C.) and C.I. T. Mumbai City XIV, Mumbai v. The
Income Tax Settlement Commission, Mumbai & Ors. (2000) c
246 ITR 63 Born, referred to.
2.1. It is manifest from a bare reading of the provision
that in the application filed under Section 1278 of the
Customs Act, 1962, an applicant is required to make a full
and true disclosure of his duty liability, which he had D
failed to disclose before the proper officer. He is also
required to exhaustively explain to the Settlement
Commission the manner in which such liability has been
incurred; the additional amount of customs duty
accepted to be payable by him as also the price of such E
dutiaJ>le goods in respect of which he admits short levy
on account of misclassification or otherwise of goods. In
other words, the applicant is supposed to make a clean
breast of his affairs in regard to short levy or non payment
of customs duty admitted to be payable by him. [Para 13]
F
[370-G-H; 371-A-B]
2.2. Section 127C of the Act prescribes the procedure
to be followed by the Settlement Commission on receipt
of an application under Section 1278. The section G
mandates that on receipt of an application under Section
1278, the Settlement Commission shall call for a report
from the Commissioner of Customs having jurisdiction
and on the basis of the materials contained in such report
and having regard to the nature and circumstances of the H
356
SUPREME COURT REPORTS
[2010] 2 S.C.R.
A
case or the complexity of the investigation involved
therein, the Settlement Commission may allow the
application to be proceeded with or reject the
application. [Para 14] [371-C-E]
8
2.3. Section 127H of the Act empowers the
Settlement Commission to grant immunity from penalty
and prosecution, with or without conditions, in cases
where it is satisfied that the assessee has made a full and
true disclosure of his duty liability. Sectiqn 127 J declares
that every order of settlement passed under sub-Section
C (7) of Section 127C shall be conclusive as to the matters
stated therein and no matter covered by such order shall,
save as otherwise provided in Chapter XIVA, be
reopened in any proceeding under the Act or under any
other law for the time being in force. [Para 15] (371-F-H;
D 372-A]
3.1. Exemption Notifications have to be strictly
construed. A person claiming the benefit of exemption
notification, must show that he satisfies the eligibility
E criteria. [Para 17] [37 4-A]
3.2. It is clear from the language of the Exemption
Notification No.211/83 dated 23rd July, 1983 (which
provided exemption to capital goods, raw materials and
consumables for repairs of ocean going vessels) that in
F
order to avail of the benefit of exemption from whole of
the duty of customs leviable under the Customs Tariff Act,
1975, twin conditions, viz., (1) capital goods,
components, etc. are required for repairs of ocean going
vessels, and (2) the ship repair unit should be registered
G with the Director General of Shipping, Government of
India, are to be fulfilled. Both the conditions are
cumulative and admit of no exception. Being the
foundation for availing the benefits under ttie notification,
both the conditions have to be strictly complied with.
H
SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF 357
INDIA AND ORS.
Besides, under the Notification, an importer is also A
required to maintain a proper account of import, use and
consumption of the capital goods, components, etc.
imported for the aforesaid purpose in a prescribed form
and failure to satisfy the Collector about their installation
or consumption for the said purpose makes the importer
B
liable to pay an amount equal to the duty payable on such
goods. [Para 17] [373-E-H; 374-A]
Kartar Rolling Mills v. Commissioner of Central Excise,
New Delhi (2006) 4 SCC 772; Eagle Flask Industries Ltd. v.
Commissioner of Central Excise, Pune 2004 (171) E.L.T. 296
C
(S.C.) AND Msco. Pvt. Ltd. v. Union of India and Ors. 1985
(19) E.L.T. 15, relied on.
4. In the present case, taking into consideration the
documents on record and the sale pattern of the goods
D
and not the value addition, the Settlement Commission
came to the conclusion that in the first instance, the
goods in quest~on were sold by the appellant to M/s ..
Elektronik Lab and then by the latter to the ship owners
under the cover of their own sales invoices and, therefore,
E
the appellant was not entitled tb duty exemption under
the said Notification. Similarly, Mis Elektronik Lab were
also not eligible for duty exemption under the said
Notification because they were not registered with the
Director General of Shipping, Government of India, as
F
required under the Exemption Notification. Before the
High Court an unsuccessful attempt was made to lay
more emphasis on exemption from payment of customs
duty on the consignments in terms of Sections 54 and 69
of the Act and not under the Exemption Notification G
No.211/83-CUS dated 23rd July, 1983. Thus, there was a
shift in the stand of the appellant before the High Court
when sale of the imported components by them to a third
party stood proved on the basis of overwhelming
documentary evidence on record, disentitling them to the
H ~
358
SUPREME COURT REPORTS.
[201 O] 2 S.C.R.
A benefit of the exemption notification. In the final analysis,
the High court rightly came to the conclusion, that in the
light of the material available on record, the order of the
Settlement Commission did not suffer from any error
warranting its interference. [Para 20] [376-A-F]
8
5.1. In· so far as the issue with regard to the
applicability of Sections 54 and 69 of the Customs Act,
1962 is concerned, it was too late in the day for the
appellant to raise such a plea. In the first instance, if the
c appellant felt that 8 consignments were intended for
transhipment and were cleared from the warehouse for
exportation and, therefore, no import duty was payable,
there was no occasion for them to withdraw their appeal
before the Tribunal and prefer an application before the
0 Settlement Commission, moreso when in respect of the
remaining consignment, they. t)ad accepted and paid the
customs duty. When according to the appellant, no
customs duty was payable in respect of the 8
consignments, then on the plain language of Section
1278, the appellant's application before the Settlement
E Commission was not maintainable. An application under
Section 1278 of the Act would be maintainable only if it
discloses duty .liability, which had not been disclosed to
the proper officer. A disclosure contemplated by the said
Section is in the nature of voluntary disclosure of the
F concealed additional customs duty. Secondly, such a plea
was neither raised before the adjudicating authority in
response to the show cause notices issued to the
appellant nor before the Tribunal as also before the.
Settlement Commission. [Para 21] [376-F-H; 377-A.:.C]
G
5.2. Even before the High Court, in. the original writ
petition, such a plea was not raised and it was only by
way of an amendment application, that an additional
ground was sought to be raised. Though it is true that
H there is no bar in the High Court and for that matter this
SANGHVI RECONDITIONERS PVT. LTD. v. UNION
359
OF INDIA AND ORS.
Court entertaining an additional ground, involving a pure
question of law, but on facts at hand, in the light of the
findings of the Settlement Commission, based on
documentary evidence that the goods in question
imported by the appellant were actually sold by them to
M/s Elektronik Lab, before these were used for repair of
ocean going ships, it cannot be held that the additional
ground did not involve any investigation into facts.
Documents on record show that the bills of transhipment
as also bills of export were filed by the appellant before
the proper officer after the property in the said goods had
passed to Mis Elektronik Lab. It is clear that since Mis
Elektronik Lab. was not registered with the Director
General of Shipping, they were not eligible to avail of duty
exemption under the said notification, they entered into
an arrangement with the appellant, a registered ship
repairing unit, to import the goods for repair of ocean
going vessels without payment of import duty under the
Exemption Notification. Thus, the sole object of the
transactions was to avail of duty exemption under the
said notification. [Para 21] [377-C-H]
5.3. Additionally, in order to claim the benefit of the
Exemption Notification, the components, consumables
etc. had to be used by the importer himself for repair of
the vessels and not through someone else, who
incidentally was not even named in the shipping bills.
Moreover, proper accounts of imports, use and
consumption of such goods was to be maintained by the
importer, and in the event of failure to render the account
for such consumption, the importer was liable to pay the
customs duty as may be demanded by the
Commissioner of Customs. However, once the imported
goods were sold to a third party, the appellant was
incapacitated from maintaining and rendering the account
to the Commissioner in terms of the notification. All these
A
B
c
D
E
F
G
H
360
SUPREME COURT REPORTS
[2010] 2 S.C.R.
A factors go to show that the additional ground sought to
be raised before the High Court was not only an
afterthought, adjudication thereon did involve
investigation into facts and, therefore, the decision of the
High court in not entertaining the additional ground did
B not suffer from· any infirmity. [Para 21] [377-H; 378-A-D]
6. Since the ~ppellant had not made a full and true
disclosure, their application should have been rejected
by the Settlement Commission on that count itself and no
c relief should have been granted to the appellant. However,
in view of the fact that order passed by the Settlement
Commission allowing the application of the appellant to
be proceeded was not challenged by the Commissioner
nor such a plea was urged by the Revenue before the
0 High Court or in their reply to the present appeal, if is
difficult to reject the application at this stage, though,
having perused some of the documents available on
record, it is clear that the appellant had not made a full
and true disclosure of its affairs before the Settlement
Commission. Be that as it- m~y, having opted to get their
E customs duty liability settled by the Settlement
Commissiori,: under Chapter X1VA of the Act, the
appellant cannot be permitted to dissect the Settlement
Commission's order with a view to accept what is
favourable to them and reject what is not. [Para 22] [378F D-H; 379-A]
7. It is manifest from the procedure laid dowri in
·Section 127C of the Act that interim order under subsection (1) of Section 127C as also the final order un~er
G sub-Section (7) of the said Section are to be made by the
Settlement Commission after examination of the reports
of the Commissioner of Customs or its Commissioner
(Investigation). These repor.ts are submitted on the
disclosures made in the application under Section 1278
H of the Act and, therefore, the applicant cannot be
SANGHVI RECONDITIONERS PVT. LTD. v. UNION
361
OF INDIA AND ORS.
permitted to resile from his pleadings in the application A
at any stage of proceedings before ·the Settlement
Commission or set up a new case before the higher Fora.
[Para 22] [379-8-0]
CIT v. B.N. Bhattacharjee (1979) 4 SCC 121, referred
to.
B
Case Law Reference:
(1979) 3 sec 280
referred to
Para 10
(2000) 4 sec 51 o
referred to
Para 10
c
(1963) 2 SCR 135
referred to
Para 10
(1997) 10 sec 400
referred to
Para 10
1993 Supp (3) sec 389
referred to
Para 10
D
(2004) 13 sec 340
referred to
Para 10
(2006) 199 E.L.T. 388 (Delhi)
referred to
Para 11
(2008) 222 E.L.T. 481 (S.C.)
referred to
Para 11
E
(2000) 246 ITR 63 Bom.
referred to
Para 11
(2006) 4 sec 112
relied on
Para 17
2004 (171) E.L.T. 296 (S.C.)
relied on
Para 17
1985 (19) E.L.T. 15
relied on
Para 17
F
(1979) 4 sec 121
referred to
Para 22
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1435 of 2003.
G
From the Judgment & Order dated 23.4.2002 of the High
Court of Bombay in Writ Petition No. 633 of 2002.
S.K. Bagaria, Tarun Gulati, Rony John, Ankur Saigal, Bina
Gupta, Gaurav Singh, Kishore Kunal for the Appellant.
H
362
SUPREME COURT REPORTS
[2010] 2 S.C.R.
A
H.P. Rawal, ASG, T.V. Ratnam, B.K. Prasad, Anil Katiyar
for the Respondent.
The Judgment of the Court was delivered by
D.K. JAIN, J. 1. This appeal, by special leave, is directed
B against the final judgment and order dated 23rd April, 2002
rendered by the High Court of Judicature at Bombay in Writ
Petition No.633 of 2002, whereby the High Court has
dismissed the writ petition, affirming the decision of the
Settlement Commission, Customs and Central Excise,
C Mumb .. ai (hereinafter referred to as, "the Settlement.
D
Commission").
2. The facts, giving rise to the present appeal, m~y be
summarised thus:
The appellant is an importer and ship repair unit registered
with the Director General of Shipping, Government of India. On
the basis of the intelligence gathered, premises of the appellant
were searched
by the officers of the Customs
Commissionerate, Mumbai in December, 1997, resulting in the
E recovery of incriminating documents. The investigations
revealed that the appellant had clandestinely availed of benefit
of import duty Exemption Notification No.211/83-Cus dated
23rd July, 1983, as amended, on the import of multiple
consignments of engineering cargo as "Ship Spares". Based
F
on the material collected in the course of investigations, two
show cause notices dated 29th December, 1997 and 17th
June, 1998, were issued to the appellant, demanding customs
duty of Rs.3, 12,030/- and Rs.65,66,076/- respectively (totalling
Rs.68, 78, 106/-). Upon consideration of the reply furnished by
G the appellant, the Commissioner of Customs (Preventive),
Mumbai by his order dated 26th February, 1999 confirmed the
demand of customs duty of Rs.68, 78, 106/-, besides penalty
and interest under Section 28AB of the Customs Act, 1962 (for
short "the Act").
H
--- -
- ------
SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF 363
INDIA AND ORS. [D.K. JAIN, J.]
3. Aggrieved, the appellant preferred an appeal to the
A
erstwhile Customs, Excise and Gold (Control) Appellate
Tribunal. However, the said appeal was withdrawn by the
appellant on the ground that they proposed to prefer an
application in terms of Section 127MA of the Act before the
Settlement Commission, constituted under the Act and have
B
their case settled under Chapter XIVA of the Act. Th&-appeal
was permitted to be withdrawn. The appellant, thereafter, on
17th October, 2000, filed an application under Section 127B
of the Act with the Settlement Commission, disclosing and
admitting a duty liability of Rs.20,98,786/-.
C
4. On receiving the application, the Settlement
Commission called for the statutory report from the
Jurisdictional Commissioner in terms of Section 127C of the
Act. In his report, it was submitted by the Commissioner that
out of 18 consignments, in respect of 10 imports, the appellant
D
had imported spare parts of Caterpillars and while clearing the
cargo, they submitted transhipment permit/shipping bills to the
Customs Authorities declaring the cargo as 'ship spares' meant
for repairs of ocean going vessels. However, in the course o.f
investigation, documents, viz., sales bills, account registers, etc.
E
retrieved from the appellant, revealed the sale of these goods
to one Mis Mehta Earthmovers. In fact, diversion of these goods
was admitted by the appellant during investigation and they
voluntarily deposited Rs.15 lakhs towards duty liability against
these 10 imports. As regards the 2nd show cause notice, the
F
stand of the Commissioner was that or:ie Mis Elektronik Lab,
a partnership firm dealing in sales and servicing/maintenance
of ship spares and navigation equipment, had placed purchase
orders on the appellant for import of spare parts to be fitted on
ocean going vessels, as they were not registered with the
G
Director General of Shipping as a ship repair unit and were not
eligible for duty free imports under the aforementioned
Notification. The appellant imported the spare parts and sold
the same to M/s Elektronik Lab; in contravention of the
. exemption notification.
H
364
SUPREME COURT REPORTS
[2010] 2 S.C.R.
A
5. Taking into consideration the report of the
Commissioner and the case records, the Settlement
Commission, vide order dated 8th February, 2001, allowed the
application of the appellant to be proceeded with under subsection (1) of Section 127C of the Act. The amount of
B additional duty determined to be payable under sub-Section (3)
of said Section was duly paid by the appellant.
6. At the next hearing before the Settlement Commission,
it was asserted on behalf of the appellant that they had fulfilled
C all the conditions as stipulated in Notification No.211/83 dated
23rd July, 1983 and that no spare parts, so imported, were sold
by them to M/s Elektronik Lab. The stand of the appellant was
that they had installed the imported equipment on the ocean
going vessels with the assistance of M/s Elektronik Lab, who
were the authorised agents of the foreign supplier, M/s Kelvin
D Hughes, in India from whom the appellant had imported the
goods. It was argued that the said Notification did not prohibit
an importer from taking assistance of a third party in the repair
of the ships. It was reiterated that all the "ship spares" imported
by the appellant were fitted in the ocean going vessels directly ·
E by them with the assistance of M/s Elektronik Lab and,
therefore, all the conditions, stipulated in the Notification, were
fulfilled. Apparently, the Settlement Commission was not
convinced with the explanation offered by the appellant. On the
contrary, the Settlement Commission felt that the appellant had
F transferred/sold the imported goods to M/s Elektronik Lab; as
pleaded by the Commissioner. Accordingly, vide order dated
24th September, 2001, the Settlement Commission directed
the Commissioner to submit his final report along with the
relevant material to establish that the goods imported by the
G appellant were actually sold to M/s Elektronik Lab.
H
7. In his final report dated 27th September, 2001, the
Commissioner submitted that the appellant had imported
navigational equipments, such as, Radar System, SART,
SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF 365
INDIA AND ORS. [D.K. JAIN, J.]
NATEX and EPIRB in pursuance of the Purchase Orders
A
placed by M/s Elektronik Lab on them; delivered the cargo on
board the ships of M/s Dredging Corporation, Mis Chowgule
Steamships Ltd. and M/s Essar Coastal Ltd. and the purchaser,
M/s Elektronik Lab, subsequently carried out installation of the
said equipments on board the ships owned by the above three
shipping companies. The stand of the Commissioner was that
since Mis Elektronik Lab, who had purchased the imported
spare parts from the appellant for the purpose of fitting on board
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the ships of the said three shipping companies, was not
registered with the Director General of Shipping, they were not c
eligible to claim benefit of exemption Notification, and,
therefore, they routed the imports through the appellant and
further, since the "spare parts" imported for carrying out repairs
of the ships were not actually used by the appellant and had
been sold to Mis Elektronik Lab; prior to its usage on ships,
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the appellant was also not entitled to the benefit of duty
• exemption under the said Notification. It was also pointed out
that the rates of the spare parts charged by Mis Elektronik Lab
to the ship owners for the same items were higher than those
charged by the appellant from them, which undisputedly showed
the value addition.
8. Upon consideration of the information furnished by the
Commissioner; particularly the fact that the appellant had given
details of the "consignee" as the ship owners, without disclosing
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the sale of imported "spare parts" to M/s Elektronik Lab, the
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Settlement Commission was satisfied that there was
suppression of facts on the part of the appellant so as to avail
of the benefit of duty exemption fraudulently. According to the
Settlement Commission, the sale of ship spares/navigational
equipments by the appellant to Mis Elektronik Lab was an
G
independent transaction, distinct from the subsequent sale by
the latter to the ship owners, which was in the nature of home
consumption. Finally, concluding that the Revenue had been
_able to produce documentary evidence showing sale of
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[2010].2 S.C.R.
A imported "spare parts" by the appellant to M/s Elektronik lab,
who in turn sold the same items to ship owners, the appellant
could not claim any benefit under exemption Notification
No.211/83, the Settlement Commission sustained the demand
of duty of Rs.47,79,320/- in respect of 8 consignments sold by
B the appellant to Mis Elektronik Lab. The Settlement.
Commission, thus, confirmed the additional customs duty oft:
Rs.68,78, 106/- demanded from the appellant under the order
of adjudication by the Commissioner. Inter a/ia, observing that
· ·.,though the appellant had not made a full and true disclosure of
c their duty liability but had cooperated with the Settlement
Commission, the Settlement Commission waived penalty in
excess of Rs.18 lakhs and granted total immunity to the
appellant from prosecution. The Settlement Commission also
held that since the case of the appellant pertained to a period
0
prior to April, 1995, when Section 28AB of the Act was inserted
by the Finance Act, 1996, interest on delayed payment of duty
could not be levied on the appellant.
9. Being dissatisfied with the order passed by the
Settlement Commission, the appellant took the matter to the
E High Court by preferring the aforementioned writ petition. Before
the High Court, an application was moved by the appellant for
amendment of the writ petition, seeking to urge an additional
ground to the effect that some of the consignments of "spare
parts" having been imported under the procedure to be followed
F for "Transhipment" or for "warehoused goods for exportation",
no customs duty was payable by virtue of th~ provisions
contained in Sections 54 and 69 of the Act. Although, the
amendment was allowed by the High Court in order to examine
whether the initial stand, based on the exemption notification,
G could go hand in hand with the case now sought to be pleaded
in the amended petition, but, ultimately, the High Court did not
permit the appellant to urge the additional ground relating to
the applicability of Sections 54 and 69 of the Act. The High
Court was of the view that since the ground now sought to be
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SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF 367
INDIA AND ORS. [D.K. JAIN, J.]
raised was in fact contradictory to tha earlier stand, at this
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belated stage, a fresh ground could not be entertained. As
stated above, the High Court has dismissed the writ petition.
Aggrieved by the said decision, the appellant is before us in
this appeal.
10. Assailing the decisions of the Settlement Commission
as also of the High Court, Mr. S.K. Bagaria, learned senior
counsel appearing on bE.half of the appellant, strenuously urged
that the High Court committed a serious illegality in declining
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to entertain the additional ground regarding applicability of
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Sections 54 and 69 of the Act in respect of 8 consignments in
question, particularly when the point raised was a pure question
of law going to the root of the matter and did not involve any
investigation of facts. In support of the contention that a pure
question of law can be raised for the first tim~ even before this
Court, reliance was placed on the decisions 'of this Court in
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Tarini Kamal Pandit & Ors. Vs. Prafulla Kumar Chatterjee
(Dead) by Legal Representatives1, Ajaib Singh Vs. State of
Punjab2 , Municipal Corporation of the City of Jabalpur Vs.
State of Madhya Pradesh & Anr. 3, Collector of Central Excise,
Ahmedabad Vs. Pioma Industries and Imperial Soda Factory4.
Relying on Jyotendrasinhji Vs. S. I. Tripathi & Ors. 5 and Paul
Industries (India) Vs. Union of India & Ors. 6, it was contended
that the finality clause contained in Section 127 J of the Act did
E
not bar the jurisdiction of the High Court under Article 226 of
the Constitution to interfere with the order· passed by the
Settlement Commission when it was contrary to the provisions
of the Act. It was urged that instead of outrightly declining to
go into the merits of the additional ground raised, at best, the
1.
(1979) 3 sec 280.
2.
(2000) 4 sec 510.
3.
(1963) 2 SCR 135.
4.
(1997) 10 sec 400.
5.
1993 Supp (3) sec 389.
6.
(2004) 13 sec 340.
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[201 O] 2 S.C.R.
A High Court could have given an opportunity to the Revenue to
meet the stand of the appellant. It was also contended that the
expression "clearance of the goods for home consumption"
under Section 47 of the Act has a definite connotation and
meaning under the Act and the imported goods can be cleared
B for home consumption only when a bill of entry for home
consumption is filed; it is assessed; duties assessed are paid
and an order is passed by the proper officer for clearance of
the goods-for home consumption, which is not the case here,
as no bill of entry for home consumption was filed. Learned
c counsel was at pains to explain that the said consignments were
correctly released for transhipment and re-export and the
conelftions as stipulated in Sections 54 and 69 of the Act having
been complied with, no customs duty was leviable on the said
8 consignments. It was, thus, pleaded that the matter deserved
0 to be remitted back to the High Court for reconsideration on
merits.
11. Mr. H.P. Rawal, learned Additional Solicitor General,
appearing on behalf of the Revenue, on the other hand,
supporting the decision of the Settlement Commission as also
E of the High Court strenuously urged that having specifically
pleaded before the Commissioner of Customs in adjudication
proceedings and also in the application before the Settlement
Commission that there was no sale of the imported equipment
to M/s Elektronik Lab and that they were brought into the picture
F for the purpose of installation and regular maintenance of the
said equipment and, therefore, there was no impediment in their
availing of benefit under the Exemption Notification, th.e
subsequent change in their stance that even sale of these parts
to M/s Elektronik Lab for the purpose of installation on ocean
~ G going vessels was not prohibited under the said Notification
or that 8 consignments were otherwise exempt from payment
of customs duty under Sections 54 and 69 of the Act, clearly
shows that even before the Settlement Commission, the
appellant had not made a full and true disclosure of the duty
H
SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF369
INDIA AND ORS. [D.K. JAIN, J.]
liability under the Act. It was argued that the Settlement A
Commission having itself recorded a finding that the appellant
had not made a full and true disclosure of their duty liability, their
application ought to have been rejected by the Settlement
Commission on this ground alone. Referring to the invoices
raised by the appellant on Mis Elektronik Lab, learned counsel
B
submitted that the documents on record clearly establish that
the transactions between the appellant and M/s Elektronik Lab
were purely trading transactions, which not only show the
· untruthfulness of the appellant's initial stance but also prove the
violation of the. order passed in favour of the appellant c
l~"~rmittirig re-export of the consignments in question. As
regards the plea 'Of the appellant that these consignments were
not exigible to any duty in terms of Sections 54 and .69 of the
Act, learned counsel submitted that apart from th&'fact that it
involved determination of disputed questions of fact, an D
application under Section 1278 of the Act for determination of
question whether an item is dutiable or not, was not
maintainable before the Settlement Commission. In support of
·the proposition, learned counsel relied on the decision of the
Delhi High Court in Commissioner of C. Ex., Visakhapatnam
E
Vs. True Woods Pvt. Ltd'. Relying heavily on the decision of
this Court in Union of India Vs. Anil Chanana6 and a decision
of the Bombay High Court in C.I. T. Mumbai City XIV, Mumbai
Vs. The Income Tax Settlement Commission, Mumbai &
Ors., 9 wherein while explaining the concept of compounding in
terms of Rule 6 of the Customs (Compounding of Offences)
F
Rules, 2005, which confers power on the compounding
authority to grant immunity from prosecution to a person who
has made full and true disclosure of facts relating to the case
and has cooperated in the proceedings before him, it was held
that applications for compounding ought to be disallowed if G
--
7.
2006 (199) E.L.T. 388 (Delhi).
8.
2008 (222) E.L.T. 481 (S.C.).
9.
2000 (246) ITR 63 (Born).
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SUPREME COURT REPORTS
[201 O] 2 S.C.R.
A
there are demonstrable contradictions or inconsistencies or
incompleteness in the case of the applicant, learned counsel
asserted that in the light of the facts found by the Settlement
Commission and affirmed by the High Court, the appellant does
not deserve any further relief.
B
12. Before adverting to the merits of the issues raised on
behalf of the parties, it would be appropriate to briefly notice
the scheme of Chapter XIVA of the Act. The said Chapter was
inserted in the Act by the Finance Act, 1998 (Act 21 of 1998)
with effect from 1st August, 1998, for setting up of Customs and
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Central Excise Settlement Commission on lines of similar
Commission already functioning under the Income Tax Act,
1961 since its incarnation on the recommendation of Justice
Wanchoo Committee. The proceeqings under the Chapter
commence by an application being made under Section 1278,
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relevant part whereof reads thus:
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"1278. Application for settlement of cases.- (1) Any
importer, exporter or any other person (hereinafter in this
Chapter referred to as the applicant) may, at any stage of
a case relating to him, make an application in such form
and in such manner as may be specified by rules, and
containing a full and true disclosure of his duty liability
which has :not been disclosed before the proper officer, the
manner iri ·which such liability has been incurred, the
additional amount of customs duty accepted to be payable
by him and such other particulars as may be specified by
rules including the particulars of such dutiable goods in
respect of which he admits short levy o'n account of
misclassification or otherwise of goods, to the Settlement
Commission to have the case settled and such application
shall be disposed of in the manner hereinafter
provided: ......... "
13. It is manifest from a bare reading of the provision that
in the application filed under Section 1278, an applicant is
SANGHVI RECONDITIONERS PVT. LTD. v. UNION OF 371
INDIA AND ORS. [D.K. JAIN, J.]
required to make a full and true disclosure of his duty liability,
A
which he had failed to disclose before the proper officer. He is
also required to exhaustively explain to the Settlement
Commission the manner in which such liability has been
incurred; the additional amount of customs duty accepted to be
payable by him as also the price of such dutiable goods in
8
respect of which he admits short levy on account of
misclassification or otherwise of goods. In other words, the
applicant is supposed to make a clean breast of his affairs in
regard to short levy or non payment of customs duty admitted
to be payable by him.
c
14. Section 127C of the Act prescribes the procedure to
be followed by the Settlement Commission on receipt of an
application under Section 1278 of the Act. The section
mandates that on receipt of an application under Section 1278,
the Settlement Commission shall call for a report from the D
Commissioner of Customs having jurisdiction and on the basis
of the materials contained in such report and having regard to
the nature and circumstances of the case or the complexity of
the investigation involved therein, the Settlement Commission
may allow the application to be proceeded with or reject the
E
application.
15. Section 127E empowers the Settlement Commission
to reopen the completed proceedings in appropriate cases,
while Section 127F confers all the powers upon the Settlement
F
Commission, which are vested in an officer of the Customs
under the Act. Section 127H empowers the Settlement
Commission to grant immunity from penalty and prosecution,
with or without conditions, in cases where it is satisfied that the
assessee has made a full and true disclosure of his duty G
liability. Under Section 127-1, the Settlement Commission can
send back the matter to the proper officer where it finds that
the applicant is not cooperating with it. Section 127 J declares
that every order of settlement passed under sub-Section (7) of
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SUPREME COURT REPORTS
[20101 2 s.c:;.R.
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Section 127C shall be conclusive as to the matters stated
therein and no matter covered by such order shall, save as
otherwise provided in Chapter XIVA, be reopened in any
proceeding under the Act or under any other law for the time
B
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being in force.
16. To appreciate the rival submissions in this behalf, it
would be appropriate at this juncture to refer to Exemption
Notification No.211/83 dated 23rd July, 1983.