Telangana High Court Upholds Rejection of Excise Settlement Plea for Lack of Full and True Duty Disclosure

The Telangana High Court has dismissed a writ petition filed by Airan Comtrax Towers Pvt. Ltd., upholding the rejection of its settlement application on the ground that it failed to make a full and true disclosure of its duty liability.

A Division Bench of Justice P. Sam Koshy and Justice Narsing Rao Nandikonda was dealing with a challenge to the order dated February 28, 2008 passed by the Settlement Commission.

The case arose from a show cause notice dated April 4, 2005 alleging clandestine manufacture and removal of MS ingots during the period from April 2000 to September 2001 without payment of excise duty. The notice alleged that the company had produced large quantities of raw materials which were not accounted for and had suppressed production and quantified the duty demand at Rs. 2,00,36,154.

During the proceedings, the company approached the Settlement Commission seeking to resolve the dispute, admitting an additional duty liability of about Rs. 42.20 lakh based on installed production capacity and offering to pay the balance amount.

By order dated February 28, 2008, the Settlement Commission rejected the application, holding that the disclosure made was not “full and true” and that the issues involved required detailed examination and complex investigation that could only be undertaken in regular adjudication proceedings.

Before the High Court, the company argued that once its application had been allowed to proceed, the Commission ought to have decided the matter on merits instead of rejecting it at a later stage.

The Revenue opposed the plea, contending that full and true disclosure is a mandatory precondition and that the company had admitted only a small portion of the duty liability despite evidence indicating large-scale suppression supported by private records, electricity consumption data, and other materials.

Agreeing with the Revenue, the High Court reiterated that,

“full and true disclosure is mandatory in settlement proceedings and the Settlement Commission may reject an application at any stage if such disclosure is absent, even after allowing it to proceed. Mere reference to a wrong statutory provision does not vitiate proceedings if the authority otherwise has the power"

The court noted that the Settlement Commission had examined the material on record and found serious deficiencies in the company's disclosure.

“the Settlement Commission rejected the application under Section 32E on the ground that the petitioner had not made a full and true disclosure of its duty liability or its modus operandi. Though the petitioner admitted certain additional duty liability, the Commission found that the actual amount of unaccounted goods could not be pinpointed, alleged gap in accounting of production was not satisfactorily explained, no clear evidence was furnished regarding unaccounted scrap, the admission made by affidavit was not supported by documentary records and the manner in which the additional duty liability was derived was not properly disclosed. Hence, the Commission held that the statutory requirement of full and true disclosure was not satisfied and dismissed the settlement application.”

It further noted that the Commission had relied on materials such as excess electricity consumption, procurement and consumption patterns of raw materials, and the alleged clandestine clearance of finished goods and found that the company failed to rebut these allegations with proper records.

The bench observed that the company's admission of a limited duty liability was not correlated with the available data and did not satisfy the statutory requirement.

The court also recorded the Commission's conclusion:

“Accordingly, the Settlement Commission rejected the application, holding that the applicant had failed to make a full and true disclosure of its duty liability, and that the matter required detailed adjudication in regular proceedings.”

Holding that there was no error or procedural illegality in the Commission's decision, the High Court declined to interfere under Article 226 and dismissed the writ petition.

For Petitioner: Advocate Mamatha

For Respondent: Advocate Pravallika, representing Dominic Fernandes, Senior Standing Counsel for Central Board of Indirect Taxes and Customs (CBIC)