Taxpayer Who Opts For Settlement Cannot Later Challenge Underlying SCN Through Writ: Delhi High Court

The Delhi High Court on 21 August held that a taxpayer who voluntarily chooses to settle a dispute before the Settlement Commission cannot subsequently challenge the validity of the underlying show cause notice (SCN) through a writ petition.

A Division Bench of Justices Anil Kshetarpal and Harish Vaidyanathan Shankar dismissed the writ petition filed by Nitco Ltd. challenging an order of the Customs, Central Excise and Service Tax Settlement Commission. The judges held:

“Having consciously invoked the jurisdiction of the Settlement Commission, instead of pursuing the statutory appellate remedy against the adjudication order dated 13.03.2019... the Petitioners cannot now seek to reopen the validity of the SCN dated 18.06.2018 in proceedings under Article 226 of the Constitution,”

The dispute arose from proceedings concerning alleged evasion of Customs duty in relation to an Export Promotion Capital Goods (EPCG) authorisation. The SCN issued on 18 June 2018 demanded duty of over Rs. 10 crore along with interest.

The SCN was subsequently adjudicated on 13 March 2019. Instead of pursuing the statutory appellate remedy against the adjudication order, Nitco Ltd. approached the Settlement Commission.

The Settlement Commission settled the duty liability at Rs. 6.69 crore after giving credit for the amount already paid. Before the Commission, Nitco Ltd. had itself quantified its interest liability at about Rs. 1.10 crore. However, the Settlement Commission directed the jurisdictional Commissioner to verify and quantify the interest liability and intimate Nitco Ltd. if any further amount was payable. Following this exercise, the interest liability was quantified at Rs. 15.16 crore.

Nitco Ltd. then approached the High Court, challenging the Settlement Commission's direction and contending that the underlying SCN had been issued beyond the period of limitation.

The Court rejected the challenge, holding that Nitco Ltd. could not isolate the direction concerning interest quantification and use it to reopen the validity of the SCN after having elected to settle the dispute before the Settlement Commission. It held:

“The Petitioners cannot, therefore, seek to isolate Clause (e) of Paragraph No.51(ii) of the order dated 14.11.2019 and, under the guise of challenging the consequential determination of interest, reopen the validity of the underlying SCN on the ground of limitation.”

It also rejected Nitco Ltd.'s contention that the interest liability could not exceed the amount it had initially computed before the Settlement Commission, noting that the Commission had never accepted that calculation as final. The Bench observed:

“The liability to pay interest is a statutory consequence of the liability to pay duty and does not stand extinguished merely because the quantum of duty is settled by the Settlement Commission.”

Accordingly, the High Court dismissed the petition.

For Petitioners: Mr. Amit Rawal, Sr. Adv., Mr. Devesh Tripathi, Mr. AK Prasad, Mr. Mohd. Faraz Anees, Mr. Mukeshwar Nath Dubey, Mr. Akash Gupta & Mr. Ajay Kumar Advs.

For Respondent: Mr. Aditya Singla, SSC with Ms. Arya Suresh Nair, Ms. Shreya, Mr. Dhananjay Gautam, Mr. Akhil and Ms. Sakshi Chandna, Advs.