The Delhi High Court has held that a party which consciously opts to settle a customs dispute before the Settlement Commission cannot subsequently use a writ petition under Article 226 of the Constitution to indirectly reopen the validity of the underlying show cause notice (SCN). 

The bench of  Justice Anil Khetarpal and Justice Harish Vaidyanathan Shankar clarified that while the correctness of a subsequent interest computation may be examined independently in an appropriate proceeding, a challenge to the limitation of the SCN cannot be revived by isolating a consequential direction concerning interest from the settlement order.

BUY NOW : Customs Broker’s Digest

The dispute arose from investigations conducted by the Directorate of Revenue Intelligence (DRI) into alleged customs duty evasion and irregularities concerning imports and EPCG authorisations. The investigation included allegations relating to over-valuation and mis-declaration of imported tiles from China, mis-declaration of marble imported from Italy, Turkey and Spain, and alleged misuse of EPCG authorisations obtained for importing capital goods at concessional rates.

In relation to the EPCG issue, proceedings concerning several authorisations had earlier been taken before the Settlement Commission. Nine EPCG authorisations issued by the DGFT, Mumbai, were ultimately settled by the Settlement Commission in 2014. However, the dispute concerning one authorisation issued by the DGFT, Delhi, remained subject to further proceedings and investigation.

The remaining authorisation involved alleged duty liability of approximately Rs. 10.30 crore. A show cause notice dated December 23, 2013 was issued under the Foreign Trade (Development and Regulation) Act. Subsequent adjudication and appellate proceedings continued, with the matter ultimately leading to further investigation concerning exports purportedly made against the disputed licence.

The DRI subsequently issued another show cause notice dated June 18, 2018, demanding customs duty of Rs. 10,29,81,146 along with interest. The notice was adjudicated by the Commissioner of Customs (Export), Mumbai Customs Zone-I, through an order dated March 13, 2019.

Instead of pursuing the statutory appellate remedy against that adjudication order, the petitioners approached the Settlement Commission on March 13, 2019, seeking settlement of the proceedings arising from the SCN.

The Settlement Commission subsequently passed its order on November 14, 2019. It settled the duty liability at Rs. 6,69,57,333. After giving credit for Rs. 1,41,49,366 already paid, the balance duty payable was determined at Rs. 5,28,07,967.

An important aspect of the case was that the petitioners themselves had placed before the Settlement Commission a computation of interest amounting to Rs. 1,10,04,634.

The Settlement Commission, however, did not treat that figure as the final interest liability. Instead, it directed the jurisdictional Commissioner to verify and quantify the interest and intimate the petitioners if any additional amount was payable. A penalty of Rs. 50 lakh was also imposed on the company, while a penalty of Rs. 10 lakh was imposed on its Managing Director.

Following verification, the jurisdictional Commissioner recalculated the interest liability at Rs. 15,16,65,821 and communicated the same to the petitioners by letter dated January 2, 2020. The writ petition before the High Court challenged both the Settlement Commission’s order and the subsequent demand for interest.

Before the High Court, the petitioners argued that the June 18, 2018 SCN itself was barred by limitation under Section 28 of the Customs Act, 1962.

Their principal contention was that the relevant date for calculating the limitation period under Explanation 1 to Section 28 should be reckoned from November 6, 2006, when the duty was allegedly paid. Alternatively, it was argued that the limitation period should be calculated from 2009, when the alleged short-payment and fraud came to the knowledge of the DRI.

The petitioners also advanced an alternative argument that even where a statute does not prescribe a specific limitation period, a statutory authority must exercise its power within a reasonable period.

The Customs authorities opposed the petition, contending that the Settlement Commission’s order was conclusive under Section 127J of the Customs Act. According to the respondents, the petitioners had voluntarily chosen the settlement mechanism instead of pursuing the ordinary appellate remedy and therefore could not subsequently reopen the very SCN that had formed the basis of the settlement proceedings.

The Bench began by examining the limited scope of judicial review available against orders passed by the Settlement Commission.

Relying upon the Supreme Court’s decisions in Jyotendrasinhji v. S.I. Tripathi and Kotak Mahindra Bank Limited v. Commissioner of Income Tax, Bangalore, the Court observed that the High Court does not sit as an appellate court over the Settlement Commission. Merely because another view may be possible on the material before the Commission is not sufficient to justify interference.

The Court noted that judicial review may be warranted where the order contravenes statutory provisions, causes prejudice, or is vitiated by recognised grounds such as fraud, bias or malice. The sufficiency of the material placed before the Settlement Commission and the conclusions drawn from that material ordinarily fall outside the scope of judicial review.

The Bench stressed that the High Court’s role under Article 226 is not to reassess the evidence or substitute its own view for that of the Settlement Commission. The inquiry must remain confined to whether the Commission’s order suffers from a jurisdictional or statutory infirmity or another recognised ground for judicial intervention.

The High Court held that the petitioners had consciously chosen to invoke the jurisdiction of the Settlement Commission after the June 18, 2018 SCN had already been adjudicated.

The Court highlighted that the petitioners did not challenge the Commissioner’s adjudication order dated March 13, 2019 through the statutory appellate mechanism. Instead, they opted to have the dispute settled before the Settlement Commission.

According to the Bench, having adopted the settlement mechanism, the petitioners could not subsequently use Article 226 proceedings to reopen the validity of the SCN that constituted the foundation of the settlement.

The Court observed that permitting such a challenge would effectively allow the petitioners to circumvent the settlement proceedings and reopen proceedings that they had themselves elected to have settled.

The Court specifically rejected the attempt to challenge the SCN’s limitation through the interest dispute.

It held that determining whether the June 18, 2018 SCN was issued within the limitation prescribed by Section 28 would necessarily require examination of the validity of the underlying proceedings. Such an exercise would effectively require the High Court to act as an appellate court over the proceedings that had already been subjected to settlement.

The Bench noted that this was precisely the type of intervention that the Supreme Court had cautioned against while defining the scope of judicial review over Settlement Commission orders.

The Court further held that the petitioners had not demonstrated that the Settlement Commission’s order suffered from jurisdictional error, statutory contravention, prejudice, fraud, bias or malice. Consequently, the limited grounds permitting judicial interference were not established.

At the same time, the High Court drew an important distinction between challenging the validity of the SCN and challenging the actual computation of interest.

The Court clarified that if the petitioners contend that the Commissioner’s determination of Rs. 15,16,65,821 is contrary to the statutory provision governing the levy or computation of interest, that issue may be examined independently, subject to maintainability. However, such a challenge cannot be expanded into an indirect challenge to the validity of the original SCN.

Thus, the judgment does not hold that every subsequent computation of interest following settlement is immune from scrutiny. Rather, it draws a line between a legally sustainable challenge to the quantification of interest and an impermissible attempt to use that challenge to reopen the settled customs proceedings themselves.

The petitioners also argued that the interest liability could not have increased from their own computation of Rs. 1,10,04,634 to Rs. 15,16,65,821.

The High Court rejected this contention as a ground for interfering with the Settlement Commission’s order. It noted that the Commission had never accepted the petitioners’ figure as the final amount of interest. Instead, it had expressly directed the jurisdictional Commissioner to verify and quantify the actual liability.

The Bench further held that interest liability is a statutory consequence of the liability to pay duty and does not disappear merely because the quantum of duty has been settled by the Settlement Commission. The mere fact that the ultimate interest figure was higher than the amount initially computed by the petitioners could not, by itself, justify interference with the Commission’s order.

The Court also emphasised that the subsequent determination of Rs. 15,16,65,821 was referable to the Settlement Commission’s direction for verification and quantification. It was not an independent adjudication reopening the underlying duty liability.

The Bench found no material demonstrating that the Commission’s direction was contrary to the Customs Act or that the Commission had acted beyond the jurisdiction vested in it. Nor had the petitioners established the kind of prejudice that could justify judicial review under the principles laid down by the Supreme Court.

The Delhi High Court held that there was no ground to interfere with the Settlement Commission’s order dated November 14, 2019.

The Court ruled that the challenge to the June 18, 2018 SCN on limitation grounds could not be reopened in the writ proceedings. It also found no infirmity in the consequential direction requiring the jurisdictional Commissioner to quantify the interest liability.