REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   1435 OF 2003   

M/S SANGHVI RECONDITIONERS PVT.  LTD.

— APPELLANT  

VERSUS

UNION OF INDIA & ORS. — RESPONDENTS

J U D G M E N T

D.K. JAIN, J.:

1. This  appeal,  by  special  leave,  is  directed  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,  Mumbai  (hereinafter  referred  to  as,  “the  Settlement  

Commission”).  

2. The facts, giving rise to the present appeal, may 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  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  

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  the  appellant,  the  

Commissioner of Customs (Preventive), Mumbai by his order dated  

26th February,  1999  confirmed  the  demand  of  customs  duty  of  

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Rs.68,78,106/-, besides penalty and interest under Section 28AB of  

the Customs Act, 1962 (for short “the Act”).    

3. Aggrieved, the appellant preferred an appeal to the 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the said appeal was withdrawn by the appellant on the ground that  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  their  case  settled  under  Chapter  XIVA  of  the  Act.  The  

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/-.   

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  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  

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for  repairs  of  ocean  going  vessels.   However,  in  the  course  of  

investigation,  documents,  viz.,  sales  bills,  account  registers,  etc.  

retrieved from the appellant, revealed the sale of these goods to one  

M/s  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 stand of the Commissioner  

was that one M/s 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 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.     

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 sub-Section (1)  of  Section 127C of  the Act.  

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The amount of 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  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  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 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 transferred/sold  

the  imported  goods  to  M/s  Elektronik  Lab;  as  pleaded  by  the  

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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 appellant were actually sold to M/s Elektronik Lab.

7. In  his  final  report  dated  27th September,  2001,  the  

Commissioner submitted that the appellant had imported navigational  

equipments, such as, Radar System, SART, NATEX and EPIRB in  

pursuance of the Purchase Orders placed by M/s Elektronik Lab on  

them;  delivered  the  cargo  on  board  the  ships  of  M/s  Dredging  

Corporation, M/s 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 M/s Elektronik Lab, who had purchased the imported  

spare parts from the appellant for the purpose of fitting on board the  

ships of the said three shipping companies, was not registered with  

the  Director  General  of  Shipping,  they  were  not  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  

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by the appellant and had been sold to M/s Elektronik Lab; prior to its  

usage on ships, 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 M/s 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 the  

sale of imported “spare parts” to M/s Elektronik Lab, the 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  M/s  

Elektronik  Lab  was  an  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  

imported “spare parts” by the appellant to M/s Elektronik Lab, who in  

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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 the appellant  to M/s Elektronik  

Lab.   The  Settlement  Commission,  thus,  confirmed  the  additional  

customs duty of Rs.68,78,106/- demanded from the appellant under  

the order of adjudication by the Commissioner.  Inter alia, observing  

that though the appellant had not 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 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.

9. Being  dissatisfied  with  the  order  passed  by  the  Settlement  

Commission,  the  appellant  took  the  matter  to  the  High  Court  by  

preferring the aforementioned writ petition.  Before the High Court, an  

application was moved by the appellant for amendment of the writ  

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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 for exportation”, no customs duty was payable by virtue of the  

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, 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 raised was in fact contradictory to  

the earlier stand, at this 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  behalf  of  the  appellant,  strenuously  urged  that  the  High  Court  

committed a serious illegality in declining to entertain the additional  

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ground regarding applicability  of  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 time even before  

this  Court,  reliance  was  placed  on  the  decisions  of  this  Court  in  

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 127J of the Act did 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  1 (1979) 3 SCC 280 2 (2000) 4 SCC 510 3 (1963) 2 SCR 135 4 (1997) 10 SCC 400 5 1993 Supp (3) SCC 389 6 (2004) 13 SCC 340

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raised, at best, the 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  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 counsel  was at  pains to  explain  that  the said  

consignments were correctly released for transhipment and re-export  

and the conditions 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 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 of the High Court strenuously  

urged that  having specifically  pleaded before the Commissioner  of  

Customs  in  adjudication  proceedings  and  also  in  the  application  

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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  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, the subsequent change in their stance that even sale of  

these parts to M/s Elektronik Lab for the purpose of installation on  

ocean 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 liability under the Act.  It was  

argued  that  the  Settlement  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  M/s  Elektronik  Lab,  learned  

counsel 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  

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the appellant’s initial stance but also prove the violation of the order  

passed  in  favour  of  the  appellant  permitting  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 the fact that it involved determination of disputed questions of  

fact, an application under Section 127B 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  Vs.  True Woods Pvt.   

Ltd.7  Relying heavily on the decision of this Court in Union of India  

Vs. Anil Chanana8 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)  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  

7 2006 (199) E.L.T. 388 (Delhi) 8 2008 (222) E.L.T. 481 (S.C.) 9 2000 (246) ITR 63 (Bom)

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cooperated  in  the  proceedings  before  him,  it  was  held  that  

applications  for  compounding  ought  to  be  disallowed  if  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.

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  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 proceedings  

under the Chapter commence by an application being made under  

Section 127B, relevant part whereof reads thus:

“127B.  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  

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which has not been disclosed before the proper officer,  the manner in 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 on  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 127B, an applicant is required to make  

a full and true disclosure of his duty liability, 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  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.  

14. Section  127C  of  the  Act  prescribes  the  procedure  to  be  

followed by the Settlement Commission on receipt of an application  

under Section 127B of the Act.  The section mandates that on receipt  

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of  an application under  Section 127B,  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 case or the  

complexity  of  the  investigation  involved  therein,  the  Settlement  

Commission may allow the application to be proceeded with or reject  

the 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 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 liability.  Under Section 127-I, the Settlement Commission can  

send back the  matter  to  the  proper  officer  where it  finds  that  the  

applicant is not cooperating with it.  Section 127J declares that every  

order of settlement passed under sub-Section (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  

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XIVA, be reopened in any proceeding under the Act or  under any  

other law for the time 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.  In so far as it is relevant for this  

appeal, the Notification reads as follows:

“Exemption  to  capital  goods,  raw  materials  and  consumables  for  repairs  of  ocean-going  vessels  -  In  exercise of  the powers conferred by sub-Section (1)  of  Section 25 of the Customs Act,  1962 (52 of 1962),  the  Central Government, being satisfied that it is necessary in  the  public  interest  so  to  do,  hereby  exempts  capital  goods,  components,  raw  materials  and  consumables,  when  imported  into  India  for  repairs  of  Ocean-going  vessels by the ship repair unit registered with the Director  General of Shipping, Government of India, from the whole  of  the duty of  customs leviable thereon under the First  Schedule to the Customs Tariff  Act, 1975 (51 of 1975),  and from the whole of the additional duty leviable thereon  under Section 3 of the said Customs Tariff Act, subject to  the following conditions, namely:-

(1) the importer shall  maintain a proper account  of import, use and consumption of the capital  goods,  components,  raw  materials  and  consumables  imported  into  India  for  the  aforesaid  purpose  and  shall  submit  such  account  periodically  to  the  Collector  of  Customs in such form and in such manner as  may be specified by the said Collector;

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(2) the  importer,  by  the  execution  of  a  bond in  such  form  and  for  such  sum  as  may  be  specified by the Collector of Customs, binds  himself to pay on demand an amount equal to  the duty leviable:-

(a) on  goods  which  are  capital  goods,  as  are not proved to the satisfaction of the  Collector  of  Customs  to  have  been  installed  or  otherwise  used  for  the  aforesaid purpose:

(b) on  goods  which  are  components,  raw  material  and  consumables,  as  are  not  proved  to  the  satisfaction  of  the  Collector of Customs to have been used  or consumed for the aforesaid purpose;  within a period of three months from the  date  of  importation  thereof  or  within  such extended period as the Collector of  Customs, on being satisfied that there is  sufficient cause for not installing, using  or  consuming  them,  as  the  case  may  be, for the aforesaid purpose within the  said period, allow. ………………………………………….. …………………………………………..”

17. It is clear from the language of the Notification that in 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 with  

the  Director  General  of  Shipping,  Government  of  India,  are  to  be  

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fulfilled.   Both  the  conditions  are  cumulative  and  admit  of  no  

exception.  Being the foundation for availing the benefits under the  

notification,  both  the  conditions  have  to  be  strictly  complied  with.  

Besides,  under  the  Notification,  an  importer  is  also  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  

liable to pay an amount equal to the duty payable on such goods.  It  

is a settled position in law that Exemption Notifications have to be  

strictly  construed.  A  person  claiming  the  benefit  of  exemption  

notification, must show that he satisfies the eligibility criteria.  (See:  

Kartar Rolling Mills  Vs.  Commissioner  of Central  Excise,  New  

Delhi10, Eagle Flask Industries Ltd. Vs. Commissioner of Central   

Excise, Pune11 and Msco. Pvt. Ltd. Vs. Union of India and Ors.12 )

18. With this background, we may now advert to the facts at hand  

to examine if  the findings recorded by the Settlement Commission  

and  the  view taken  by the  High  court  in  the  judgment  in  appeal,  

10 (2006) 4 SCC 772 11 2004 (171) E.L.T. 296 (S.C.) 12 1985 (19) E.L.T. 15

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holding that the appellant could not be permitted to urge additional  

ground was justified or hit by the contentions to the contrary raised on  

behalf of the appellant.   

19. In so far as the first issue is concerned, we feel that it would be  

expedient to extract the stand of the appellant before the Settlement  

Commission, which is as follows:

“During the hearing the learned Advocate of the applicant  gave his written submission.  He argued that the applicant  has fulfilled the conditions of Notification No.211/83.  All  the end use bonds have been finalised.  The Commission  asked the applicant whether he has sold the material to  M/s Elektronik Lab.  The applicant submitted that he has  not  sold  the  goods  to  M/s  Elektronik  Lab.   He  is  the  importer  and  he  installed  the  equipment  on  the  vessel  with the assistance of M/s Elektronik Lab.  M/s Elektronik  Lab is the authorised agent in India of the foreign supplier  M/s Kelvin Hughes from whom the applicant imported the  goods.  He argued that the Notification does not say that  the imported cannot get the assistance from a third party.  The Commission asked him about his argument on the  statement  of  Shri  K.D.  Motta,  Manager  of  M/s Sanghvi  Reconditioners  that  the  signature  of  representatives  of  M/s Shipping Corpn. of India were forged by him.  The  applicant submitted that he is admitting it and he is guilty  of  that.   The  Commission  further  asked  him  on  not  admitting  the  duty  of  Rs.47,79,320/-.   The  applicant  submitted that the ship spares were imported and fitted in  the  ocean  going  vessels  directly  by  him  with  the  assistance  of  M/s  Elektronik  Lab.  and,  therefore,  he  fulfilled  the  conditions  of  Notification  No.211/83.   The  Commission drew his attention to some of  the invoices  issued by M/s Sanghvi Reconditioners to M/s Elektronik  

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Lab  which  showed  that  the  goods  were  cleared  from  Customs and delivered to M/s Elektronik Lab.  If it is so, it  appears that the applicant has transferred/sold the goods  to M/s Elektronik Lab.  To this query of the Commission,  the applicant submitted that it is only a language mistake  and all the bills do not show this and these invoices are  issued only for collecting the money.”

20. It  is  evident  from  the  afore-extracted  paragraph  that  the  

unequivocal stand of the appellant was that the material imported by  

them was installed/used for repairs of ocean going vessels directly by  

them with the assistance of M/s Elektronik Lab, an authorised agent  

in India of the foreign supplier from whom the appellant had imported  

the goods.  It was pleaded that the Exemption Notification did not bar  

the importer getting assistance from a third party for installation of the  

equipment on the vessels.  The appellant stood its ground even when  

they  were  confronted  by  the  Settlement  Commission  with  some  

invoices,  showing  that  the  goods  imported  were  got  cleared  from  

Customs and delivered to M/s Elektronik Lab.  When the Settlement  

Commission asked the Revenue to submit further report to establish  

their case that the goods imported by the appellant were actually sold  

by them to M/s Elektronik Lab, the Revenue produced sale invoices  

and  delivery  challans,  showing  sale  of  imported  cargo  by  the  

appellant to M/s Elektronik Lab, who in turn, sold these goods to the  

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ship  owners  for  which  necessary  documents,  such  as,  bills  were  

raised.  Taking into consideration the documents on record and the  

sale pattern of the goods and not the value addition, the Settlement  

Commission  came to  the  conclusion  that  in  the  first  instance,  the  

goods in question 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, the appellant was not entitled to duty  

exemption under the said Notification.  Similarly, M/s 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  required  under  the  Exemption  

Notification.  As stated above, before the High Court an unsuccessful  

attempt was made to lay more emphasis on exemption from payment  

of customs duty on eight consignments in terms of Sections 54 and  

69 of the Act and not under the Exemption Notification 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 benefit of the exemption notification. In the final analysis, the High  

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court came to the conclusion, and in our opinion correctly, 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.   

21. In so far as the second issue with regard to the applicability of  

Sections 54 and 69 of the Act is concerned, in our view, it was too  

late in the day for  the appellant  to raise such a plea.   In the first  

instance,  if  the  appellant  felt  that  these  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  Settlement  Commission,  more  so  

when in respect of  the remaining consignment,  they had accepted  

and  paid  the  customs duty.   We feel  that  when according  to  the  

appellant,  no  customs  duty  was  payable  in  respect  of  the  8  

consignments, then on the plain language of Section 127B of the Act,  

appellant’s  application  before  the  Settlement  Commission  was not  

maintainable.  In our view, an application under Section 127B of the  

Act would be maintainable only if it discloses duty liability, which had  

not  been  disclosed  to  the  proper  officer.   Obviously,  a  disclosure  

contemplated  by  the  said  Section  is  in  the  nature  of  voluntary  

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disclosure  of  the  concealed  additional  customs  duty.   Secondly,  

indubitably, 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.  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 there is no bar in the High court and for that  

matter this 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 M/s Elektronik Lab.  It is clear that since M/s Elektronik  

Lab. was not registered with the Director General of Shipping, they  

were not eligible to avail of duty exemption under the said notification,  

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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. 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 factors go to  

show that the additional ground sought to be raised before the High  

Court was not only an after thought, adjudication thereon did involve  

investigation into facts and, therefore, the decision of the High court  

in  not  entertaining  the  additional  ground  did  not  suffer  from  any  

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infirmity.   

22. We also find substance in the contention of learned counsel for  

the Revenue that having observed that the appellant had not made a  

full and true disclosure, their application should have been rejected  

by  the  Settlement  Commission  on  that  count  itself  and  no  relief  

should have been granted to the appellant.  However, in view of the  

fact that order dated 8th February, 2001 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 High Court or in their reply to the present  

appeal,  we  find  it  difficult  to  reject  the  application  at  this  stage,  

though, having perused some of the documents available on record,  

we are convinced that  the appellant  had not  made a full  and true  

disclosure of its affairs before the Settlement Commission.  Be that as  

it may, we are of the opinion that having opted to get their customs  

duty liability  settled by the Settlement  Commission,  under Chapter  

XIVA 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.   As observed by Krishna  

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Iyer,  J.  in  CIT  Vs. B.N.  Bhattacharjee13,  the  recommendation  of  

Wanchoo  Committee  was  a  compromise  measure  of  a  statutory  

settlement machinery, where a big evader could make a disclosure,  

disgorge  what  the  Commission  fixes  and  thus  buy  quittance  for  

himself  and  accelerate  recovery  of  taxes  in  arrears  by  the  State,  

although less than what may be fixed after long protracted litigation  

and recovery  proceedings.   It  is  manifest  from the  procedure  laid  

down in Section 127C of the Act that interim order under sub-Section  

(1) of Section 127C as also the final order under 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).   Obviously,  these  reports  are  

submitted on the disclosures made in the application under Section  

127B of the Act and, therefore, the applicant cannot be permitted to  

resile  from  his  pleadings  in  the  application  at  any  stage  of  

proceedings before the Settlement Commission or set up a new case  

before the higher Fora.   

23. Having considered the rival submissions with reference to the  

pleadings, the provisions of Section 127B of the Act and exemption  

13 (1979) 4 SCC 121

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notification No.211/83 dated 23rd July, 1983, we are of the opinion  

that the order of the Settlement Commission did not suffer from any  

error, legal or factual, and, therefore, the High Court was fully justified  

in dismissing the writ petition.  

24. In  view of  the foregoing discussion,  we see no merit  in  this  

appeal.  The appeal is dismissed accordingly with costs, quantified at  

Rs.50,000/-.

.…………………………………J. (D.K. JAIN)

                              ..….…………………………….J. (T.S. THAKUR)

NEW DELHI; FEBRUARY 5, 2010

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