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CASE NO.:

Appeal (civil) 6260-6265 of 2000

PETITIONER:

Union of India & Ors.

RESPONDENT:

Onkar S. Kanwar & Ors.

DATE OF JUDGMENT: 27/09/2002

BENCH:

Syed Shah Mohammed Quadri & S. N. Variava.

JUDGMENT:

[WITH C. A. No. 633/2002, C. A. No. 634/2002,

C. A. No. 635/2002, C. A. No. 636/2002, C. A.

No. 637/2002, C. A. No. 638/2002, C. A. No.

639/2002, C. A. No. 640/2002, C. A. No.

641/2002 and C. A. No. 642/2002]

J U D G M E N T

S. N. VARIAVA, J.

Civil Appeal Nos. 6260-6265 of 2000 are against a Judgment

dated 7th March, 2000 passed by the High Court of Kerala. All the

other Appeals are against a Judgment dated 14th November, 2000

passed by the High Court of Gujarat. In all these Appeals a common

question arises. Therefore all these Appeals are being disposed of by

this common Judgment.

Briefly stated the facts are as follows:

The Respondents in Civil Appeal Nos. 6260-6265 of 2000 and the

Appellants in all the other Appeals are Directors/Officers of M/s Appollo

Tyres Limited. M/s Appollo Tyres has a factory in Kerala and another

in Gujarat. M/s Appollo Tyres Ltd. were clearing certain tyres on the

basis that the tyres were for use on trailers. It was found that these

tyres were then being fitted to Light Commercial Vehicles. The

Commissioners of Central Excise at Kerala and in Gujarat issued show

cause notices to the Company as to why excise duty and penalty be

not levied. In the same Show Cause Notice the Directors/Officers were

also called upon to show cause as to why penalty be not imposed on

them. The Company and its Directors/Officers replied to the show

cause notice. Thereafter the Commissioners of Central Excise in

Kerala and Gujarat adjudicated the show cause notices and called

upon the Company to pay excise and also imposed penalty. The

Commissioners of Central Excise also required each Director/Officer of

the Company to pay a sum of Rs. 2,00,000/- as personal penalty.

The Company as well as the Officers filed Appeals before the

Customs Excise and Gold (Control) Appellate Tribunal. While the

Appeals were pending the Kar Vivad Samadhan Scheme was

announced. The relevant provisions of this Scheme read as follows:

"87. In this Scheme, unless the context otherwise

requires.-

xxx xxx xxx

xxx xxx xxx

(j) "indirect tax enactment" means the Customs Act, 1962

(52 of 1962) or the Central Excise, 1944 (1 of 1944) or the

Customs Tariff Act, 1975 (51 of 1975) or the Central

Excise Tariff Act, 1985 (5 of 1986) or the relevant Act and

includes the rules or regulations made under such

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enactment;

xxx xxx xxx

xxx xxx xxx

(m) "tax arrear" means,-

xxx xxx xxx

xxx xxx xxx

(ii) in relation to indirect tax enactment.-

(a) the amount of duties (including

drawback of duty, credit of duty or

any amount representing duty),

cesses, interest, fine or penalty

determined as due or payable under

that enactment as on the 31st day of

March, 1998 but remaining unpaid

as on the date of making a

declaration under section 88; or

(b) the amount of duties (including

drawback of duty, credit of duty or

any amount representing duty),

cesses, interest, fine or penalty

which constitutes the subject matter

of a demand notice or a show-cause

notice issued on or before the 31st

day of March, 1998 under that

enactment but remaining unpaid on

the date of making a declaration

under section 88, but does not

include any demand relating to

erroneous refund and where a show-

cause notice is issued to the

declarant in respect of seizure of

goods and demand of duties, the tax

arrear shall not include the duties on

such seized goods where such duties

on the seized goods have not been

quantified.

Explanation.- Where a declarant has

already paid either voluntarily or

under protest, any amount of duties,

cesses, interest, fine or penalty

specified in this sub-clause, on or

before the date of making a

declaration by him under section 88

which includes any deposit made by

him pending any appeal or in

pursuance of a court order in

relation to such duties, cesses,

interest, fine or penalty, such

payment shall not be deemed to be

the amount unpaid for the purposes

of determining tax arrear under this

sub-clause;

xxx xxx xxx

xxx xxx xxx

88. Subject to the provisions of this Scheme, where any

person makes, on or after the 1st day of September,

1998 but on or before the 31st day of December,

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1998, a declaration to the designated authority in

accordance with the provisions of section 89 in

respect of tax arrear, then, notwithstanding anything

contained in any direct tax enactment or indirect tax

enactment or any other provision of any law for the

time being in force, the amount payable under this

Scheme by the declarant shall be determined at the

rates specified hereunder, namely :-

xxx xxx xxx

xxx xxx xxx

(f) where the tax arrear is payable under the

indirect tax enacatment-

(i) in a case where the tax arrear

comprises fine, penalty or interest but

does not include duties (including

drawback of duty, credit of duty or

any amount representing duty) or

cesses, at the rate of fifty per cent, of

the amount of such fine, penalty or

interest, due or interest, due or

payable as on the date of making a

declaration under section 88,

(ii) in any other case, at the rate of fifty

per cent, of the amount of duties

(including drawback of duty, credit of

duty or any amount representing

duty) or cess due or payable on the

date of making a declaration under

section 88.

xxx xxx xxx

xxx xxx xxx

91. The designated authority shall, subject to the

conditions provided in section 90, grant immunity from

instituting any proceeding for prosecution for any offence

under any direct tax enactment or indirect tax enactment,

or from the imposition of penalty under any of such

enactments, in respect of matters covered in the

declaration under section 88."

On 8th December, 1998 the Government passed the Kar Vivad

Samadhan Scheme (Removal of Difficulties) Order. This Order reads

as follows:

"1. (1) This order may be called the Kar Vivad

Samadhan Scheme (Removal of Difficulties) Order,

1998.

(2) It shall be deemed to have come into force on

the 1st day of September, 1998.

2. Where a declaration to the designated authority has

been made in respect of tax arrear in relation to

indirect tax enactment for the amount of duties

(including drawback of duty, credit of duty or any

amount representing duty), cesses, interest, fine or

penalty which constitutes the subject matter of a

demand notice or a show cause notice issued on or

before the 31st day of March, 1998 but remaining

unpaid and pending determination on the date of

making a declaration and, where, in respect of the

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same matter stated in the said declaration, a show

cause notice has also been issued to any other

person and is pending adjudication on the date of

making the declaration, then, no civil proceeding for

imposing of fine or penalty shall be proceeded with

against such other person and in such cases the

settlement in favour of the declarant under sub-

section (1) of section 90 shall be deemed to be full

and final in respect of such other person also on

whom a show cause notice was issued on the same

matter covered under the declaration."

The Commissioner of Customs and Central Excise issued a

clarificatory note dated 16th December, 1998 wherein it was clarified

that the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order

only applied to cases where the show cause notices had been issued

on or before 31st March, 1998 and where such notices were pending

adjudication. It was clarified that the said Order would not apply to

cases where the show cause notices had been adjudicated by the

competent authority and fines/penalties had already been imposed on

the date of making the declaration.

The Company as well as all its Directors/Officers filed separate

declarations before the Designated Authority. The Commissioner

determined the settlement amounts and the Company and the

Directors/Officers paid the amounts. It is claimed that the

Directors/Officers paid under protest.

All the Directors/Officers then filed Writ Petitions. The Officers

who were posted in the Kerala factory filed Writ Petitions in the High

Court of Kerala. The Officers who were posted in the Gujarat factory

filed Writ Petitions in the High Court of Gujarat. All the Petitioners

claimed a refund of the amounts paid by them. It was claimed that as

the Company had settled under the Kar Vivad Samadhan Scheme they

were entitled to the benefit of the Kar Vivad Samadhan Scheme

(Removal of Difficulties) Order. It was claimed that as they had paid

the amounts under protest they were therefore entitled to refund of

the amounts paid by them.

The High Court of Kerala, by the impugned Order dated 7th

March, 2000, allowed the Writ Petition and directed refund of the

amounts. Pursuant to the Order dated 7th March, 2000 the Officers in

Kerala got a refund. The High Court of Gujarat dismissed the Writ

Petition. Therefore, in their case, no refund has taken place. The

Judgment of the High Court of Kerala is assailed by the Union of India.

The Judgment of the High Court of Gujarat is assailed by the

Directors/Officers working in Gujarat to whom relief has been refused.

Mr. Ganesh pointed out that the admitted facts are (a) that show

cause notices had been issued not only to the Company but also to the

various Directors/Officers of the Company, (b) that the show cause

notices had been adjudicated upon and on the Company excise duty as

well as penalty had been imposed, whereas on each of the

Directors/Officers a penalty of Rs. 2,00,000/- had been imposed, (c)

that the Company as well as its Officers had filed Appeals which were

pending, (d) that not only the Company but each of the

Directors/Officers filed a declaration under the Kar Vivad Samadhan

Scheme, (e) that those declarations were also adjudicated upon and

the settlement amounts determined and paid not only by the Company

but also by each of the Officers.

Relying upon the provisions of the Kar Vivad Samadhan Scheme

Mr. Ganesh submitted that the Scheme was very clear. He submitted

that declarations had to be filed, not only by the Company but by each

of the Directors/Officers on whom show cause notice had been issued.

He submitted that each declaration had to be separately dealt with and

a settlement amount arrived at for each declaration. He submitted

that each declarant would then have to pay the amount settled. He

submitted that a plain reading of the Kar Vivad Samadhan Scheme

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(Removal of Difficulties) Order showed that the benefit was to be given

only in those cases where the show cause notices were still pending

adjudication. He submitted that once the show cause notice had been

adjudicated upon, as admittedly they were in this case, the

Directors/Officers were not entitled to the benefit of the Kar Vivad

Samadhan Scheme (Removal of Difficulties) Order. He submitted that

this position had been made clear by the clarificatory note dated 16th

December, 1998 which had been issued by the Commissioner. He

submitted that the Judgment of the High Court of Gujarat is the

correct Judgment. He submitted that the High Court of Kerala

misdirected itself and proceeded on an erroneous basis. He submitted

that the High Court of Kerala has proceeded on the basis that as the

Appeals were still pending, the adjudication proceedings had not

terminated. He submitted that the reasoning of the High Court of

Kerala cannot be sustained as the benefit of Kar Vivad Samadhan

Scheme (Removal of Difficulties) Order was not to be given where the

proceedings were pending adjudication but only where the show cause

notices were pending adjudication.

Mr. Vellapally, on the other hand, submitted that only one show

cause notice had been issued. He submitted that in the same show

cause notice the Company was called upon to show cause why excise

duty and penalty be not levied and the Directors/Officers were also

called upon to show cause why penalty be not levied on them. He

submitted that Section 91 of the Kar Vivad Samadhan Scheme makes

it clear that on payment being made and a certificate being granted,

immunity is granted against prosecution for any offence and from

imposition of penalty. He submitted that once the Company settled

under the said Scheme, there was immunity in respect of the matter

for which the show cause notice was issued. He submitted that

penalty was sought to be imposed on the Directors/Officers for the

same matter in respect of which the Show Cause Notice had been

issued on the Company. He submitted that once the Company got

immunity in respect of that matter, nothing survived even against the

Directors/Officers.

We are unable to accept this submission. Under the Kar Vivad

Samadhan Scheme there is no adjudication on the subject matter of

the demand notice or show cause notice. There is a settlement of the

"tax arrears". Even though the same show cause notice may call upon

the Company and its Directors/Officers to show cause, there is a

separate demand for "tax arrears" against the Company and a

separate demand for "tax arrears" against the Directors/Officers. Thus

each entity/person would have to file a declaration separately. The

settlement is in respect of each declaration. Section 91 only gives

immunity in respect of matters covered in the declaration. The

matter covered in the declaration by the Company is the "tax arrears"

of the Company. The declaration by the Company admittedly does not

cover the tax arrears of the Directors/Officers. Thus they get no

immunity under Section 91 on a settlement by the Company.

Mr. Vellapally next submitted that the Kar Vivad Samadhan

Scheme (Removal of Difficulties) Order, if read as a whole, makes it

clear that the benefit of the declaration made by the Company was to

accrue even to the Officers of the Company so long as the adjudication

proceedings were pending. He submitted that the interpretation

sought to be given by the Department would render nugatory the Kar

Vivad Samadhan Scheme (Removal of Difficulties) Order. He

submitted that such an interpretation would lead to uncertainty. He

submitted that the applicability of the Order could not depend upon

whether or not an Officer has been proceeded with adjudication

expeditiously or not. He submitted that the object was to give benefit

to all Directors/Officers of the Company. He submitted that the

restricted interpretation would defeat the object.

We have heard the parties. In our view, a reading of the Kar

Vivad Samadhan Scheme (Removal of Difficulties) Order shows that

where a declaration had been made in respect of a tax arrear and

where in respect of the same matter a show cause notice had also

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been issued to any other person, then the settlement in favour of the

declarant has to be deemed to be full and final in respect of other

persons on whom show cause notices had been issued. It is settled

law that when an Appeal is pending there is no finality to the

proceedings. The proceedings are then deemed to be continuing.

Undoubtedly, at one place the Kar Vivad Samadhan Scheme (Removal

of Difficulties) Order seems does state that the show cause notice

should be pending adjudication. However, the same order also talks of

the show cause notice being in respect of same matter on which the

show cause notice has been issued to the main declarant. Then the

Order provides that a settlement in favour of the declarant will be

deemed to be full and final in respect of other persons also. This

Order has to be read as a whole. If read as a whole, it is clear that a

settlement by the main declarant is to operate as full and final

settlement in respect of all other persons on whom show cause notice

was issued in respect of the same matter. Thus read as a whole the

words "pending adjudication" cannot be read to exclude cases where

the proceedings are still pending in Appeal. Even otherwise the order

has to be read along with the Kar Vivad Samadhan Scheme. Under

the Kar Vivad Samadhan Scheme a party can file a declaration so long

as the proceedings are pending. Thus, even though the show cause

notice may have been adjudicated upon and an Appeal is pending a

party could still take the benefit of the Kar Vivad Samadhan Scheme

and file a declaration. The object of the Kar Vivad Samadhan Scheme

(Removal of Difficulties) Order is to give benefit of a settlement by the

main party (i.e. the Company in this case) to all other co-noticees.

This being the object a classification, restricting the benefit only to

cases where the show cause notice is pending adjudication, would be

unreasonable. If read in this manner the Order would be

discriminatory. An interpretation which leads to discrimination

mustbe avoided. An interpretation, as suggested by Mr. Ganesh,

would also be against the object of the Kar Vivad Samadhan Scheme

(Removal of Difficulties) Order. It is therefore not possible to accept

the submissions of Mr. Ganesh. In our view the reasoning given by

the High Court of Kerala is correct and needs to be upheld.

In any event this would clearly be a case where two views are

possible. It is settled law that if two views are possible then the one

which is in favour of the assesse must be adopted. On this ground

also the interpretation sought to be given by Mr. Ganesh cannot be

accepted.

In this view of the matter, Civil Appeal Nos. 6260-6265 of 2000

are dismissed. Civil Appeal Nos. 633 to 642 of 2002 are accordingly

allowed and the Judgment of the High Court of Gujarat is set aside.

The question now arises whether the Directors/Officers are

entitled to a refund. Section 93 of the Kar Vivad Samadhan Scheme

reads as follows:

"93. Any amount paid in pursuance of a declaration made

under section 88 shall not be refundable under any

circumstances."

Admittedly, in this case, all the Officers have paid the amounts in

pursuance of the declaration made by them under Section 88. Even if

they have paid the amounts under protest they are not entitled to

refund. The Directors/Officers in Kerala would also not have been

entitled to refund by virtue of Section 93. However, Section 93 does

not seem to have been pointed out to the High Court of Kerala. As,

pursuant to the Order of the High Court of Kerala, they have received

refund we do not direct that they should repay the amounts to the

Revenue.

The Appeals stand disposed of accordingly. There will be no

order as to costs.