Settlement Commission order set aside for violating Section 127C(5) by not supplying jurisdictional Commissioner’s report.

The petitioner, M/s. Sun Enterprises, imported containers declared as waste paper; however, customs authorities discovered concealed cigarettes.

The goods were seized under Section 110 of the Customs Act, 1962, followed by a Show Cause Notice (SCN) dated 29.12.2014.

The petitioner applied to the Settlement Commission under Section 127B(1) to settle duty liabilities.

While the initial admitted duty was ₹4.63 Crores, the Commission’s final order dated 07.04.2016 enhanced the liability to ₹5.32 Crores based on a report from the jurisdictional Commissioner dated 18.03.2016.

This report was never shared with the petitioner.

In a related matter (SCA 19152/2016), a second application by the proprietor was rejected because the main firm had not filed a settlement for a subsequent redundant SCN.

1. Whether the Settlement Commission’s order was passed in violation of the principles of natural justice and the statutory procedure prescribed under Section 127C of the Customs Act by failing to supply the jurisdictional Commissioner’s report to the applicant.

2. Whether the rejection of the second settlement application in the connected matter was legally sustainable given the overlapping nature of the proceedings.

The court primarily applied Section 127C of the Customs Act, 1962.

Sub-section (3) mandates calling for a report from the jurisdictional Commissioner after an application is allowed to proceed.

Sub-section (5) necessitates that the Settlement Commission afford an "opportunity to the applicant... to be heard" after examining said records and reports before passing a final order.

This reflects the principles of natural justice, requiring that any adverse material (such as a report enhancing liability) must be disclosed to the affected party.

The Court observed that the Settlement Commission admitted the application on 12.01.2016 with a recorded duty of ₹4.63 Crores, but later relied on a report dated 18.03.2016 to increase the liability to ₹5.32 Crores.

The Court emphasized that Section 127C(5) imposes an "obligation" to provide the applicant with the report and a subsequent hearing.

Since the Revenue's report, which formed the basis for the higher duty, was never supplied to the petitioner, the Commission bypassed the statutory mandate of providing a meaningful opportunity to respond.

Regarding the second petition, the Court found the Commission’s reasoning inconsistent, noting it had claimed no report was received for the second SCN while simultaneously adjudicating the same goods in the first proceeding.

The High Court allowed both writ petitions and quashed the Settlement Commission’s orders dated 07.04.2016 and 25.10.2016.

Both matters were remanded to the Settlement Commission for fresh consideration, with directions to follow statutory provisions and afford the petitioners a proper hearing.

The Court expressed no opinion on the merits of the duty liability itself.