Indian Kanoon - Search engine for Indian Law

Compounding Authority [hereinafter referred to as the 'compounding authority'] whereby a common compounding E/86658/2025 & Ors.

application dated 1/2.7.2025 filed by the appellants herein was dismissed under Rule 4 (3) of the Customs (Compounding of offences) Rules, 2005 without giving any opportunity of hearing to the appellants.

2. The issue involved herein for consideration is whether the Compounding Authority i.e. the Chief Commissioner was justified in rejecting the compounding application filed under Section 137(3) of the Customs Act, 1962 without granting any opportunity of hearing to the appellant which is the mandate enshrined in the first proviso to Rule 4(3) ibid?

hearing to the appellants. This was brought to the notice of the Hon'ble High Court by DRI in their Affidavit in Reply filed before the Hon'ble High Court on 4.7.2025 opposing the anticipatory bail application.

7. These appeals have been vehemently opposed by revenue on the ground of maintainability before this Tribunal. Their contention is anchored in Section 129 A (1) of Customs Act, 1962 which, according to them, provides for appeal before the Tribunal only against the Orders of Principal Commissioner of Customs or Commissioner of Customs. It has been submitted that orders on the compounding application filed under Section 137(3) of Customs Act, 1962 are not appealable under Section 129A(1) ibid before the Tribunal as the Chief Commissioner is neither an 'adjudicating authority' nor the said designation has been referred anywhere in Section 129A(1). Furthermore, the Compounding Rules themselves do not contain any provision for appeal. Argument under Section 129 C (4) ibid has also been raised on behalf of revenue regarding the issue of maintainability of these appeals before a Single Member Bench of the Tribunal, citing the alleged duty invasion of Rs.44 crores under investigation. On the merit of the Appeals, it has been argued on behalf of Revenue that the compounding application has not been 'rejected' but merely held 'inadmissible' by the impugned order due to non-payment of the dues such as duty, fine, penalty and interest. According to revenue, Compounding Rules and the circulars mandate the payment of duty, interest and E/86658/2025 & Ors.

E/86658/2025 & Ors.

The definition of adjudicating authority is manifestly, encompassing 'any authority' which passes 'any order or decision under this Act'. This definition unequivocally includes any order that decides the lis of a party. Consequently the Chief Commissioner in deciding the compounding application filed u/s. 137 (3) of the Customs Act, 1962, undoubtedly falls within the aforesaid definition of 'adjudicating authority'. While passing the orders under the Compounding of Offences Rules, 2005, the Chief Commissioner is neither a Board nor Commissioner (Appeals) nor Appellate Tribunal but acts as Adjudicating Authority. The Chief Commissioner as compounding authority is thus an "adjudicating authority". Section 128 ibid permits appeal to Commissioner (Appeals) by any person aggrieved by any decision or order passed under the Act by an officer of customs lower in rank than a Principal Commissioner/ Commissioner of Customs. Whereas Section 129A ibid empowers any person aggrieved by any decision or order passed by an adjudicating authority, to prefer an appeal to the Appellate Tribunal challenging such order, provided the appeal is not barred under first proviso to Section 129A. Since the Appeal provision exists in the Act itself, absence of such a provision in the Compounding of Offence Rules is not of much significance. Crucially the Compounding of Offence Rules neither prohibit nor state that no Appeal will lie against such an order. Had there been such a prohibition, a writ petition would indeed have been the sole recourse available.

any opportunity of hearing to them.

26. The statutory scheme of Compounding is intrinsically designed for settlement without compromising on due and payable revenue. Section 137(3) of the Customs Act, 1962 permits the filing of compounding application at any stage providing that any offence under that Chapter may, either before or after the institution of the prosecution, be compounded by the Principal Chief Commissioner of Customs or Chief Commissioner of Customs on payment by the person accused of an offence, to the Central Government, of such compounding amount and in such manner as may be specified by the Rules. The proviso to Section 137(3) enumerates the disability clauses for entertaining the compounding application. It is not even the case of Revenue that the instant matter falls under any of these disability clauses. Notably the goods involved herein are freely importable. Unlike provisions for "Settlement of Case" which confers the power to grant immunity even from penalty, there is no such immunity from penalty under the Compounding of Offences Rules, 2005. Crucially, there is no embargo on making an application for compounding prior to the issuance of Show Cause Notice or the payment of customs duty and other dues. A compounding application, if made, can only be allowed by conferring immunity from prosecution upon the deposit of dues determined as payable including duty, interest and penalty, in addition to such compounding fee as may be determined and directed by the Compounding Authority. The principle of Natural justice is E/86658/2025 & Ors.