The compounding amount will be 20% of market value only? Whether it will be 20% of market value or Rs. 10,00,000/- whichever is higher?

PJ/Case Laws/2010-11/1022

Case: Rajesh Kumar Sharma versus Union of India & Ors

Citation: 2007 (209) ELT 0003 (SC)

Issue:- Whether the compounding amount will be 20% of market value only? Whether it will be 20% of market value or Rs. 10,00,000/- whichever is higher?

Brief Facts:- Petitioner had applied for compounding of an offence committed by him under Section 135 (1) (a) of the Customs Act, 1962. The Compounding Authority allowed the application and imposed compounding amount of Rs. 10,00,000/-. Against the imposition of compounding amount, petitioner filed writ petition wherein stand was taken by the petitioner that the compounding amount as fixed is beyond the permissible limit. This plea was rejected by the High Court. Hence, the petitioner is before the Apex Court.

Petitioner’s Contentions:- Petitioner contended that the extent of compounding amount as fixed by the Compounding Authority was beyond the permissible limit. It was submitted that market value of the goods which had not been declared was Rs. 8,45,176/- and therefore it should have been 20% of the said market value.

It was further stated that since the purpose of compounding is to prevent unnecessary litigation, if the interpretation given by the High Court that the quantum has to be upto 20% of the market value of the goods or upto Rs.10,00,000/- whichever is higher is accepted same would be counterproductive.

Reasoning of Judgment:- The Apex Court noted that the guidelines for compounding are contained in Circular No.54/2005-Cus dated 30th December, 2005. And the Central Government had brought into force the Customs (Compounding of Offences) Rules 2005 and Central Excise (Compounding of Offences) Rules, 2005) with effect from 30th December, 2005. The purpose of compounding of offence against payment of compounding amount is to prevent litigation and encourage early settlement of disputes. The cases where compounding would be rejected are also spelt out in the said circular.

The Apex Court considered the definition contained in Rule 5 of the said Rules and held that the crucial words in the Rule are "whichever is higher". It was noted that the Petitioner had contended that the word "up to" applies to both 20% of the market value of the goods or Rupees Ten Lakhs. This interpretation as suggested is clearly unacceptable. If the interpretation suggested is accepted, it would render expression "whichever is higher" redundant. Thus, it was held that there is no merit in the petition.

Decision:- Appeal dismissed.

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PJ/Case Laws/2010-11/1022

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