Taxation Law | Assessee Cannot Challenge Show Cause Notice After Opting For Settlement Commission: Delhi High Court

"Lliability to pay interest is a statutory consequence of the liability to pay duty and does not stand extinguished merely because the quantum of duty is settled by the Settlement Commission." Delhi High Court, in a significant ruling dated August 21, 2026, held that an assessee who consciously opts to approach the Settlement Commission cannot subsequently invoke writ jurisdiction under Article 226 of the Constitution of India to challenge the validity or limitation of the underlying Show Cause Notice (SCN).

A Division Bench comprising Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar observed that writ courts cannot act as appellate courts over the Settlement Commission and noted that unsettling such reasoned orders would erode assessee confidence and trigger unnecessary litigation.

The dispute arose after the Directorate of Revenue Intelligence (DRI) initiated proceedings against M/s Nitco Ltd. concerning customs duty evasion and the alleged misuse of Export Promotion Capital Goods (EPCG) authorizations. After an SCN demanding duty was adjudicated by the Commissioner of Customs (Export), Mumbai, the company opted not to pursue an appeal and instead approached the Customs, Central Excise & Service Tax Settlement Commission. The Commission settled the duty liability and directed the jurisdictional Commissioner to quantify the interest liability, which was ultimately calculated at ₹15,16,65,821, prompting Nitco to challenge the interest direction and the underlying SCN before the High Court.

The primary question before the court was whether an assessee, having elected to settle its customs dispute before the Settlement Commission, can challenge the validity and limitation of the underlying Show Cause Notice under Article 226. The court was also called upon to determine whether the direction to quantify interest liability rendered the settlement order vulnerable to judicial interference.

Narrow Scope Of Judicial Review Over Settlement Commission Orders

The High Court began by examining the strict boundaries governing judicial review of Settlement Commission orders under Article 226 and Article 227 of the Constitution of India. The bench emphasized that judicial intervention is impermissible merely because an alternative view is possible on the material before the Commission.

Relying on the landmark Supreme Court ruling in Jyotendrasinhji v. S.I. Tripathi, the court reiterated that judicial review is restricted to exceptionally narrow grounds, namely where the order contravenes statutory provisions, causes grave prejudice, or is vitiated by fraud, bias, or malice.

The bench further cited the Supreme Court's decision in Kotak Mahindra Bank Limited v. Commissioner of Income Tax, Bangalore, reminding that High Courts must refrain from scrutinizing orders of the Settlement Commission as an appellate forum.

"Unsettling reasoned orders of the Settlement Commission may erode the confidence of the bonafide Assessees, thereby leading to multiplicity of litigation where settlement is possible."

Assessee Cannot Circumvent Settlement By Reopening SCN

Addressing the petitioner's argument that the SCN dated June 18, 2018, was barred by limitation under Section 28 of the Customs Act, 1962, the bench held that the company could not be allowed to take a complete U-turn after voluntarily opting for the settlement mechanism.

The court observed that the petitioner had consciously abandoned its statutory appellate remedies against the adjudication order dated March 13, 2019, and actively sought a conclusive resolution under Section 127J of the Customs Act before the Settlement Commission.

The judges noted that allowing the company to challenge the underlying SCN under the guise of assailing the interest component would amount to permitting litigants to circumvent the settlement process and reopen settled matters at will.

Interest Liability Is Inescapable Statutory Consequence Of Duty

The High Court firmly rejected the contention that the Settlement Commission erred in directing the jurisdictional Commissioner to verify and quantify the actual interest payable. The company had self-quantified its interest liability at ₹1.10 Crore, but the department subsequently re-calculated it at ₹15.16 Crore.

The bench clarified that the Settlement Commission had not definitively accepted the petitioner's preliminary calculation but had merely tasked the department with computing the statutory dues in accordance with law.

The court ruled that the statutory liability to pay interest naturally attaches to the duty demand and remains fully operative even when the core duty quantum is settled through a compromise mechanism.

Dismissing the writ petition, the High Court held that the petitioner failed to demonstrate any jurisdictional error, statutory contravention, bias, or malice in the Settlement Commission's order dated November 14, 2019. The court concluded that while any erroneous calculation of interest by the jurisdictional Commissioner could be independently tested if maintainable, the settlement order and the underlying SCN remain conclusive and immune from collateral challenge.

Date of Decision: 21 August 2026