Section 127C explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 127C sets out what happens after an application under section 127B reaches the Settlement Commission. There is an early gate with short periods, a report from the jurisdictional Commissioner, an optional investigation, a settlement order, and rules on payment, voiding and revival. This article follows the live sub-sections in the text on the CBIC portal updated to 30 March 2022 and adds the new sub-sections (11) and (12) inserted by the Finance Act, 2025. Because new applications under section 127B are barred on or after 1 April 2025, the procedure below now matters mainly for pending applications, which an Interim Board deals with.
Within seven days of receiving the application, the Settlement Commission issues a notice asking why it should be allowed to proceed, and within fourteen days of that notice it either allows the application or rejects it. If no notice or order comes in time, the application is deemed allowed. It then calls for a report from the Commissioner, passes an order with the terms of settlement, and the settlement is void if obtained by fraud or misrepresentation. Unpaid sums are due within thirty days and are otherwise recovered under section 142. On and from 1 April 2025, for pending applications the same sub-sections apply with the words "Settlement Commission" read as "Interim Board" (sub-section (11)).
The text consulted is the CBIC copy last updated on 30 March 2022 (the Act as amended up to the Finance Act, 2022), with the Finance Act, 2025 additions. The Finance Act, 2023 could not be checked in full; see the section on later Finance Acts below.
How to read the section
Section 127C was substituted for the earlier section by the Finance Act, 2007 (22 of 2007), with effect from 01.06.2007, per the footnote. The footnote then prints the earlier section in full. That old wording, including its instalment and eighteen per cent interest provisions, is not law and is not explained here. Sub-section (6) is printed as omitted, and its earlier wording in the footnote is likewise not explained.
For the application itself, see our article on section 127B. If your application is at this stage and you want help with the timetable, our legal dispute resolution team can assist.
The timetable at a glance
| Step | Sub-section | Period as printed |
|---|---|---|
| Notice to the applicant to explain why the application should proceed | (1) | Within seven days from receipt of the application |
| Order allowing or rejecting | (1) | Within fourteen days from the date of the notice |
| Call for report and records from the Commissioner | (3) | Within seven days from the order under (1) |
| Commissioner furnishes report | (3) | Within thirty days of receiving the communication |
| Direction for further inquiry to Commissioner (Investigation) | (4) | Within fifteen days of receipt of the report |
| Report from Commissioner (Investigation) | (4) | Within ninety days of receiving the communication |
| Rectification of the order under (5) | (5A) | Any time within three months from the date of the order |
| Payment of sums under the order | (9) | Within thirty days of receipt of a copy of the order |
| Completion of revived proceedings | (10) | Before the expiry of two years from receipt of communication that the settlement became void |
Sub-section (1): the gate
On receipt of an application, the Settlement Commission "shall, within seven days from the date of receipt", issue a notice to the applicant to explain in writing why the application should be allowed to proceed. After considering the explanation it shall, "within a period of fourteen days from the date of the notice, by an order, allow the application to be proceeded with or reject the application". On rejection, "the proceedings before the Settlement Commission shall abate on the date of rejection".
The proviso protects the applicant against delay: "where no notice has been issued or no order has been passed within the aforesaid period by the Settlement Commission, the application shall be deemed to have been allowed to be proceeded with."
Sub-section (2) and (3): the Commissioner's report
A copy of every order under sub-section (1) goes to the applicant and to the Principal Commissioner of Customs or Commissioner of Customs having jurisdiction (sub-section (2)).
Where the application is allowed or deemed allowed, the Commission shall within seven days call for a report and records from that Commissioner, who shall furnish the report within thirty days of receipt of the Commission's communication (sub-section (3)). The proviso says that if the Commissioner does not furnish the report in thirty days, the Commission proceeds without it.
Sub-section (4): further inquiry
If the report has been furnished in time and the Commission thinks further inquiry or investigation is needed, it may, for reasons recorded in writing, direct the Commissioner (Investigation) within fifteen days of receiving the report to make or cause to be made that inquiry and furnish a report within ninety days of receiving the communication. If that report is not furnished in time, the proviso lets the Commission pass its order under sub-section (5) without it. The Commissioner (Investigation) is defined in section 127A, covered in our article on section 127A.
Sub-section (5) and (5A): the order and its correction
After examining the records and reports, and after giving an opportunity to the applicant and the Principal Commissioner of Customs or Commissioner of Customs to be heard, "either in person or through a representative duly authorised in this behalf", and examining further evidence, the Commission may "pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report". So the order can reach beyond the application to matters raised in the reports.
Sub-section (5A), inserted by the Finance Act, 2017 (7 of 2017), with effect from 31-3-2017 per the footnote, lets the Commission amend the order within three months of passing it to rectify an error apparent on the face of record, on its own motion or when brought to its notice by the jurisdictional Principal Commissioner or Commissioner or the applicant. An amendment which has the effect of enhancing the applicant's liability needs prior notice to the applicant and the jurisdictional Commissioner and a reasonable opportunity of being heard.
Sub-section (7): materials and Benches
Subject to section 32A of the Central Excise Act, 1944 (1 of 1944), the materials on record are considered by the Members of the concerned Bench before passing an order under sub-section (5), and in relation to the passing of the order, section 32D of the Central Excise Act, 1944 applies. This article quotes those references as printed and says nothing more about that Act.
Sub-section (8): what the order must contain
The order "shall provide for the terms of settlement including any demand by way of duty, penalty or interest, the manner in which any sums due under the settlement shall be paid and all other matters to make the settlement effective". In case of rejection it contains the reasons. It must also provide "that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts".
The proviso: "the amount of settlement ordered by the Settlement Commission, shall not be less than the duty liability admitted by the applicant under section 127B."
Sub-sections (9) and (10): payment, voiding and revival
Payment. Where "any duty, interest, fine and penalty payable in pursuance of an order under sub-section (5)" is not paid within thirty days of receipt of a copy of the order, the unpaid amount "shall be recovered along with interest due thereon, as the sums due to the Central Government by the proper officer having jurisdiction over the applicant in accordance with the provisions of section 142". The rate of interest is not stated in this sub-section. Section 142 is covered in our article on recovery of sums due to Government.
Revival. Where a settlement becomes void under sub-section (8), the proceedings "shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with", and the proper officer may, notwithstanding any other provision of the Act, complete them "at any time before the expiry of two years from the date of the receipt of communication that the settlement became void".
Sub-sections (11) and (12): the Interim Board (Finance Act, 2025)
The Finance Act, 2025 (section 98) inserted two sub-sections after sub-section (10).
Sub-section (11). On and from the 1st day of April, 2025:
| Clause | Effect |
|---|---|
| (a) | Sub-sections (2), (3), (4), (5), (5A), (7), (8) and (8A) apply to pending applications, with the words "Settlement Commission", wherever they occur, read as "Interim Board" |
| (b) | In sub-section (3), the words "seven days from the date of order" are read as "seven days from the date of receipt of the order" |
| (c) | In sub-section (7), the word "Bench" is read as "Interim Board" |
| (d) | Sub-section (10) has effect as if "Settlement Commission" were "Settlement Commission or the Interim Board" |
Sub-section (12). Notwithstanding anything in the section, the Interim Board may, within three months from the date of its constitution under section 31A of the Central Excise Act, 1944, for reasons recorded in writing, extend the time limit referred to in sub-section (8A) by such further period not exceeding twelve months from the date of its constitution. Sub-section (8A) is not described in this article.
In plain terms: for a pending application, the steps in sub-sections (2) to (8A) are carried out by the Interim Board, and the time for the Commissioner's report under sub-section (3) now runs from the date of receipt of the order. The gazette text does not give the date of constitution of the Interim Board, and none is stated here. "Pending application" is defined in section 127A; see our article on section 127A.
Example
This example is of the procedure as it ran before 1 April 2025 (an application like this can no longer be made). Pooja Chemicals Ltd applies to the Settlement Commission on 3 June. The Commission issues a notice on 8 June asking why the application should proceed, and by an order within fourteen days of the notice allows it. The Commission calls for a report from the Commissioner, who furnishes it within thirty days. After hearing both sides, the Commission passes an order setting the terms, with the settlement amount not less than the duty liability Pooja admitted in the application. Pooja pays within thirty days of receiving the order. If the Commission later finds that the settlement was obtained by misrepresentation, it is void, and the proper officer may complete the revived proceedings within two years of the communication that the settlement became void.
The rules
The Customs (Settlement of Cases) Rules, 2007 are made under section 156, as their opening lines say; the copy consulted is dated 12 April 2017, the date printed on that file and not of the Act text. This article takes no rule-wise detail from it.
Changes made by later Finance Acts
| Finance Act | What changed | What the gazette prints about commencement |
|---|---|---|
| Finance Act, 2025 (No. 7 of 2025), section 98 | New sub-section (11): from 1 April 2025 the procedure sub-sections apply to pending applications with "Interim Board" for "Settlement Commission", plus two further modifications; new sub-section (12): the Interim Board may extend the sub-section (8A) time limit by up to twelve months from its constitution | Sub-section (11) states "On and from the 1st day of April, 2025". The Act received the assent of the President on 29 March 2025. The date of constitution of the Interim Board is not printed in the clause |
The Finance Act, 2023 amendments to the Customs Act could not be checked in full, because only an extract of that Act was available. Check the current text on the CBIC portal before relying on any clause of this section.
Need help while a settlement application is pending?
Short periods and a deemed-allowance rule make the early weeks important. Our team can help you track the timetable, prepare the explanation and plan for the hearing through legal dispute resolution for customs matters.
Key takeaways
- The Commission issues a notice within seven days and decides within fourteen days of the notice; silence means the application is deemed allowed to proceed.
- The Commissioner's report is due within thirty days of the communication; the Commission can proceed without it.
- The settlement amount cannot be less than the duty liability admitted under section 127B.
- A settlement is void if obtained by fraud or misrepresentation, and proceedings can be completed within two years of communication of voiding.
- Unpaid amounts after thirty days are recovered under section 142 with interest.
- On and from 1 April 2025, pending applications follow the same sub-sections with the Interim Board in place of the Settlement Commission (sub-section (11)); the Interim Board may extend the sub-section (8A) time limit by up to twelve months from its constitution (sub-section (12)).
Read next
- Section 127B: application for settlement of cases
- Sections 127D to 127G: powers of the Settlement Commission and inspection of reports
- Sections 127H and 127I: immunity from prosecution and penalty, and sending a case back
- Sections 127J to 127N: settlement order, recovery and bar on second application
Disclaimer: Based on the Customs Act, 1962 as published on the CBIC Tax Information Portal, updated to 30 March 2022 (amended up to the Finance Act, 2022), as consulted on 2 October 2026. The changes made by the Finance Act, 2025 are added from its gazette text; the Finance Act, 2023 could not be checked in full, and the current rules, regulations and notifications should be checked. This article is general information, not legal advice; check the official text before acting.