Whether Tribunal is justified in dismissing assessee’s prayer for waiver of pre-deposit on the belief that they had made a misleading statement before the Apex Court that goods were in custody of revenue?

PJ/Case Laws/2012-13/1121

Case: BHAVYA APPARELS PVT. LTD. V/S UNION OF INDIA

Citation: 2012 (280) E.L.T. 27 (Guj.)

Issue:- Whether Tribunal is justified in dismissing assessee’s prayer for waiver of pre-deposit on the belief that they had made a misleading statement before the Apex Court that goods were in custody of revenue?

Brief Facts: - Petitioner-company is engaged in manufacturing of textile goods and is a 100% EOU. For certain irregularities committed by the petitioners, the departmental authorities carried out verification. Show cause notice was issued and adjudication proceedings were initiated. The Adjudicating Authority passed Order-in-original on 22-7-2003 demanding customs duty of Rs. 16.97 crores with matching amount of penalty. Independent penalties on Directors were also imposed.

Against the order of Adjudicating Authority, petitioners preferred appeal before the Tribunal. Application for stay and for waiving of pre-deposit was filed. Tribunal passed an order on 14-1-2004 and granted stay and waived rest of the amount by way of pre-deposit on condition that the petitioners deposit sum of Rs. 3 crores. The Directors were however, required to deposit Rs. 20 lakh and Rs. 10 lakh respectively.

Petitioners challenged the said order before the High Court. It was suggested by the petitioners, that since the order of the Tribunal grants conditional stay in favour of the petitioners and since the petitioners do not want any interim stay as such, they would approach the Tribunal for hearing the appeals on merits. The Court disposed off the petition by order dated 3-5-2004 observing that as and when such application is moved, Tribunal shall consider the same in accordance with law.

Petitioner thereupon approached the Tribunal making stand clear that the petitioners are not interested in stay pending appeal but that the entire requirement of pre-deposit be waived. The Tribunal, however by an order dated 14-6-2004 refused any such modification. The petitioners therefore, once again approached the High Court and their petition was dismissed [2005(185) E.L.T.344 (GOI)].

Petitioner carried the matter before the Supreme Court. The Supreme Court by judgment in case of Bhavya Apparels Pvt. Ltd. v. Union of India [2007 (216) E.L.T. 347(S.C.)], remanded the proceedings of back to the Tribunal for reconsideration of the entire issue as the part of the goods were in custody of the Revenue.

The Tribunal observed that the fact that the part of the goods were in custody of the Revenue was not tru and was misleading and further considered the facts of the case and ordered pre-deposit of Rs.1.70 crores (Rupees One Crore, Seventy Lakhs only) which is 10% of the duty confirmed against the petitioner.

Hence, Petitioner is again before the High Court.

Petitioner’s Contention: - Petitioner contended that conveying to the Apex Court that goods are still in custody of the Revenue was a pure error. In fact both the sides had made such a suggestion. There was no intention on part of him to mislead the Court. In any case, Revenue has not approached the Apex Court for any modification of this order. He further submitted that Tribunal erred in clearly ignoring them financial condition and total inability to weigh the burden of pre-deposit of Rs. 1.7 crore. He placed on record balance sheet of the company of the recent past. He reiterated the stand that they do not press for stay against recovery.

Respondent’s Contention: - Revenue fairly submitted that a part of the goods is in custody of the respondents.

The respondent argued that the Tribunal has applied its mind and insisted on pre-deposit of only of fraction of the amount of duty and penalty imposed by the adjudicating authority. He submitted that the Tribunal has also examined prima facie case and found that there is no case made out for waiving entire pre-deposit condition.

Reasoning of Judgment: - The High Court perused the observations made by the Supreme Court that “A right of appeal is not a fundamental right. It is a statutory right. As a right of appeal is a statutory right, it may also be hedged by conditions. It is, however, trite that conditions imposed may not be such which may for all intent and purport take away a vested right of appeal. [Dilip S. Dahanukar v. Kotak Mahindra Co. Ltd. & Anr.]

The High Court held that if the part of goods are still held by the Department then , it was obligatory on the part of the Tribunal to take that factor into consideration in making the order of pre-deposit. Furthermore, while exercising its jurisdiction, the Tribunal was also required to apply its mind in regard to the question of undue hardship on the part of the appellants upon considering existence of a prima facie case. Merit of the case ordinarily should not otherwise be gone into unless the question on the face of it appears to be concluded.

It was held that the Tribunal while imposing the condition of pre-deposit was required to apply its mind in regard to the existence or otherwise of the conditions laid down in the statute.

Reliance was placed on the decision given in Vijay Prakash D. Mehta case wherein applicability or interpretation of Section 129E of the Act was considered.

The High Court were not inclined to consider the judgment of the Madhya Pradesh High Court in Kishori Pujari Granite Pvt. Ltd. v. Union of India [184 ELT 225] and the decision of the Kerala High Court in Ashoka Rubber Products v. Collector of C. Ex. [1989 (43) ELT 605] submitted by the Petitioner that the matter requires consideration.

It was held that where the part of the goods which is the subject matter of the proceedings under the Act is in possession of the Revenue, proviso appended to Section 129E of the Act should have been invoked. The justification to do so was given in judgment in Mardia Chemicals Ltd. and Others v. Union of India and Others [(2004) 4 SCC 311] and it was held that such a condition would be onerous and, thus, arbitrary if a suitor is required to deposit such an amount at the initial stage and not at the appellate stage.

On facts, the High Court at the outset clarified that the statement that goods of the petitioners are still lying with the Revenue was a joint statement. Though such statement was later on found to be inaccurate, it cannot be stated that the petitioners deliberately mislead the Supreme Court and obtained the order in their favour. In any case, if the Revenue was of the opinion that on account of such misrepresentation of facts before the Supreme Court, a wrong order was obtained, it was open for the Revenue to approach for modification of such an order. Even otherwise Supreme Court's order is based not solely on single factor of petitioners' goods lying with the Revenue Authority. Such as can be seen from the noted portion of the order, is based on several other factors. In that view of the matter, the Court was of the opinion that Tribunal ought to have out of due deference to the decision of the Apex Court, looked the issue little more closely. In the present case the High court were confronted with a situation where huge duty demand and penalty is imposed against the petitioners by the adjudicating authorities. First appeal against such an order though filed by the petitioner stands terminated today on account of failure to meet with pre-deposit requirement. It is the case of the petitioners that financial condition of the company would simply not enable the company to deposit sum as large as Rs. 1.7 crores. If such condition is insisted upon strictly, appeal of the petitioners would be dismissed without hearing.

The Court perused the balance sheet of the company placed on record. Year after year company continued to incur huge loss. Balance-sheet suggests that there is no manufacturing or other activity being undertaken by the company and with each successive year, accumulated loss swell. In fact net profit of the company is in negative since long. All these would demonstrate that the petitioners have no means of fulfilling the pre-deposit condition. If no respite is granted to the petitioners, their first appeal before the Tribunal would be rendered infructuous. In special facts of this case and also looking to the stand of the petitioners that they are not seeking any stay against the duty and penalty demands, but requesting for the appeal being heard on merits without any pre-deposit, they inclined to waive entire pre-deposit requirement. Order of the Tribunal 28-4-2011 is therefore, modified in above terms. Petitioners be heard on merits. It is clarified that in the meantime during the pendency of the appeal, there shall be no stay against duty and penalty demand and it would be open for the authorities to recover the same in accordance with law.

Decision: - Petition disposed off.

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PJ/Case Laws/2012-13/1121

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