Whether revenue can initiate recovery proceedings after expiry of 180 days from date of stay order in all cases?

PJ/Case Study/2013-14/87

22 February 2014

PJ/Case Study/2013-14/87

Prepared by: CA Neetu Sukhwani &
Hushen Ganodwala

Case study

Introduction:-This case study is an attempt to highlight the harsh provisions contained in the proviso to section 35C of the Central Excise Act, wherein it has been stated that if appeal with respect to which stay order has been passed is not disposed off within a period of 180 days from the date of stay order, the stay order passed shall stand vacated. This provision was made with an intend to keep a track on those cases that were being purposely delayed on the part of the assessees after grant of stay. However, this provision is now serving as an important tool for coercive recovery by the revenue department. All the cases that are pending in the Tribunal for a long time for final hearing are being resorted to by the revenue department for coercive recovery. However, miscellaneous application for extension of stay may be filed by the appellant to get relief from the above mentioned harsh provision.

UMED CLUB VERSUS C.C.E. & S.T.-Jaipur-II [APPEAL NO. ST/1825/2012-CU (DB)]

Relevant legal provisions:
Section 35C of Central Excise Act, 1944.

Issue Involved:Whether revenue can initiate recovery proceedings after expiry of 180 days from date of stay order in all cases?

Brief Facts:- Umed Club, is hereinafter the appellant that has filed the appeal along with stay application to the Delhi Tribunal. The applicant had attended the personal hearing for stay application on 27.09.2012 in respect of appeal filed by them along with stay application; consequent to which the Stay order no. ST/SO/1068/2012 dated 08/10/2012 was passed. The above referred stay order was passed for granting the stay, the operative portion therein read as follows:-
“2. Considering the above averments, there shall be waiver of pre-deposit of penalty during the pendency of the appeal or six months period whichever is earlier…..”

The applicant submits that the period of one year has elapsed from the day of granting the stay, but the final hearing in the case is still awaited. However, the department is pursuing the applicant for deposition of dues involved in the issue. Consequently, a miscellaneous application for extension of stay was filed by the appellant as there was no mistake or delay on their part in concluding the final hearing for the appeal filed by them. This miscellaneous application for extension of stay is the subject matter of consideration of the present case study.

Appellant Contentions:-The appellant made following submissions before the Delhi Tribunal in their miscellaneous application for extension of stay:-
The applicant submitted that they have not been granted final personal hearing for the disposal of appeal till now from the date of passing of the stay order. Further, according to the second proviso to section 35C of the Central Excise Act, if appeal with respect to which stay order has been passed is not disposed off within a period of 180 days from the date of stay order, the stay order passed shall stand vacated. In lieu of the provision contained in the proviso to section 35C of the Central Excise Act that has also been made applicable to the service tax laws, the applicant hereby makes an application for extension of the stay order passed by your good honour in the interest of justice. It is also worth mentioning that the applicant has cooperated in the best possible manner with respect to proceedings pertaining to the appeal and as regards complying with the conditions of the stay order and there has been no delay in disposing of the present appeal on the part of the applicant. Therefore, in the interest of justice, it is requested to kindly extend the stay order passed in the present appeal till the final disposal of the appeal and oblige so that the applicant is protected from unnecessary litigations with regard to deposition of the dues till the disposal of the appeal.

1.    Judicial Pronouncements on the second proviso to section 35C :- The applicant placed reliance on the decision wherein it was held that the provision contained in the second proviso to section 35C is very harsh and unreasonable as practically it is very difficult for the appellate authorities to dispose of an appeal within a period of 180 days from the date of stay order on account of immense burden of various cases on them and the assessee should not be made the victim of harsh conditions of the proviso when there was no delay on assessee’s part in disposing off the appeal. The relevant extracts of the decisions are produced for the sake of convenient reference as follows:-

PML INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE [2013 (290) E.L.T. 3 (P & H)]:-

Stayorder - No automatic vacation of stay - Central Excise Act, 1944 - Section 35C(2A), proviso 2 - Scope of - Vacation of stay if appeal is not disposed by CESTAT within 180 days from passing of stay order - HELD : It is harsh, onerous and unreasonable condition - It burdens assessee for no fault of theirs, and makes their right of appeal illusory - Assessee has no control on matters pending before Tribunal, its Members, their workload and availability of infrastructure - Hence, condition of automatic vacation of stay has to be read down to mean that after 180 days, Revenue can bring to the notice of Tribunal conduct of assessee in delay or avoiding decision of appeal, so as to warrant vacation of stay - So read down, the condition does not remain illegal. [paras 43, 52, 54]

In light of the above cited decision, the applicant submits that the request for extension for the operation of stay order till the disposal of appeal should be accepted as it is evident that the applicant has not done any act to delay the disposal of appeal and as such, the non-disposal of appeal within the stipulated period was beyond the control of the applicant. Therefore, the stay order may please be extended till the disposal of the appeal in the interest of justice.

Further, the applicant also placed reliance on the decision given in the case of SIDHARTH OPTICAL DISC. PVT. LTD. VERSUS COMMISSIONER OF CUSTOMS, NEW DELHI [2010 (251) E.L.T. 564 (Tri. – Del)], wherein it was held that:-

Stayorder - Extension of, when matter not reaching hearing - Stay order passed on 8-9-2008 did not intend the stay to operate till disposal of appeal - Matter could not reach for hearing due to difficulties in listing - Six months time expired - Appellant cooperated to comply with stay order - For no fault of the appellant, the appellant should not suffer when the term of stay order has already expired - Operation of the order dated 8-9-2008 extended till disposal of appeal - Sections 35C and 35F of Central Excise Act, 1944. [para 3].

As the facts and circumstances of the above cited case are very much similar to the present case, its benefit should be extended to the applicant and the extension for operation of stay order till the disposal of the appeal may please be granted.

In continuation to the above judicial pronouncements, the applicant reiterates that there is no mistake on part of the applicant as the hearing was not granted. In such circumstance, recovery cannot be made since the matter is pending at the end of Tribunal. Reliance is also placed on the following judgments:-

·         COMMISSIONER OF CUS. & C. EX., AHMEDABAD Versus KUMAR COTTON MILLS PVT. LTD. [2005 (180) E.L.T. 434 (S.C.)]

Stay order - Powers of Appellate Tribunal to grant stay exceeding six months - Non-disposal of appeal within time specified and consequential vacation of stay order - Section 35C(2A) of Central Excise Act, 1944 - Interpretation of - Sub-section (2A) introduced in terrorem cannot be construed as punishing assessee for matters which may be completely beyond their control - Tribunal can extend period of stay on good cause and only on satisfaction that matter could not be heard and disposed of by reasons of fault of Tribunal for reasons not attributable to assessee - Tribunal not given any latitude to extend period of stay except on good cause and only when there is a fault of the Tribunal - Larger Bench order of Tribunal holding that amendment did not curtail powers of Tribunal to grant stay exceeding six months, upheld. [para 6]

·         NEDUMPARAMBIL P. GEORGE Versus UNION OF INDIA [2009 (242) E.L.T. 523 (Bom.)]

Stayof order - Non-disposal of appeal within 180 days period - Nothing on record to show that appeal could not be heard on account of any act on part of petitioners - Where appellant is not at fault and the failure is on account of the Tribunal to hear the appeal for whatever reason or on account of the acts of department, the second proviso of Section 129B(2A) of Customs Act, 1962 cannot be read to defeat the vested right of appeal of an appellant. [para 8]

·         SRI CHAKRA CEMENTS LTD. Versus COMMISSIONER OF C. EX., GUNTUR [2007 (219) E.L.T. 600 (Tri. - Bang.)]

Stay order - Recovery proceedings by Revenue - Legality of - When appeal is listed for final proceedings, Revenue is barred from recovery of amount till its disposal - Hence, letter threatening recovery issued by Revenue, not justified - Extension of stay order granted - Rule 41 of CESTAT (Procedure) Rules, 1982. [2005 (180)E.L.T. 434 (S.C.)relied on]. [para 4]

In the above cited decisions it was held that where the stay is vacated for no fault on part of the assessee but due to the fact that the appeal could not be heard; the Hon’ble Tribunal can grant the extension of the stay order to the assessee.

Reasoning of Judgment:After considering the submissions and perusing the record, it was found that six months have been elapsed from the date of order, extension of the implied stay granted thereby is sought on the ground that Revenue is taking steps to recover the assessed penalty. The appeal could not be disposed of on account of pendency of several older appeals. Hence waiver of pre-deposit of the penalty and consequent stay of proceedings for recovery of the adjudicated liability granted on 27.9.2012 shall operate during pendency of the appeal. Miscellaneous Application is accordingly disposed of.

Decision:Miscellaneous Application for extension of stay allowed.

Conclusion:The essence of this case is that due to huge pendency of the cases in the Appellate Tribunal, it is practically it is impossible to dispose off an appeal within a period of 180 days from the date of stay order. Moreover, the provision of vacating the stay order after expiry of 180 days from the date of granting the stay should not be applied in those appeals wherein final hearing has not been granted due to huge pendency in Tribunal, without any fault of the appellant. It is observed very often that coercive proceedings are initiated even when there is no delay in disposing off the appeal by the appellant. As such, the said provision has turned redundant in the present scenario and is rather being used by the revenue department to their advantage. The outcome of this provision is that even the innocent appellants have to again file miscellaneous application for extension of stay, thereby unnecessarily increasing the legal costs.

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PJ/Case Study/2013-14/87
22 February 2014

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