Pradeep Jain - Chartered Accountant

Case Study

Prepared by: - CA. Pradeep Jain

Sukhvinder Kaur, LLB(FYIC)

Introduction: -

The party seeking redress against an order before the Appellate Tribunal (CESTAT) is required to comply with the order of pre-deposit of amount demanded from it, if such order is passed by the Appellate Tribunal. However, if the said order of pre-deposit is not complied with, what will be the fate of the appeal? Would it result in dismissal of appeal or would it still survive? These issues were raised in the case we have undertaken to study herein.

Relevant Legal Provisions: -

Section 35C of the Central Excise Act, 1944: -

35C. Orders of Appellate Tribunal.- (1) The Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or annulling the decision or order appealed against or may refer the case back to the authority which passed such decision or order with such directions as the Appellate Tribunal may think fit, for a fresh adjudication or decision, as the case may be, after taking additional evidence, if necessary.

(1A) The Appellate Tribunal may, if sufficient cause is shown, at any stage of hearing of an appeal, grant time, from time to time, to the parties or any of them and adjourn the hearing of the appeal for reason to be recorded in writing:

Provided that no such adjournment shall be granted more than three times to a party during hearing of the appeal.

(2) The Appellate Tribunal may, at any time within six months from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1) and shall make such amendments if the mistake is brought to its notice by the Commissioner of Central Excise or the other party to the appeal:

Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the other party, shall not be made under this sub-section, unless the Appellate Tribunal has given notice to him of its intention to do so and has allowed him a reasonable opportunity of being heard.

(2A) The Appellate Tribunal shall, where it is possible to do so, hear and decide every appeal within a period of three years from the date on which such appeal is filed:

Provided that where an order of stay is made in any proceedings relating to an appeal filed under sub-section (1) of section 35B, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such order:

Provided further that if such appeal is not disposed of within the period specified in the first proviso, the stay order shall, on the expiry of that period, stand vacated.

(3) The Appellate Tribunal shall send a copy of every order passed under this section to the Commissioner of Central Excise and the other party to the appeal.

(4) Save as provided in section 35G or section 35L, orders passed by the Appellate Tribunal on appeal shall be final.

Section 35F of the Central Excise Act, 1944: -

35F. Deposit, pending appeal, of duty demanded or penalty levied.- Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of central excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied:

Provided that where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue.

Provided further that where an application is filed before the Commissioner (Appeals) for dispensing with the deposit of duty demanded or penalty levied under the first proviso, the Commissioner (Appeals) shall, where it is possible to do so, decide such application within thirty days from the date of its filing.

Explanation.—For the purposes of this section ‘‘duty demanded’’ shall include ,—

(i) amount determined under section 11D;

(ii) amount of erroneous CENVAT credit taken;

(iii) amount payable under rule 57CC of Central Excise Rules, 1944;

(iv) amount payable under rule 6 of CENVAT Credit Rules, 2001 or CENVAT Credit Rules, 2002 or CENVAT Credit Rules, 2004;

(v) interest payable under the provisions of this Act or the rules made thereunder.

Section 129B of the Customs Act, 1962

129B. Orders of Appellate Tribunal. - (1) The Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or annulling the decision or order appealed against or may refer the case back to the authority which passed such decision or order with such directions as the Appellate Tribunal may think fit, for a fresh adjudication or decision, as the case may be, after taking additional evidence, if necessary.

(1A) The appellate Tribunal may, if sufficient cause is shown, at any stage of hearing of an appeal, grant time to the parties or any of them and adjourn the hearing of the appeal for reasons to be recorded in writing:

Provided that no such adjournment shall be granted more than three times to a party during hearing of the appeal.

Provided that an amendment which has the effect of enhancing the assessment or reducing a refund or otherwise increasing the liability of the other party shall not be made under this sub-section, unless the Appellate Tribunal has given notice to him of its intention to do so and has allowed him a reasonable opportunity of being heard.

(2A) The Appellate Tribunal shall, where it is possible to do so, hear and decide every appeal within a period of three years from the date on which such appeal is filed:

Provided that where an order of stay is made in any proceedings relating to an appeal filed under sub-section (1) of section 129A, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such order:

Provided further that if such appeal is not disposed of within the period specified in the first proviso, the stay order shall, on the expiry of that period, stand vacated.

(3) The Appellate Tribunal shall send a copy of every order passed under this section to the Commissioner of Customs and the other party to the appeal.

(4) Save as otherwise provided in section 130 or section 130E, orders passed by the Appellate Tribunal on appeal shall be final.

Section 129E of the Customs Act, 1962

129E. Deposit, pending appeal, of duty and interest demanded or penalty levied. –

Where in any appeal under this Chapter, the decision or order appealed against relates to any duty and interest] demanded in respect of goods which are not under the control of the customs authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the proper officer the duty and interest demanded or the penalty levied:

Provided that where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty and interest] demanded or penalty levied would cause undue hardship to such person, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue.

Provided further that where an application is filed before the Commissioner (Appeals) for dispensing with the deposit of duty and interest demanded or penalty levied under the first proviso, the [Commissioner (Appeals) shall, where it is possible to do so, decide such application within thirty days from the date of its filing.

Rule 18, 19, 20, 21, 28A and 41 of the Customs, Excise And Gold (Control) Appellate Tribunal (Procedure) Rules, 1982

Rule 18. Date and place of hearing to be notified: (1) The Tribunal shall notify to the parties the date and place of hearing of the appeal or application.

(2) The issue of the notice referred to in sub-rule (1) shall not by itself be deemed to mean that the appeal or application has been admitted.

19. Hearing of appeal: (1) On the day fixed, or on any other day to which the hearing may be adjourned, the appellant shall be heard in support of the appeal.

(2) The Tribunal shall then, if necessary, hear the respondent against the appeal and in such a case the appellant shall be entitled to reply.

20. Action on appeal for appellant's default: Where on the day fixed for the hearing of the appeal or on any other day to which such hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the Tribunal may, in its discretion, either dismiss the appeal for default or hear and decide it on merits:

Provided that where an appeal has been dismissed for default and the appellant appears afterwards and satisfies the Tribunal that there was sufficient cause for his non-appearance when the appeal was called on for hearing, the Tribunal shall make an order setting aside the dismissal and restore the appeal.

21. Hearing of appeals ex parte: Where on the day fixed for the hearing of the appeal or on any other day to which hearing is adjourned the appellant appears and the respondent does not appear when the appeal is called on for hearing, the Tribunal may hear and decide the appeal ex parte.

28A. Procedure for filing and disposal of stay petitions: (1) (a) Every application preferred under the provisions of the Acts for stay of the requirement of making deposit of any duty demanded or penalty levied shall be presented in triplicate by the appellant in person or by his duly authorised agent, or sent by registered post to the Register or any other office authorised to receive memoranda of appeals, as the case may be, at the Headquarters of the Bench having jurisdiction to hear the appeal in respect of which the application for stay arises:

(b) One copy each of such application shall be served on the authorised representative of the Commissioner or, as the case may be, the Administrator simultaneously by the applicant.

(2) Every application for stay shall be neatly typed on one side of the paper and shall be in English and the provisions of rule 5 shall apply to such applications.

(3) An application for stay shall set forth concisely the following:

(a) the facts regarding the demand of duty or penalty, the deposit whereof is sought to be stayed;

(b) the exact amount of duty or penalty and the amount undisputed therefrom and the amount outstanding;

(c) the date of filing of the appeal before the Tribunal and its number, if known;

(d) whether the application for stay was made before any authority under the relevant Act or any civil court and, if so, the result thereof (copies of the correspondence, if any, with such authorities to be attached);

(e) reasons in brief for seeking stay;

(f) whether the applicant is prepared to offer security and, if so, in what form; and

(g) prayers to be mentioned clearly and concisely (state the exact amount sought to be stayed).

(4) The contents of the appeal / application / cross-objection shall be supported by a verification regarding their correctness by the appellant or respondent or the principal officer authorised to sign appeal / cross-objection.

The Bench may, however, in a particular case direct filing of an affidavit by the appellant / respondent or any other person, if so considered necessary or desirable in the circumstances of a given case.

(5) Every application for stay shall be accompanied by three copies of the relevant orders of the authorities of the department concerned, including the appellate orders, if any, against which the appeal is filed to the Tribunal by the appellant and other documents, if any:

Provided that it shall not be necessary for the application to file copies of the documents which have already been filed with the related appeal.

(6)Any application which does not conform to the above requirements is liable to be summarily rejected.

(7) Subject to any general or special orders of the President in this behalf, an application for stay shall be decided by the Bench having jurisdiction to hear the appeal to which the application relates.

41. Orders and directions in certain cases: The Tribunal may make such orders or give such directions as may be necessary or expedient to give effect or in relation to its orders or to prevent abuse of its process or to secure the ends of justice.

Promising Exports Limited v/s Union of India

[2009 (243) ELT 3 (Cal)]

Brief Facts of the Case: -

- The petitioners had filed appeals before the Tribunal challenging the orders passed by the Commissioner (A) in their individual matters.

- The Tribunal directed pre-deposit of amount demanded in order-in-appeal under Section 35F of the Central Excise Act, 1944 or under Section 129E of the Customs Act, 1962.

- The petitioners filed appeal against the order of pre-deposit. Pending the decision in such appeals, the Tribunal dismissed the appeals of the petitioners for non-compliance of the orders directing pre-deposit.

- The petitioners have therefore, approached the High Court against the impugned order passed by the Tribunal.

Question for Consideration: -

The issues involved in the petitions are as under: -

“Whether the Appellate Tribunal was justified in passing orders dismissing the appeals for non-compliance of its directions directing deposit of an amount by the appellants under Section 35F of the Central Excise Act after the insertion of 35C (2A)?”

“Whether an appeal can be dismissed for non-compliance of the order directing pre deposit on the day when it is posted for compliance?”

“Whether the Appellate Tribunal was justified in dismissing the appeals during the pendency of the writ petitions challenging the order of pre-deposit passed by the Appellate Tribunal? Whether before passing the impugned orders directing pre-deposit, the Appellate Tribunal had formed its ‘opinion’ as stipulated in Section 35F?”

“Whether writ petition before the High Court was maintainable when alternative remedy was available?”

Order of the High Court: -

First issue: -

With regard to the first issue, the High Court referred to the judgments passed by the Apex Court in the case of Vijay Prakash D. Mehta v/s Collector of Customs [1989 (39) ELT 178 (SC)], Navin Chandra Chhotelal v/s The Central Board of Excise and Customs and others [1981 (8) ELT 679 (SC)]. It was inferred that the established proposition of law was that an appeal under Section 35F was a conditional right of appeal. Although Section 35F did not expressly provide for rejection of the appeal for non-deposit of duty or penalty, yet it was obligatory on the appellant to deposit the duty or penalty pending the appeal failing which the Appellant Tribunal was competent to reject the appeal.

After the insertion of sub-section (2A) to Section 35C, the effect on Section 35F was examined. It was held that the first proviso to Section 35C (2A) stipulated disposal of appeal and not dismissal. The second proviso postulates automatic vacation of the order of stay if such appeal is not disposed of within the said period of 180 days. Hence, if an appeal is not disposed of after 180 days than order of stay does not survive. If the order of stay is vacated automatically, there are no fetters on the Revenue from recovering the sum due, in order to safeguard the public revenue.

The High Court held that after vacation of the stay order, it is the appeal which remains and in that case the Appellate Tribunal has hear and decide the appeal within a period of 3 years from the date on which such appeal was filed. Thus, the newly introduced sub-section (2A) to Section 35C has bearing on Section 35F.

The High Court held that Section 35C (2A) has to be interpreted in a manner so as to bring harmony with the other provisions particularly Section 35F. Section 35F and its proviso cannot be read independently and should be read in harmony with Section 35C (2A) otherwise it would render the provisions contained in newly inserted sub-section (2A) to Section 35C otiose.

In view of newly inserted sub-section (2A) to Section 35C, the law laid down in Vijay Prakash D. Mehta v/s Collector of Customs and in Navin Chandra Chhotelal v/s The Central Board of Excise and Customs and others stands impliedly diluted.

The judgments in B.D. Steel and Traders v/s Union of India [1998 (103) ELT 218 (Bom)], Usha Udyog v/s CEGAT [2003 (156) ELT 201 (Del)] are per incuriam as it did not consider the law laid down in Vijay Prakash D. Mehta v/s Collector of Customs which held the field till the insertion of sub-section (2A) to Section 35C on 11.05.2002.

The High Court held that the Appellate Tribunal was not justified in dismissing the appeals for non-compliance of the orders directing pre-deposit.

Second issue: -

For deciding the second issue, the High Court referred to Rules 18, 19, 20, 28A and 41 of the Rules.

The High Court held that after applications for stay are disposed of as Rules postulate either an appeal can be dismissed for non-appearance of the petitioner or it has to be decided on merits on the day fixed for hearing of appeal, the order of the Appellate Tribunal directing dismissal of appeals on the day of compliance of the directions directing dismissal of appeals on the day of compliance is clearly contrary to Rules. Dismissal of appeals on the ground of non-compliance of the directions directing pre-deposit, ignoring Section 35C (2A) and Rules as noted is also contrary to Rule 41 which empowers the Appellate Tribunal dismissing the appeal also infringes on the fundamental rights guaranteed under Article 14 of the Constitution of India.

Thus, it was held that the orders passed by the Appellate Tribunal dismissing the appeals for non-compliance of its orders directing pre-deposit on the respective dates of compliance were illegal.

Third issue: -

With regard to the third issue, the High Court found that the Appellate Tribunal was given intimation of the writ petitions filed by the petitioners challenging its orders directing pre-deposit. However, inspite of such communication, the Appellate Tribunal took up the matter on the respective dates fixed for reporting compliance regarding deposit and dismissed the appeals as it found that deposits were not made as directed.

The High Court held that it is common for the authority whose order is under challenge to await the verdict of the superior authority. However, in the instant case the Appellate Tribunal has dismissed the appeals during pendency of the writ petitions. Thus, the petitions have been non-suited. It was unjust and highly improper on the part of the Appellate Tribunal to pass orders dismissing the appeals. It amounts to interference with the due course of justice.

The High referred to the judgment given in the case of Dr. Haripada Poddar v/s S.R. Das, Secretary to the Government of West Bengal [1970 Lab. I.C 930]. The High Court observed that the law is one can be held guilty of contempt even if one blocks the free flow of justice not only in a pending proceeding but even in a proceeding which is “imminent” or about to happen. In the instant case, the law laid down in Dr. Haripada Poddar’s case applied and it was improper for the Appellate Tribunal to dismiss the appeals during the pendency of the petitions as it is against the principles of fair play and dispensation of justice.

Fourth issue: -

The High Court held that it is evident from the reading of the proviso to Section 35F that the Appellate Tribunal has granted the discretion to dispense with the deposit, pending appeal, if it is of the ‘opinion’ that deposit would cause ‘undue hardship’ to the appellant. Therefore, the Appellate Tribunal has to form an ‘opinion’ which should be evident from the order directing pre-deposit.

The High Court referred to the judgment of the Apex Court in Vijay Prakash D. Mehta’s case wherein it was held that “The discretion must be exercised on relevant materials honestly, bona fide and objectively. Once that position is established it cannot be contended there was any improper exercise of the jurisdiction by the Appellate Authority.” Therefore, the High Court held that it has to be looked into whether while passing the order the relevant facts and materials were considered in honest and bone fide manner.

The High Court examined the facts of the individual petitions and found that the impugned orders passed by the Appellate Tribunal were not sustainable as the relevant materials which were on record were not considered honestly, bona fide and objectively. Hence, there was no formation of ‘opinion’ as evident from the orders impugned. Thus, there was improper exercise of jurisdiction by the Appellate Tribunal.

Additional Issue: -

The Respondent had raised a point during hearing regarding the maintainability of the writ petitions on the ground of availability of alternative remedy to the High Court under Section 35G of the Central Excise Act or Section 130 of the Customs Act.

The High Court held that it is well settled that the said right of appeal is not automatic and would be maintainable when the case involves substantial question of law being condition precedent for filing of appeal. However, there is no constitutional fetter in invoking the extraordinary jurisdiction even where an alternative remedy exists. Therefore, the writ petitions are maintainable.

Decision of the High Court: - Impugned orders are set aside and quashed. Writ petitions allowed. Direction given to the Appellate Tribunal to restore the appeals, which were dismissed, to its file and number. Thereafter, let the appeals and applications for stay be heard expeditiously after due notice in accordance with the rules.

Comments & Conclusion: -

The High Court rightly held that the appeal cannot be dismissed on the ground that the order of pre-deposit was not complied with. The appeal is required to be heard and disposed of in the lawful manner even if order of pre-deposit is not complied with. The authority is required to form an ‘opinion’ before dispensing with the requirement of pre-deposit.

The dispensation of justice is required to be done in a fair, honest and bona fide manner. The Appellate Tribunal is also not allowed to interfere in the path of justice.

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PJ/CASE STUDY/2009-10/019
21 November 2009

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PJ/CASE STUDY/2009-10/019 21 November 2009

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PJ/CASE STUDY/2009-10/019
21 November 2009