Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2010-11/02

15 April 2010

PJ/CASE STUDY/2010-11/02

Case Study

Introduction: -

In the present scenario it is mostly noticed that the person sitting on whatever post thinks that he is the top most Authority and is in the belief that whatever action he thinks and wants to take is the most appropriate one. Today the officers who are lower in the hierarchy have no respect for the officers above them or the decisions of the judges, they even do not bother to follow them and move on the steps they want to follow. But if judicial discipline is violated, there will be great chaos everywhere. Even we have also written an article on this issue titled “Changing face of precedents” and it was published on Taxindiaonline.com. It can be seen in our article section also. But this decision is very good where the Assistant Commissioner was penalised for not following the decision of Tribunal. This is the only way by which the officers can be compelled to follow the decisions of higher forum.

GALAXY INDO FABRICS v/s UNION OF INDIA

[2010 (252) E.L.T. 3 (All.)]

Relevant Provisions:-

Section 35C (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 of which such appeal is filed:

Provided that where an order of stay is made in any proceeding relating to an appeal filed under sub-section (1) of Sec 35B of 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.

Brief Facts of the Case: -

¨ The appellant was engaged in the processing of grey fabrics. The revenue officers came to know that the assessee was indulged in the practise of removing the manufactured goods without payment of duty on the basis of the search conducted by the revenue officers while visiting the premises of the assessee and seizing his private records, they found some unaccounted grey fabrics and semi processed finished fabrics. A demand was raised and penalty was imposed on the assessee.

¨ The appellant filed an appeal in the Tribunal under Section 35-F of the Act for the waiver of pre-deposit and stay of the demand till the disposal of the appeal on the basis that demand was unjustified on 17-8-2005. The application was allowed and the appellant was asked to deposit rupees one crore within eight weeks.

¨ Against this a writ petition was filed and he was directed to pay Rs.20 lacs and the Tribunal was directed to decide the appeal expeditiously on 20-9-2005. The appellant deposited the amount. The appeal could not be decided within 180 days and the appellant asked for extension of stay.

¨ The Tribunal extended the stay, this order was not challenged by the revenue in the High Court nor has it been vacated, it remains as it till date. Despite of this order the Assistant Commissioner, Central Excise Division, Rae Bareli has issued the impugned order of demand dated 11-1-2010 for recovery of 652.16 lacs.

Appellant’s Contention: -

- The impugned demand notice was arbitrary and contrary to the judicial norms and discipline. The order of the Tribunal is binding on the Assistant Commissioner, Central Excise Division, Rae Bareli and it cannot be violated. Cases referred here were-

Kumar Cotton Mills Private Limited V. CCE, Ahmedabad [2002(146) E.L.T. 438]

Where it was said that even though the period of the order of the stay initially passed, would come to an end on expiry of 180 days in view of the amended provisions, the jurisdiction of the Tribunal to extend the period of stay by passing a fresh order is not affected. When the revenue went in Apex Court against this decision, the decision of larger bench was upheld.

IPCL v. Commissioner of Central Excise, Vadodara [2004(169) E.L.T. 267]

Here also the above decision of Kumar Cotton Mills Private Limited V. CCE, Ahmedabad was relied upon even by the Apex Court.

- Further the appellant said that 180 days expired in the year 2006 and the extension order of the stay was passed by the Tribunal on 14-8-2008, so there was no reason to issue the impugned notice of demand on 11-1-2010.

- The appellant’s further contention was that the Assistant Commissioner, Central Excise Division, Rae Bareli was having any authority to challenge the power of the Tribunal by stating in the counter affidavit that the order of the Tribunal granting stay till the disposal of appeal is erroneous and the Hon’ble CESTAT is not empowered to such blanket stay order.

- Appellant further said that that the Assistant Commissioner, Central Excise Division, Rae Bareli was liable to be punished as he had further objected that the Hon’ble High Court has no jurisdiction to pass orders on the writ petitions of the petitioner as alternative remedy was available to him, which the assessee availed by filing appeal to the Tribunal.

Respondent’s Contention: -

- Revenue’s contention was that according to Sec 35C (2A) of the Central Excise Act, 1944 the stay order stood vacated after the expiry of 180 days and so the demand notice is in accordance of law.

Reasoning of the Order-in-Appeal: -

The learned Appellate Authority held as under: -

v Considered Section 35C (2A) of the Central Excise Act, 1944 and the cases that were cited by the appellant’s –

(1) Kumar Cotton Mills Private Limited V. CCE, Ahmedabad [2002(146) E.L.T. 438]

(2) IPCL v. Commissioner of Central Excise, Vadodara [2004(169) E.L.T. 267]

The counsel said that the above sub section was not introduced for punishing the assessee for the matters beyond their control. There are not many Tribunals constituted and so it is not in their hands to dispose the matters, because of the administrative exigencies the assessees cannot be held liable if the stay applications are not disposed off within time. The Tribunal has extended the stay just because it was satisfied that the matter could not be heard and disposed of by reason of fault of the Tribunal and not for the reasons attributable to the assessee.

v The order of the Tribunal extending the stay order till the disposal of appeal, passed on 14-8-2008 is valid till date. This order has neither been challenged in any higher court nor does it stand vacated.

v There is no need to say that the order of the Tribunal is binding on the lower authorities including the Assistant Commissioner, Central Excise Division, Rae Bareli and he has no legal authority to circumvent the said order and initiate the recovery proceeding. So in such circumstances the impugned notice of demand is patently and without authority of law.

v The Assistant Commissioner, Central Excise Division, Rae Bareli has no authority to say that the order of the Tribunal is erroneous and this court has no jurisdiction to pass the order.

v Cases relied were Union of India v. Kamalakshi Finance Corporation Ltd. wherein the Assistant Collector has not followed the order of the Appellate Authority. The Apex Court said that according to the judicial discipline the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the tribunal is not acceptable to the department in itself is an objectionable phrase and is the subject matter of appeal, it can furnish no ground for not following it unless its operation has been suspended by a competent court. If this is not followed it will just result in a chaos in administration of tax laws and an undue harassment to the assessees.

v As here the order of the Tribunal has not been challenged and still stands good it is binding on the revenue Authority. The refusal to follow the order is violation of judicial discipline. The language used in the counter affidavit is contemptuous in nature.

Decision of the Appellate Authority: -

Ø Writ petition was allowed and the demand notice issued by the Assistant Commissioner, Central Excise Division, Rae Bareli is to be quashed.

Ø An exemplary cost of Rs. One lac was imposed on the Assistant Commissioner, Central Excise Division, Rae Bareli, payable to the petitioner within two months by an account payee cheque or draft with a further warning to the officer not to act in haste and arbitrarily in future.

Comments: -

This is very good decision where penalty has been imposed on the Assistant Commissioner for not following the decisions of Tribunal or Courts. If the penalty is imposed on authorities then they will be forced to follow the decisions. We have been represented that there should be accountability on the part of the officers. We have seen that the cases are booked even the issue is covered by tribunal decisions. The audit team as well range authorities clearly says that they will not follow the decisions of tribunal. Even sometimes it is seen that audit parties says that the case will be booked against the manufacturer and ultimately you will win but the litigation will have its cost. This is new style of harassment. This can be avoided if there is a system of accountability. If a case booked against an assessee does not succeed then a token amount should be deducted from his salary. Even it should have effect on his promotion. In this way, the litigation can be reduced. It is necessary also as we are seeing that a large number of cases are booked but only a few goes in favour of the department. This fact itself shows that unwarranted demands are being issued by the department. If the accountability concept is implemented then it will also reduce the litigation also.

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PJ/CASE STUDY/2010-11/02
15 April 2010

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