Karnataka High Court
Auma (India) Ltd. vs Union Of India (Uoi) And Ors. on 22 October, 1998
Equivalent citations: ILR1998KAR4224
ORDER V.P. Mohan Kumar, J.
1. The petitioner impugns Annexure-G order passed by the Appellate Authority, the 2nd respondent herein, in exercise of its powers conferred under proviso to Section 35F of the Central Excise and Salt Act, 1944 (hereinafter referred to as the Act). The facts relevant for the purpose of this case, in brief, reads as follows:
2. The petitioner is engaged interalia in the manufacture of electrical actuators and gear boxes. Show cause notices were issued to the petitioner, Annexures-A, A1, A2 and A3, alleging that the petitioner has utilized modvat credit earned in respect of electrical actuators for discharge of duty on manufacture of gear boxes and that the same was irregular and illegal. After the petitioner responded to these notices, the questions raised were adjudicated adverse to the petitioner and Annexure-B, B1, B2 and B3 orders were made. Aggrieved by the said orders of the 3rd respondent, the petitioner preferred the statutory appeal before the 2nd respondent. The 2nd respondent, by a common order Annexure-C, confirmed the same; but however, as the petitioner had contended that the show cause notices issued were barred by limitation, it directed a fresh inquiry to be conducted in that behalf by the 3rd respondent and accordingly the matter was remitted directing a fresh inquiry and fresh orders. In this behalf the 2nd respondent stated as under:
"The major and repeated averment of the appellants, is the time limitations. Prior to introduction of the words "within six months from the date of filing returns required to be submitted....." in Sub-rule 1 of rule 57, I, the words "within six months from the date of such credit" existed. Therefore, the SCN within six months from the date of credit. Thus for MODVAT credit taken on. 5.3.93 the SCN should have been issued on or before 5.9.93 likewise, for credit taken on 2.4.93, the SCN should have been issued on 2.10.93, etc. The law applicable will be the law prevailing on the date of the issue of SCN. During 1993, when the SCN's were issued the applicable law was that the SCN should be served within six months from the date of credit. Accordingly I hold that wherever the SCN has been issued after six months from the date of credit, It is hit by limitation of time and the demand cannot be enforced. To classify credit taken six months prior to date of issue of SCN is hit by limitation."
3. Against the said order on merit the petitioner preferred an appeal to the Tribunal and the said appeal is pending. Thereafter in terms of the remand order, the 3rd respondent considered the matter in respect to the remanded question. The following finding in the remand order is very material:
"....Accordingly I hold that wherever the SCN has been issued after six months from the date of credit, it is hit by limitation of time and the demand cannot be enforced...."
This is a categoric finding binding on the 3rd respondent. But when the matter reached the 3rd respondent it prefaced the consideration as follows:
".....As such the issue which has been remanded cases to me by the learned Commissioner (Appeals) could have been decided by himself without remanding the cases to me. In terms of Hon'ble Supreme Court judgment in the case of M/s. Dimple Oversease (1955 (80) ELT 10 (SC) the remand itself does not appear to be warranted or proper...."
It thereafter considered the questions raised by the petitioner on the question of limitation. In doing so the question arose as to the scope of the order of remand. In this behalf it stated as follows:
"In view of all the above it may be observed that i am at liberty to consider all the issues connected with the time limit applicable to the impugned cases and that I am not bound by the observations of the learned Commissioner (Appeals) in any manner connected with the issue remanded to me by him."
Thereafter the 3rd respondent proceeded to consider the question and decided as follows:
"....The relevant dates to compute time limit of six months in terms of Section 11A of the Act in the above cases are 5.8.93, 5.9.93 and 5.10.93 respectively, the show cause notice has been issued in the case on 22.11.93 i.e., within six months from the above dates and hence is in time, in terms of Section 11A of the Act."
4. On this finding the 3rd respondent adjudicated the duty payable as well. Against the order, the petitioner preferred an appeal before the 2nd respondent. That appeal is pending. Along with the appeal the petitioner preferred an application under proviso to Section 35F which reads as follows:
"Provided that where in any particular case, the Collector (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 Collector (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."
The petitioner pleaded his financial inability to comply with the requirement of redeposit. By Annexure-G order, the 2nd respondent has made a conditional order, calling upon the petitioner to deposit Rs. 7,00,000/- as against Rs. 14,23,042/- demanded. The said order Annexure-G is impugned in these proceedings.
5. There is a fundamental act of indicipline committed by the 3rd respondent while making the order impugned in the appeal preferred before the 2nd respondent. The finding of the 3rd respondent is that the show cause notice issued to the petitioner is within time and is not barred. So essentially one question that may have to be considered by the Appellate Authority is whether the show cause notices are barred by limitation as contended. If so, a finding therein will go to the root of the matter. In considering this question, the issue also arises whether the finding entered by the 2nd respondent in exercise of its appellate jurisdiction has to be followed by the 3rd respondent. It cannot be gainsaid that the 3rd respondent cannot bypass the binding orders of the higher authorities. The 3rd respondent is bound to follow the direction of the superior in the hierarchy of officers made in exercise of appellate jurisdiction. This is part of judicial discipline. Therefore, when it is brought to the notice of the 2nd respondent that the 3rd respondent has ignored binding orders, the 2nd respondent, the appellate authority, whose attention was invited in this behalf, could not have ignored this glaring circumstance. The 2nd respondent should have kept abreast with the consequence of the 3rd respondent not following the binding finding. In any event, this Court cannot endorse such a conduct of the 3rd respondent. In this behalf, it is suffice if we refer to the following observations made by the Supreme Court in an identical situation. In UNION OF INDIA v. KAMALAKSHI FINANCE CORPORATION LTD., AIR 1992 SC 771, the Supreme Court stated as under:
"....The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost important that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws."
6. Therefore, these circumstances should have been borne in mind by the Appellate Authority while examining whether the petitioner has made out a prima facie case to invoke the benefit of proviso to Section 35F of the Act.
7. Now, on the application made, the 2nd respondent has made Annexure-G order and he states thus:
"I have carefuly perused and examined the findings of the Assistant Commissioner in the subject order in original and the grounds put forth by the appellants in their stay application and at the time of personal hearing held on 3.9.98. From the perusal of the findings of the Assistant Commissioner in the subject order in original, it appears to me that the Assistant Commissioner has made out a strong prima facie case in favour of his order supported by the provisions of law with justified grounds and reasons. However the appellants have also put forth some forceful grounds, specially the ground that the Assistant Commissioner has traversed beyond the remand directions and therefore, the order is incorrect, is no doubt required to be examined in detail to reach any final conclusion and decision. No satisfactory evidence has been produced excepting that their factory is closed since one month and they have cash crunch and, therefore, this financial difficulties explained is not found to be satisfactory, Further, this is redeposit only and the question of allowing them to take it as credit and utilise the same for clearance of the goods does not arise. In view of the facts and circumstances of the case, in my considered view, it would be appropriate if the recovery is partly stayed pending examination of the appeal in its turn for decision on merit."
The said order is impugned in these proceedings.
8. I have heard Mr. Chandra Kumar, learned Counsel for the petitioners and Mr. Ashok Harnahally, learned Counsel for the respondents, at length.
9. The question urged by the respective counsels, have been considered, to some extent, in detail by this Court in WIPRO INFOTECH LTD., v. CEGAT, . Therein, their Lordships stated as under:
"14. That apart, it is now well settled by a catena of judgments of the Apex Court that merely because an Appeal or a Writ Petition relating to public revenue raises, an arguable question or makes out a prima facie case in favour of the assessee, is no reason for the Court to grant an interim stay against the payment of amount of duty or tax found to be payable by the assessee. In order to run the Governments hard cash and not guarantees, securities or undertakings are required. In each case therefore the authority concerned has to draw balance between the interest of the exchequer and what is just and fair keeping in view the nature of the controversy, the amount of tax demanded, the nature of the defence set up etc. In our opinion, while directing a pre-deposit of only 50% of the amount demanded from the appellant, the Tribunal cannot be said to have acted arbitrarily or unfairly let alone in defiance of reason and logic so as to warrant our interference in the exercise of our Writ Jurisdiction.
15. The question as to whether an interim order should be made in a given case is primarily a matter in the discretion of the authority concerned. Discretion so vested no doubt has to be exercised judicially but so long as the exercise thereof is not palpably erroneous and unjust, no interference with the same is warranted in the exercise of the extra-ordinary Writ Jurisdiction of this Court. In the instant, case, we find neither an error of law nor any perversity in exercise of judicial discretion vested in the Tribunal so as to warrant our intervention in the matter."
10. Therefore, the Court had indicated that this Court should be slow to exercise its jurisdiction under Article 226 of the Constitution while examining the propriety or otherwise of an order made in exercise of the power under proviso to Section 35F, unless, it is shown that the order made is "palpably erroneous and unjust." This takes us for examining the correctness of the exercise of the jurisdiction by the 2nd respondent in the instant case.
11. When should the authority exercise the power conferred under the proviso? One of the known and unfailing means is to ascertain whether a prima facie case has been made out by the applicant. The appellate authority is called upon to exercise its judicial discretion while deciding the question of existence of the prima facies case. There cannot be any hard and fast rule to decide as to what would be a prima facie case and what would not be. There cannot be any dogma which lays down the paradigm to ascertain the prima facie case. Each case varies with the facts of each case. Advertence to the following observation from the decision in V.I.T. SEA FOODS v. COLLECTOR OF CUSTOMS, 1989 (42) ELT 220 (Ker) will be useful in this case:
"11. In exercising the discretion under the proviso to Section 129E, the Tribunal should consider, at least prima facie, the question involved in the appeal. Inter alia, the existence of a prima facie case on merits, constitutes an important relevant factor in the consideration of the question of undue hardship. This is so because it causes undue hardship to any assessee to be called upon to make payment of amounts which are not legally due. The very mandate of Article 265 of the Constitution in that there can be no levy or collection of tax without the authority of law. The accepted rule of interpretation of provisions regarding appeals is to adopt that interpretation which will uphold the right of appeal rather then defeat it."
12. Proviso to Section 129E construed above is similar to the proviso occurring in Section 35F of the Act. The object while exercising such powers which effects the right of the applicant to maintain the appeal itself, should be not to deprive the right of appeal altogether, but attempt that a reasonable balance be struck between the respective sides.
13. What has transpired in this case is that the 2nd respondent states in clear terms that as each side has an equal chance to succeed in the appeal let the appellant/petitioner deposit a sum equal to 50% of the duty demanded. This, of course, is a logical reasoning. But this conclusion is not arrived at by adverting to the prima facie case. And to arrive at that conclusion, it can be safely said that there is no involvement of any exercise of any judicial discretion by the appellate body on whom the statue has conferred a discretionary jurisdiction to find a prima facie pase. Judicial discretion.
"means sound discretion guided by law. It means governed by rule, not by humour; it must not be arbitrary, vague and fanciful; but legal and regular".
Would the impugned order satisfy this test?
14. The impugned order cannot be described as an out put of exercise of sound discretion by the appellate authority. The order is the outcome of the fancy of the appellate authority and the legal reasoning founding the said orders is vague. Merely because the appellant has a good cause should it follow that he need still deposit a portion of the duty and likewise merely because the department has an arguable case, should it follow that the appellant should still deposit 50% alone? I do not think so. It is a sound policy if the 2nd respondent, while exercising the discretion vested in him, he addresses himself to the crucial question involved in the appeal, and answer prayer after finding a prima facie case. In , no doubt, this Court stated as under:
"...while, it is open to the Tribunal to consider prima facie the grounds urged for or against the grant of interim relief, in doing so, if any specific ground is not specifically dealt with by the Tribunal, the same may not be a sufficient reason for the High Court to interfere."
15. But, if there is total non-consideration of any of the grounds, then, certainly there is no prima facie consideration of the grounds urged by the appellant. The exercise of discretionary power in this case is not informed of any rule nor is it an exercise of discretionary power which is regular or legal. It requires no knowledge of legal province to pass an order as the one impugned herein. The appellate authority seems to be under a misunderstanding that it is exercising clemency jurisdiction. Its power is well chiseled and within the framework settled by law. The Appellate Authority by its earlier order has concluded the case against the petitioner. The only question left open was on the question of limitation. The finding on that question is refused to be followed by 3rd respondent, the authority bound by the remand order. When the petitioner points out to the Appellate Authority that the original authority has ignored a binding order whose application will fundamentally affect its decision, the Appellate Authority is bound to take serious note of the situation. It is not enough that it is alleged that the said aspect was kept in mind while passing the impugned order, but the advertence to the said circumstance would be reflected in the order as well. The Appellate Authority should weigh all circumstances while deciding the balance of convenience. There is no rule that stay of recovery of public revenue should not be granted but such order should be restricted to be made in exceptional circumstances. And in the words of the Supreme Court in DUNLOP INDIA CASE, :
"...All this is not to say that interim orders may never be made against public authorities. There are, of course, cases which demand that interim orders should be made in the interests of justice, where the gross violations of the law and injustices are perpetrated, it is the bounded duty of the Court to intervene and give appropriate interim relief. In cases where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen's faith in the impartiality of public administration, a Court may well be justified in granting interim relief against public authority. But since the law presumes that public authorities function properly and bona fide with due regard to the public interest, a Court must be circumspect in granting interim orders of far reaching dimensions or orders causing administrative, burdensome inconvenience or orders preventing collection of public revenue for no better reason than that the parties have come to the Court alleging prejudice, inconvenience or harm and that a prima facie case has been shown. There can be and there are no hard and fast rules. But prudence, discretion and circumspection are called for. There are several other vital considerations apart from the existence of a prima facie case. There is the question of balance of convenience. There is the question of irreparable injury. There is the question of public interest. There are many such factors worthy of consideration."
16. And such a consideration and investigation is miserably absent in this case.
17. Discretion, is described as a poor substitute for any legal principle. And hence, if it is alleged that an authority, bestowed with discretionary power has exercised the said power, it is some what difficult to say as to whether the said power has been properly exercised or not. It is, hence often, said that the court should be slow to interfere with such orders. Noticing this aspect, Chitty J., in Lavery v. Pursel (1888) 30 Ch.D.508 stated thus:
"Courts of Justice ought not to be puzzled by such scholastic questions as to where the horse's tail begins and where it ceases. You are obliged to say. "this is a horse's tail' at some time".
18. But such a rule is not easy to be followed in a given case where the functionary to exercise the discretionary power does not even attempt to identify the horse. The impugned order is one such exercise of power. A line has to be drawn between the proper exercise of the power and failure to do so. As indicated earlier, there does not exist a geometrical line separating the two. But as observed in SHIV SAGAR TIWARI v. UNION OF INDIA, :
"...The discretion conferred has to be exercised to advance the purpose to subserve which the power exists."
19. If we notice that the relevant aspects have not been kept in mind by the functionary while dealing with the grant or refusal of discretionary relief, we can assume that there is a failure to exercise that power vested in the authority in accordance with law. In such an event, a prima facie case has been made out for the scrutiny of the said order by this Court.
20. In this case, the dispute between the petitioner and the Department depends on the finding on the question of limitation. A finding in that behalf has been given by the 2nd respondent in the earlier round of appeal. All that was needed of the 3rd respondent was to apply that dictum and decide the issue in particular cases. This has not been done by the 3rd respondent. Therefore, when the 2nd respondent was called upon to exercise his power under proviso to Section 35F, he has to advert to this aspect as well and examine whether a prima facie case exists and thereafter decide the application accordingly. A decision in the nature impugned hardly satisfies the said requirement of law. I would, therefore, set aside Annexure-G order and direct the 2nd respondent to take back the application filed by the petitioner under proviso to Section 35F of the Act and deal with the same and pass fresh orders after hearing respective sides. The Writ Petition is disposed of as above.