Calcutta High Court
A.B. Foot Style (P) Ltd. vs Union Of India (Uoi) on 9 April, 1999
Equivalent citations: 1999(65)ECC367, 1999(111)ELT684(CAL)
ORDER Samaresh Banerjea, J.
1. Similar question of fact and law being involved in each of the petitions, wherein similar order passed by the Commissioner of Appeals, Central Excise, Calcutta, disposing of the prayer for stay and exemption for pre-deposit under challenge, the same have been heard analogously and will be governed by the same judgment.
2. Each of the petitioners company which is a manufacturer of foot wear chappals and duly registered with the Central Excise Department, Calcutta, as a manufacturer of foot wear and is duly certified small scale unit, claims that it has its own factory with plant and machinery for production of leather chappals and has its own labour force and expertise and always used its own raw-materials for production of the same and the total production of the petitioner company were sold on wholesale basis and not on retail through any selling or zonal agent or through any dealership, distributorship or stockist arrangement. It is the further case of each of the petitioners that in the year 1994-95 the respondent No. 7 Bata India Ltd. entered into an arrangement with the writ petitioner company by placing its purchase orders time to time for supply of different categories of chappals strictly according to the Bata's specifications and designs. The arrangement for such sale to Bata India Ltd. is according to a normal business transaction with principal to principal basis which stipulates, inter alia that the goods manufactured should be strictly according to the specification and the sample provided to the petitioner by the said Bata India Ltd; the purchaser Bata India Ltd. shall have the right to reject the whole or part of the goods if the same are found on inspection to be defective or not according to the specification and in such event the Bata India Ltd. shall have the right to treat the seller i.e. the petitioner as being in breach of contract holding responsible for compensation. It is the further case of the petitioner under such agreement the petitioner company at the time of delivery has to emboss the brand name of "Bata" upon each of the items; the purchase price and excise duty payable thereon namely at the price the Bata India Ltd. purchases the goods from the writ petitioner company, the wholesale price at which the goods are sold by the Bata India Ltd. to its own dealers and stockists and the maximum retail price at which the said goods are being sold in retail by Bata India Ltd. or through its stockists have also been disclosed in the purchase order of Bata India Ltd. and the writ petitioner was paid by the Bata India Ltd. according to the purchase price mentioned in the purchase order on free delivery to Bata India Ltd. After supply of the said goods to the Bata India Ltd. strictly according to the Bata's specification and design the petitioners company from time to time raised its bills upon M/s. Bata India Ltd. calculated upon the purchase price as mentioned in the purchase order and the goods were found acceptable then the Bata India Ltd. made payment to the petitioner by cheque. It is the specific case of the petitioner they have no right to sell or dispose of such branded goods of specific design to any other party except Bata India Ltd. Even upon rejection of the goods by Bata India Ltd. which does not conform with the fixed specification; the writ petitioners have to destroy the same as they have no right to use such brand name of the goods. As the excise duty is payable at the market value fetched by the goods in the wholesale market at the factory gate manufactured by the manufacturers, the writ petitioner according to the provisions of the Central Excises and Salt Act, 1944 deposited the excise duty calculating on the purchase price at which the Bata India Ltd. purchased goods from the petitioner and duly deposited such amount in advance through the personal ledger account and thereafter cleared the goods in accordance with the invoice which also were prepared on the basis of the purchase price of the said goods. The Superintendent of Central Excise, Range D-6, Calcutta Division, issued 4 different show cause notices and demand notices upon each of the writ petitioners on different times for the period of demand from April, 1994 to July, 1995 alleging, inter alia, the writ petitioner followed the provisions of Rule 9(1), 173(C), (F), (G) of the Central Excise Rules, 1944, read with the relevant provisions of Section 4 of the Central Excises and Salt Act, 1944 and thereby the petitioner has paid short payment of Central Excise duty by not calculating the value of the goods on the basis of the wholesale price of Bata India Ltd.
3. Each of the petitioners submitted its reply to the said show cause notices explaining the aforesaid agreement with the Bata India Ltd. in which all the manufacturer of the chappals embossing the trade name of Bata they are selling the same to Bata India Ltd. as per their specification and contending, inter alia, that because of the same the wholesale price charged by the petitioner from Bata India Ltd. and the purchase price of Bata India Ltd. from the petitioner would be the correct basis for levy of the excise duty.
4. The Respondent No. 3 considering such reply and after personal hearing, however, confirmed the total demand of the excise department for the differential duty amount charged against each of the petitioners and also imposed a penalty of Rs. 5000/- holding, inter alia, that the price by which the petitioner sells its goods to M/s. Bata India Ltd. is a favoured price and allegedly has been motivated for extra commercial consideration and did not reflect the fair and reasonable price.
5. Against the aforesaid order, each of the petitioners preferred an appeal before the appellate authority where in each of the petitioners also applied for stay of the aforesaid order and prayed for exemption from pre-deposit.
6. By the impugned order dated 4th of May, 1998 the Commissioner of (Appeals) Central Excise, Calcutta being the appellate authority has disposed of the prayer for exemption of pre-deposit directing each of the petitioners to deposit a sum of Rs. 1,50,000/- towards the amount of duty. It was directed in the event of such payment rest of the demand and penalty would be dispensed with from pre-deposit till the hearing of the appeal.
7. It is the aforesaid order which is under challenge in the writ petition.
8. It appears from the impugned order that the appellate authority has disposed of such prayer for exemption from pre-deposit in the manner aforesaid being of the view that the appellant does not have prima facie strong case and the company is running with some profits.
9. The ld. Counsel appearing for the petitioner has assailed the order submitting, inter alia, that there has been no proper application of mind of the appellate authority while considering the question whether the impugned order which is under appeal will cause undue hardship to the petitioner unless it is stayed and it has been held wrongly that the petitioner company does not have a strong prima facie case and also making profit. The ld. Counsel appearing for the revenue in support of the impugned order has submitted, inter alia, that exemption from pre-deposit is really a matter of discretion of the appellate authority and such discretion having been exercised validly and properly there should be no interference with such order by the writ court.
10. Section 35F of the Central Excise Act, provides inter alia, that the provisions for pre-deposit may be dispensed with if the same causes undue hardship to the appellant.
11. The aforesaid section may be quoted hereunder :-
35F : "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."
12. It is now well settled by judicial precedence that while considering the question of dispensation of provisions of pre-deposit under Section 35(F) of the Central Excise Act 1944, while forming the requisite opinion as to whether such deposit would cause undue hardship to the appellant, whether the appellant has got a good prima facie case is a relevant factor to be taken into consideration. It is not in doubt any further that the expression "undue hardship" as used in the aforesaid section will cover a case where the appellant has a strong prima facie case.
13. If an appellant can establish before the Commissioner of Appeals or before the tribunal, as the case may be that he has got a strong prima facie case, in such event the same itself independent of other factors would come within the relevant consideration for determining whether the order of pre-deposit will cause undue hardship or not. This is because of the reason that an assessee will suffer undue hardship if he has to pay an amount which is not legally due.
14. A Division Bench of this Court in the case of J.N. Chemical (Pvt.) Ltd. v. CEGAT held that a good prima facie case would justify the dispensation of the requirement of pre-deposit of the disputed amount of duty and penalty in question. The relevant observations of Their Lordships were made in paragraph 7 of the said judgment. Their Lordships came to such a finding keeping in mind the decision of the House of Lords in Julius v. Lord Bishop of Oxford reported in (1880) 5 Appeal Cases 214 which was approved by the Supreme Court in the case of L. Hirday Narain v. Income Tax Officer, Bareilly .
15. In the case of Tata Iron & Steel Co. Ltd. v. Commissioner (Appeals) Central Excise, Calcutta, (Calcutta). Vinod Kr. Gupta, J. of this court has taken the same view following the decision of the Supreme Court in the case of Vijoy Prokash D. Mehta and Jawahar D. Mehta v. Collector of Customs (Preventive), Bombay which was rendered by the Supreme Court while dealing with Section 129E of the Customs Act, which is pari materia to Section 35F of the Central Excises and Salt Act. In the case of Bangaigaon Refinery Petrochem Ltd. , Ruma Pal, J. of this Hon'ble Court after referring to a number of decisions has expressed the same view. The same view has been taken by our High Court in the case of In Re: American Refrigeration Co. Ltd. . The Kerala High Court and the Allahabad High Court have also expressed the same view in the case of V.l.T. Sea Foods v. Collector of Customs and in the case of Hari Fertiliser v. Union of India respectively.
16. This court has also expressed the same view following the aforesaid decisions in the case of Hooghly Mills Co. Ltd., Unit Bowreah jute Mills v. Union of India & Ors. reported in 1999 (30) R.L.T. 120 (Calcutta), in the case of Rubi Rubber Industries v. Commissioner of Central Excise, Calcutta (II) and in case of Exide Industries Ltd. v. Commissioner of Central Excise (Calcutta II) (W.P. 932 of 1998 unreported).
17. If the impugned order is examined in the light of the above-mentioned settled proposition of law, it will appear that there has been no proper application of mind by the appellate authority on the question whether because of such pre-deposit undue hardship would be caused to the petitioner and therefore, the same cannot be sustained.
18. It has been submitted by the ld. Counsel appearing for the revenue that the legislature in its wisdom having made a provision for deposit of the amount assessed by the appropriate authority whether by way of penalty or otherwise while preferring an appeal against such order the same cannot be lightly interfered with by the High Court and under Section 35F whether exemption of such pre-deposit will be granted or not really being a matter for discretion for the appellate authority there should not be any interference with such discretion.
19. While grant of exemption from pre-deposit under Section 35F of the Central Excise Act may be a discretion for the appellate authority, such discretion obviously can be exercised judicially and not arbitrarily. In exercise of such discretion while considering the question of exemption from pre-deposit relevant consideration has laid down in the said Section by the legislature for considering the question whether pre-deposit should be dispensed with has to be taken into consideration. The legislature having provided in the aforesaid provisions that pre-deposit may be dispensed with if the same causes undue hardship to the appellant, the appellate authority in exercise of such discretion cannot decline to decide such question whether the pre-deposit will cause undue hardship. The other relevant consideration laid down thereunder namely the interest of the revenue has also to be taken into consideration. The discretion under said section, therefore is not an unfettered one.
20. In this connection the observation of Justice D.N. Sinha (as Chief Justice of Our High Court then was) in the case of Aluminium Corporation of India Ltd. v. C. Balakrishnan reported in AIR 1959 Calcutta 114 may be referred to. In the said case the court was considering the provisions of Section 31(3) of the Wealth Tax Act which provided, inter alia, not withstanding anything contained in Section 31 where an assessee has presented an appeal under Section 23, the Wealth Tax Officer may in his discretion treat the assessee as not being in default as long as such appeal was undisposed of. His Lordship in the said judgment followed the Division Bench judgment of this Court in the case of Kanshiram Aganvala v. Collector of 24 Parganas, 62 Calcutta Weekly Notes 83 : at page 529 and in the case of Ladhuram Taparia v. B.K. Bagari 1951 20 ITR 51 (Calcutta) and held as follows :-
"In my opinion, the law has been rightly laid down by Das Gupta, ]., and there can be no doubt that the matter is one of discretion to be exercised judicially. A judicial exercise of discretion involves a consideration of the facts and circumstances of the case in all its aspects The difficulties Involved in the issues raised in the case and the prospects of the appeal being successful is one such aspect. The position and economic circumstances of the assessee is another. If the officer feels that the stay would put the realisation of the amount in jeopardy that would be a cogent factor to be taken into considerations. The amount involved is also a relevant factor. If it is a heavy amount, it should be presumed that immediate payment, pending an appeal in which there may be a reasonable chance of success, would constitute a hardship. The Wealth Tax Act has just come into operation. If any point is involved which requires an authoritative decision, that is to say, a precedent, that is a point in favour of granting a stay. Quick realisation of tax may be an administrative expediency, but by itself it constitutes no ground for refusing a stay. While determining such an application, the authority exercising discretion should not act in the role of a mere tax-gatherer."
21. In my view, the principles laid down in the aforesaid case will very much be applicable in the instant case also.
22. The aforesaid decision in the Aluminium Corporation of India Ltd. v. C. Balakrishnan (supra) was followed by the Mysore High Court in the case of Bibi Plantation v. Agricultural Income Tax Officer, reported in 1967 Income Tax Report, Volume 65 Page 341 where the Mysore High Court was considering the proviso to Section 41 of the Mysore Agricultural Income Tax Act, 1957 Which stated, inter alia, that when an assessee has presented an appeal under Section 32 of the Act, the Agricultural Income Tax Officer may in his discretion treat the assessee as not being in default as long as such appeal was undisposed of. The Mysore High Court also held that such discretion has to be exercised judicially. The same view has been expressed by the Madras High Court in the case of R.P. David & Ors. v. Agricultural Income Tax Officer and Anr., reported in 86 ITR 699 at page 701. The Madras High Court was considering the proviso to Section 40 of the Madras Agricultural Income Tax Act, 1955 which vests the Agricultural Income Tax Officer with the discretion to treat the assessee as not being in default as long as such appeal is undisposed of. It was held by the Madras High Court that such discretion cannot be arbitrarily exercised and whenever statute invests a discretionary power to the public officer it is normally to be exercised in favour of the person concerned unless there is some relevant reasons for denying the benefit of the discretionary power.
23. In the instant case no doubt the appellate authority has held that the petitioner does not have a strong prima facie case.
24. Such finding of the appellate authority however, cannot be sustained as it appears to this court that the same is a result absence of proper application of mind to such question and also the result of misconception of the meaning "prima facie case".
25. It has already been held by this court in the aforesaid cases of Ruin Rubber Industries (supra) and Hooghly Mills (supra) that prima facie case does not necessarily mean a strong guiltedged case which is bound to succeed, but as hold by the courts time and again, is a case which is an arguable one, fit for trial and has a reasonable chance of success-
26. It will appear from the impugned order that the appellate authority admits that the appellant has an arguable case on merit, but even thereafter he holds that the appellants do not have a strong prima facie case.
27. It appears to this court on going through the memorandum of appeal of the each of the appellants which is annexed to the writ petition that number of instances have been given therein where other companies also by virtue of agreement entered into with the brand name owners manufacture their goods with the trade name or brand name of the owners and sell the same to brand name owners at a price as per their specification and in all such cases the contract price and not the price of which the branded goods' are sold by the owners of the brand name has been accepted by the assessable value.
28. It also appears, the appellants in the said memorandum of appeal has referred to a number of Supreme Court decisions where the Supreme Court under similar circumstances held that the wholesale price of the goods manufactured by the seller is a wholesale price at which it sells these goods to the buyer which is the brand name owner and it is not the' wholesale price at which the the brand name owner sells its goods to others.
29. It appears to this court that the appellant has referred to a number of decisions of the Supreme Court in the case of ; ; ; .
30. It appears from the impugned order that the appellate authority did not choose to apply his mind at all to such decisions of the Supreme Court.
31. After considering such decision cited by the appellant before the appellate authority, there cannot be any doubt that the appellant really has a very strong prima facie case before the appellate authority.
32. The finding of the appellate authority, therefore, that the petitioners do not have a strong prima facie case cannot be sustained.
33. It appears to this court while considering the question of undue hardship the appellate authority did not also apply his mind properly as to the actual financial position of the company. It has proceeded on the footing that the company is making profit. But the balance sheet, provisional accounts etc. annexed to the petition for the period ending on 31 March, 1995 does not indicate that the company is in a sound financial position.
34. For the reasons stated above the impugned order passed by the appellate authority is hereby set aside.
35. I am, however, not inclined to decide the question whether in view of the existence of strong -prima facie case or otherwise the petitioner is entitled to obtain full exemption from pre-deposit. In my view, such matter is to be decided by the appellate authority itself afresh in accordance with law.
36. Each of the writ applications, therefore, succeeds. The matter is sent back to the appellate authority for fresh consideration of the prayer for total exemption from pre-deposit. It is, however, made clear while deciding such question of undue hardship afresh the appellate authority must proceed on the footing that each of the appellants has a strong prima facie case and it will be open to the appellants to produce materials for the purpose of showing its financial position. It is further made clear in considering the question of such dispensation from pre-deposit and causing of undue hardship to the appellant because of such deposit, the question of protection of interest of revenue as provided in Section 35F of the Act has also to be taken into consideration and after considering all aspects of the matter it will be open to the appellate authority either to dispense with pre-deposit entirely or partly; but the appellate authority must pass a reasoned and speaking order.
37. All the writ applications are thus disposed of. There will be no order as to costs.