Karnataka High Court
Sunshine Tubes Pvt. Ltd. vs Customs And Another on 17 June, 1996
Equivalent citations: 1997(57)ECC136, 1997(91)ELT296(KAR), ILR1996KAR2644, 1996(6)KARLJ643
ORDER
1. In this case, the petitioner company is aggrieved by the orders dated 1-6-1994 (Annexure-F) and 15-12-1995 (Annexure-H) passed by the Customs, Excise and Gold (Control) Appellate Tribunal under Section 35F of Central Excises and Salt Act, 1944 (in short 'the Act'). By the first order the Tribunal had directed the petitioner to pay a sum of Rs. 4.5 lakhs as pre-deposit on or before 31-8-1994 against the total disputed amount of Rs. 13,98,261/- (duty) plus Rs. 10,000/- (penalty). By the second order the Tribunal has refused the prayer of the petitioner to restrict the amount of pre-deposit to the extent already paid i.e., Rs. 55,000/-. Any how it had extended the time for payment of the balance amount till 28-2-1996.
2. The petitioner is a private limited company engaged in the manufacture of inner tubes and flaps of rubber tyres of various sizes. It had cleared these goods from its factory without payment of duty on the ground that it was entitled to exemption thereon as per the Notification No. 188/86, dated 3-3-1986.
3. It appears that the exemption under the said notification was available on the inner tubes of rubber for tyres of a kind used on animal drawn vehicles or hand carts, provided that a durable prominent marking of the letters 'ADV' had been made on every such tube.
4. It further appears that the excise authorities, on investigation having found that the petitioner had indulged in removing inner tubes without the marking the letters "ADV", subjected it to duty and penalty as noticed above. Against the said order of adjudication, the petitioner preferred an appeal before the Tribunal along with an application for dispensing with the predeposit in terms of the proviso to Section 35F of the Act. The Tribunal whereupon passed the impugned orders at Annexure 'F' and 'H' referred to above.
5. The contention raised by Sri Chander Kumar, learned Counsel appearing for the petitioner is that the Tribunal has failed to exercise its jurisdiction under the proviso to Section 35F without properly appreciating the ambit of the expression "Undue hardship" as appearing therein and by not applying the same in its proper perspective on the facts of the present case and therefore the said orders need to be interfered with by this Court.
6. On the other hand Mr. Shailendra Kumar, learned Senior Standing Counsel for the Central Government has submitted that the order dated 1-6-1994 (Annexure-F) cannot be challenged at this belated stage, since the petitioner had not opted to challenge it within a reasonable time and moreover, the order was passed by taking into account all the relevant materials placed on record and it is not competent for this Court to sit in appeal over the same particularly when the finding recorded by the Tribunal is one of fact. He has further contended that the second order dated 15-12-1995 (Annexure-H) cannot also be disturbed, since it was filed for reviewing the earlier order which the Tribunal was not competent to do so far want of any power in the said regard.
7. The issues raised needs to be adjudged keeping in view the language employed in Section 35F of the Act and the judicial pronouncements made in this regard. Section 35F of the Act reads thus :
"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 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."
8. The Customs Act, 1962 also contains provisions which are pari materia with Section 35F of the Act. Originally it was Section 129(1) which was re-enacted as Section 129E by Finance (No. 2) Act, 1980. The old as well as the new provision have been the subject matter of consideration in two Supreme Court judgments, namely Navin Chandra, Chotelal v. Central Board of Excise and Customs and Vijayaprakash D. Mehta & Jawahar D. Mehta v. Collector of Customs .
9. Section 129(1) of the Customs Act as it stood at the material time, reads thus :-
"Section 129(1) where the decision or order appealed against related to any duty demanded in respect of goods which are not under the control of customs authorities or any penalty levied under this Act any person desirous of appealing against such decision or order shall, pending the appeal, deposit with the proper officer the duty demanded or the penalty levied :
Provided that where in any particular case the Appellate Authority is of opinion that the deposit of duty demanded or penalty levied will cause undue hardship to the appellant, it may in its discretion dispense with such deposit, either unconditionally or subject to such conditions as it may deem fit."
10. Section 129E of the Customs Act as incorporated by Finance Act, 1980, reads thus :
"Section 129E. 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 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 demanded or the penalty levied :
Provided that where in any particular case, the Collector (Appeals) or the Appellate Tribunal is of opinion that the deposit of 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 interest of revenue."
11. While examining the scope and consequences of non-compliance with the provisions of old Section 129 of the Customs Act, the Supreme Court in the case of Navin Chandra has held that (Para 19) -
"No doubt Section 129 does not expressly provide for the rejection of the appeal for non-compliance with the requirement regarding the deposit of penalty or duty : but when sub-section (1) of Section 129 makes it obligatory on an appellant to deposit the duty or penalty pending the appeal and if a party does not comply either with the main sub-section or with any order that may be passed under the proviso, the Appellate Authority is fully competent to reject the appeal for non-compliance with the provisions of Section 129(1). That is exactly what the first respondent has done in this case. Accepting the contention of Mr. Trivedi will mean that the appeal will have to be kept on file for ever even when the requirement of Section 129(1) has not been complied with. Retention of such an appeal on file will serve no purpose whatsoever because unless Section 129(1) is complied with, the Appellate Authority cannot proceed to hear an appeal on merits. Therefore, the logical consequences of failure to comply with Section 129(1) is the rejection of appeal on that ground."
12. Again, while considering the ambit of the substituted Section 129E of the Customs Act by following Navin Chandra's case, in Vijayaprakash's case (supra) it has again been held that although the section did not expressly provide for rejection of appeal for non-deposit of duty or penalty, yet it makes it obligatory on the appellant to deposit the duty or penalty pending the appeal failing which the Appellate Tribunal is fully competent to reject the same. It has further been held in this case that (Para 11) -
"Here we are consumed with the right given under Section 129A of the Act as controlled by Section 129E of the Act, and that right is with a condition and thus a conditional right. The petitioner in this case has no absolute right of stay. He could obtain stay of realisation of tax levied or penalty imposed in an appeal subject to the limitations of Section 129E. The proviso gives a discretion to the authority to dispense with the obligation to deposit in case of "undue hardships". That discretion must be exercised on relevant materials, honestly, bona fide and objectively. Once that position is established it cannot be contended that there was any improper exercise of the jurisdiction by the Appellate Authority. In this case it is manifest that the order of the Tribunal was passed honestly, bona fide and having regard to the plea of undue hardship as canvassed by the appellant. There was no error of jurisdiction or misdirection."
13. Therefore, it has to be held that if the person preferring appeal under Section 35 or 35B of the Act fails to deposit the duty and/or penalty as provided under Section 35F in accordance with the directions of the Appellate Authority in this regard, then it will be quite competent for the said authority to reject the appeal on that ground alone.
14. The aforesaid proposition having a direct bearing on the right of the appellant to prosecute its appeal has not been disputed by Sri Chander Kumar. In the present case he has only sought to confine his thrust on the scope and exercise of jurisdiction vested in the appellate authority under the proviso to Section 35F of the Act. This proviso has clothed the Appellate Authority with the discretion to dispense with the requirement of the pre-deposit either in whole or in part provided -
(i) it forms an opinion that the requirement of pre-deposit would cause undue hardship to the appellant, and
(ii) it imposes appropriate conditions in order to safe guard the interest of the revenue.
15. It is now well established that the finding regarding "undue hardship" has to be recorded by the Tribunal by attending to all the relevant materials placed on record and by applying itself to the said materials through a speaking order which should reflect application of objective and judicious mind. The occasion to impose conditions under the proviso to safe guard the interest of the revenue can arise only if the Tribunal comes to a conclusion of "undue hardship" on the part of the appellant. To my reading no balance need to be struck between the "undue hardship" requirement and the interest of revenue for exercise of the discretion under the proviso. The Tribunal has to form its opinion on "undue hardship" aspect solely by assessing the hardship of the appellant which has to be governed by the relevant materials placed on the record by the parties. Once the Tribunal comes to a finding that the appellant has successfully made out a case of "undue hardship", it is only then that the Tribunal had to take care of the interest of the revenue by imposing appropriate conditions, so as to ensure that in case of failure of the appeal the adjudicated amount is not lost for good and thereby the interest of the revenue is put to jeopardy.
16. To substantiate his submissions in the present case the Tribunal has failed to exercise its jurisdiction judiciously by not giving due consideration to all relevant materials and factors having bearing on the issue of "undue hardship". Mr. Chander Kumar has referred to various judicial pronouncements in this regard. Now I proceed to deal with the said precedents.
17. In the case of New Vinod Silk Mills Pvt. Ltd. v. Union of India - 1994 (71) E.L.T. 910 Bombay and Indian Jute Industries Ltd. v. Collector of Central Excise - 1992 (62) E.L.T. 290 Calcutta, the companies had been declared to be 'Sick Industrial Companies' by the Board of Industrial & Financial Reconstruction (in short BIFR) under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short 'Sick Industries Act') and as such these Companies were entitled to protection under Section 22 of the said Act. Despite the said facts, since the Appellate Authorities had failed to give due consideration to the said aspect, the Calcutta and Bombay High Courts in the cases before them found it essential to interfere with the orders of the Appellate Authorities.
18. In the present case, admittedly the petitioner has not been declared to be sick by the BIFR under the Sick Industries Act, so as to enable it to avail the protection of Section 22 of the said Act. Though Mr. Chander Kumar, in order to seek support from the above referred cases of Calcutta and Bombay High Courts, has sought to place on record that the petitioner has also been declared as 'sick' by the District Industrial Center, Bangalore, in its meeting held on 9-9-1993. But, to my mind, it is inconsequential, since any such resolution of the District Industrial Centre, is not supported with any statutory protection and can at best be justified under the executive powers of the State. Notwithstanding any such resolution, as I understand, it is always open to the Appellate Authority under the Act, on the basis of the materials placed before it to come to its own conclusion regarding the financial availability and viability of the company.
19. In the case of Kanpur Cigarettes Ltd. v. Collector of Central Excise - 1995 (80) E.L.T. 778, Allahabad, the Allahabad High Court had set aside the order of the Tribunal passed under Section 35F of the Act, since it was found by the Court that despite the Tribunal having found a strong prima facie case for waiver of pre-deposit, had for no good reasons granted only partial waiver. But this is not the situation here.
20. In the case of Rajendra Kumar R. Shah v. Collector of Customs - 1992 (58) E.L.T. 64., learned Single Judge of this Court while dealing with the requirement of pre-deposit under the Customs Act, took the view that since the stand of the petitioner in that case made on affidavit before the Tribunal was that he had no means to pre-deposit the adjudicated amounts and that fact having remained uncontroverted, the Tribunal could have exercised its jurisdiction more judiciously by dispensing with the requirement of the pre-deposit and decide the appeal itself on its merits which was pending for more than four years.
21. The Division Bench of Allahabad High Court in the case of U.P. Lamination v. Union of India - 1985 (20) E.L.T. 243, stayed the order of the Tribunal directing deposit of 25% in cash and Bank Guarantee for the balance for entertaining the appeal. Since it was found by the High Court that in doing so the Tribunal had failed to appreciate the import of the words "undue hardship" as used in proviso to Section 35F, it was held that "there is no finding in the order as to what would happen if the interim order is not granted in favour of the petitioner. In absence of any finding of "undue hardship" the exercise of discretion by the Tribunal is patently erroneous. In the present case the Tribunal had admittedly recorded the finding on the aspect of the "undue hardship". Therefore this case as well is no avail to the petitioner.
22. Next case cited is of Collector of Central Excise v. Coronation Litho Works - 1994 (69) E.L.T. 238. In this case a Bench of Madras High Court on appraisal of balance sheet of the company by itself had came to the conclusion that keeping in view the profits earned by the company a direction to deposit a sum of Rs. 13 lakhs would be more appropriate. This case is more on facts and does not have much value as a precedent, since a decision can be used as a precedent only on a question of law and not on that of fact.
23. In the case of V. Marutha Muthu v. Cegat - 1992 (60) E.L.T. 208, it was held that "In my view, the Tribunal having taken note of the fact that both the petitioners are not financially sound, ought not to have directed them to deposit Rs. 1,00,000/- towards duty on or before 31-1-1992. It is true that the entire penalty has been dispensed with. But I am not satisfied that the Tribunal has exercised its discretion properly in this case by asking the petitioners to pre-deposit a sum of Rs. 1,00,000/- considering the facts and circumstances of this case that both the petitioner are not financially sound. It is well settled that the Tribunal has to take note of the hardship under these Central Excise and Customs Act, 1924. In my view it has not been taken note of by the Tribunal. As such the petitioners are before me." This case again is on its own facts.
24. In the case of M/s. Rubicon v. Collector of Central Excise - 1989 (44) E.L.T. 401 (Ker.) = 1989 (22) ECR 269 Ker., the Kerala High Court has held that :-
"8. In dealing with an application invoking the discretion under the proviso to Section 35F, the Appellate Authority is not dealing with an application for stay. The deposit is required because it is a condition precedent for the entertainability of the appeal. Therefore, in such an application, the question whether there is any duty admittedly due is irrelevant. The factor made relevant is 'undue hardship' to the appellant. Even if there is any amount admittedly due, the Appellate Authority can dispense with the deposit of the duty and penalty as a precondition for entertaining the appeal, if insistence on such deposit will cause 'undue hardship' to the appellant. The line of enquiry is only whether 'undue hardship will ensue to the appellant by insistence on deposit of the duty and the penalty, and not whether any portion of the amount is admitted to be due or not. The latter is germane is considering an application for stay, but not while dealing with an application under the proviso to Section 35F. The distinction between the two types of applications assumes importance because while non-compliance with an order under the proviso to Section 35F entails rejection of the appeal itself, there is no such forfeiture incurred by non-compliance with the direction contained in an order of stay. The only consequence is that the assessee expose himself to coercive process for recovery of the duty and penalty."
25. I have serious reservations regarding enunciation of law declared in the above paragraph by the Kerala High Court. A plain reading of Section 35F shows that the disputed amount of duty or penalty should be paid during the pendency of the appeal. It cannot be said to be a condition precedent to the entertainment of the appeal. The appeal can very well be entertained even if the amounts are not deposited. But if the Appellate Authority directs for the pre-deposit, the non-compliance thereof may result in dismissal of the appeal. Secondly, if no order is passed under Section 35F, then in such a situation the Excise Authorities will be competent to proceed with recovery proceedings of the disputed amounts in accordance with the statutory proceedings in this regard. But if an order is passed by the Appellate Authority dispensing with the requirement of the pre-deposit either in part or whole, then as per the instructions of the Board, the Excise authorities are restrained from going ahead with recovery proceedings since the Board has directed to treat such orders as stay orders in respect of disputed demands. I am further of the view that appeals are taken only against disputed dues and therefore an order of dispensation can be passed under the said proviso only in respect of disputed dues and not the admitted dues.
26. Now coming to the facts of the present case, in the first impugned order dated 1-6-1994 (Annexure-F) the Tribunal had partially dispensed with the requirement of the pre-deposit, by considering all the material facts placed before it. The finding is recorded in Paragraph 3 of the said order is to the following effect :
"3. We have gone through the records and a plain reading of the notification, the absence of the words 'ADV' on the foods would prima facie disentitle the petitioner to the benefits thereunder. On going through the balance sheet we find that the sales turnover of the petitioner for the year in question was in the order of Rs. 55.23 lakhs and a sum of Rs. 31.32 lakhs is due to the petitioner from Sundry Debtors and this is in addition to depreciation in a sum of more than Rs. 36 lakhs. Keeping all these factors in mind we direct the petitioner to pre-deposit a sum of Rs. 4.5 lakhs on or before 31-8-1994 and report compliance, subject to which pre-deposit of the balance of duty and the entire penalty would stand dispensed with, pending appeal. The matter will be called on 31-8-1994 for reporting compliance."
From the above it is clear that the Tribunal has not only considered the prima facie case, but has also addressed itself to the financial aspects of the company. By the Second order it has refused to review its first order, but has extended the time for deposit.
27. In the case of Vijayaprakash (supra) the Supreme Court has held "in case it is manifest that the Tribunal had passed the order honestly, bona fide and having regard to the plea of "undue hardship" as canvassed by the appellant then no error of jurisdiction or misdirection by the Tribunal can be inferred. In Para 14 of the judgment it has been held that :
"In the facts and circumstances of case and all the relevant factors, namely the probability of the prima facie case of the appellant, the conduct of the parties, have been taken into consideration by the Tribunal. The purpose of the Section is to act in terrarium to make the people comply with the provisions of law."
28. Applying the law of the land as declared by the Supreme Court of India, to the facts of the present case, in my opinion no good grounds have been made out for interfering with the impugned orders placed at Annexures-F & H. Any how, because of the pendency of the Writ Petition, the time for pre-deposit is extended till 30-6-1996. Subject to this, the Writ Petition is dismissed with costs assessed at Rs. 2,500/-.