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Mandatory Pre-deposit - A revisit

SEPTEMBER 04, 2017

By G Jayaprakash, Adv.

THE fact, that an appeal provided by statute is a substantive right that cannot be curtailed by post amendment clarifications through illogical conclusions is reiterated by the Supreme Court in K. Raveendranathan Nair Vs CIT - 2017-TIOL-288-SC-IT. The apex court concluded that an appeal is a substantive right and not a procedure prescribed to be taken away by an amendment of the Act for the post amendment period.The court in the above cited judgment held that the right of appeal is not a matter of procedure, it is a substantive right and it gets vested in the litigants at the commencement of the lis and, therefore, such a vested right cannot be taken away or cannot be impaired or imperilled or made more stringent or onerous by any subsequent legislation unless the subsequent legislation said so either expressly or by necessary intendment. An intention to interfere with or impair or imperil a vested right cannot be presumed unless such intention is clearly manifested by express words or by necessary implication.

In the light of the above decision, this paper tries to analyse the issue of mandatory pre deposit introduced vide Finance (No. 2) Act, 2014 by re-reading the Hon'ble single Bench decision of the High Court of Kerala. In Re: Muthoot Finance Limited - 2015-TIOL-632-HC-KERALA-ST the Hon'ble Court held "The only point that arises for consideration is whether the petitioner would have to deposit the amount of 7.5% of the tax confirmed against him, as a condition for pursuing the appellate remedy before the Tribunal. I note in this connection that recently, a Division Bench of the High Court of Telengana & Andhra Pradesh has taken a prima facie view that, in as much as the lis in question had commenced prior to the introduction of the amendment to the Finance Act, 1994, with effect from August 2014, the petitioner's right of appeal as per the erstwhile provisions of law would not be affected by the provisions introduced by the amendment of 2014. Although not expressly referred to in the interim order dated 19-2-2015 passed by the High Court of Telengana & Andhra Pradesh in WP 3393/2015, the view seems to be consistent with the settled law that the institution of a suit carries with it an implication that all rights of appeal then in force are preserved to the parties thereto till the rest of the career of the suit and, further, that the right of appeal that is vested is to be governed by the law prevailing at the date of institution of the suit or proceeding, and not by the law that prevails at the date of its decision or at the date of filing of the appeal. (See : Garikapati Veeraya v. N. Subbiah Choudhry and Other (AIR 1957 SC 540); Messrs Hoosein Kasam Dada (India) Ltd v. The State of Madhya Pradesh and Others, [AIR 1953 SC 221 = 1983 (13) E.L.T. 1277 (S.C.)]; Vitthalbhai Naranbhai Patel v. Commissioner of Sales Tax MP, Nagpur (AIR 1967 SC 344)and Ramesh Singh and Another v. Cinta Devi and Others [1996 (3) SCC 142]. In that view of the matter, I find that the petitioner, in whose case also the lis commenced in 2012, would not be required to deposit the amount of 7.5%, as required pursuant to the 2014 amendment, and in that respect, he would have an efficacious alternate remedy before the Tribunal where he can file an appeal, together with an application for waiver of pre-deposit and stay of recovery of the amounts confirmed against him by Ext. P8 order. At the time of filing the appeal, he will not be required to make any payment as a pre-condition for the hearing of the waiver application by the Tribunal. I, therefore, relegate the petitioner to the alternate remedy available under the Finance Act, 1994, as amended, of approaching the Appellate Tribunal by way of an appeal against Ext. P8 order. It is made clear that the appeal to be filed by the petitioner would be governed by the statutory provisions, as they stood prior to the amendment introduced with effect from 16-8-2014.".

On appeal by Revenue, the Division Benchpassed on the burden to the Tribunal to determine the issue of applicability of pre amended or post amended Section 35F or the Central Excise Act, 1944 made applicable to Service Tax in each case of the petitioners. Meantime, the Hon'ble High Courts of Bombay, Madras, Allahabad Ganesh Yadav - 2015-TIOL-1490-HC-ALL-ST, and Karnataka HPCL - 2015-TIOL-2637-HC-KAR-CX dissented with the judgment of the single Bench of the Kerala High Court.

The Madras High Court Dream Castle - 2016-TIOL-1009-HC-MAD-ST held that the amendment did not take away a right vested, but merely made a chance divested. Bombay High Court Nimbus Communication - 2016-TIOL-1708-HC-MUM-ST held that them andatory requirement of pre-deposit of 7.5% is a reasonable condition and in no way affects vested right of appeal. The above two judgments inform us that the 'vested right' is a question of fact and not a question of law. Fact of onerous nature and reasonable condition differs with persons. A person who lost his business and facing revenue recovery proceedings is eligible for a stay of the demand confirmed against him like another whose case is covered by appellate decisions but the authority below refused to follow the ratio of the appellate decision. In both the above cases, the amendment impairs and imperils the right of the person for a just appellate order.

In the light of the above decisions, pre deposits as per the amended Section 35F is mandatory for cases where lis was initiated prior to 6.8.2014. Quite a number of appeals were dismissed for want of pre deposit as per the amended provision. Instances of hardship or cases covered by appellate orders and precedents ignored by the lower authorities have become irrelevant for prosecuting an appeal.

In the light of the apex court judgment cited, whether the annulment of the single bench decision is legal and proper?

As per the cited case of Raveendranathan Nair (supra), impairment of a vested right of appeal, with conditions if any, can be interfered with only if such an intention is manifested by express words or by necessary implication. None of the dissenting judgments found that the legislature provided express words to apply the amended Section for cases initiated prior to the amendment. Whether legislature provided any situation to presume such an intention by necessary implication?

The amended section is as follows:

"35F. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. - The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal, -

(i) under sub-section (1) of section 35, unless the appellant has deposited seven and a half per cent of the duty in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Commissioner of Central Excise;

(ii) against the decision or order referred to in clause (a) of sub-section (1) of section 35B, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty where such penalty is in dispute, in pursuance of the decision or order appealed against;

(iii) against the decision or order referred to in clause (b) of sub-section (1) of section 35B, unless the appellant has deposited ten per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty where such penalty is in dispute, in pursuance of the decision or order appealed against :

Provided that the amount required to be deposited under this section shall not exceed rupees ten crores :

Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No. 2) Act, 2014.

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 6 of the Cenvat Credit Rules, 2001 or the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004."

A reading of the amended Section 35F does not inform us about any express provision to indicate that the amended provision is applicable to lis initiated before 6.8.2014 but appeal is to be filed after that date. There is no necessary intendment also. Hence inclusion of lis initiated prior to 6.8.2014 within the ambit of amended Section of Section 35 F of Central Excise Act, 1944 made applicable to Service Tax also does not appears to be in tandem with the apex court's case cited. The cited decision of the apex court appears to uphold the decision of the single bench of the Kerala High Court in Re: Muthoot Finance Ltd 2015-TIOL-632-HC-KERALA-ST that lis initiated prior to 6.8.2014 is to be dealt with as per pre-amended Section 35F of Central Excise Act.

(The views expressed are strictly personal.)

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