APRIL 02, 2019

By Suhrid Bhatnagar, Advocate

A. In recent past, even during the pendency of appeals with CESTAT, the department has been requiring the assessees to either deposit the dues or get a stay therefrom. Although, this is only in the form of formal letters as yet, but days are not far that the department may initiate recovery proceedings under Section 142 of the Customs Act, 1962 and Section 87 of the Finance Act, 1994 in Central Excise and Service Tax matters respectively.

A.1 The basis of such directive is the judgement dated 28.03.2018 of the Hon'ble Supreme Court in the case of Criminal Appeal Nos. 1375-1376 OF 2013 of Asian Resurfacing of Road Agency Pvt. Ltd. & Anr. Versus Central Bureau of Investigation, wherein the following has been held in Para 36:

36. ………… In all pending matters before the High Courts or other courts relating to PC Act or all other civil or criminal cases, where stay of proceedings in a pending trial is operating, stay will automatically lapse after six months from today unless extended by a speaking order on above parameters. Same course may also be adopted by civil and criminal appellate/revisional courts under the jurisdiction of the High Courts. The trial courts may, on expiry of above period, resume the proceedings without waiting for any other intimation unless express order extending stay is produced. ………….

A.2 As the order of the Hon'ble Supreme Court is dated 28.03.2018 and six months have already passed since, therefore, as of today, as per department's stand, all the arrears of demands are in the category of 'unrestrained and recoverable arrears' until and unless the assessee seeks stay from CESTAT.

While the assessees are in bewilderment as to whether they can get a stay or not from CESTAT, 'Where are the provisions of granting stay by CESTAT?' is the question that the department has to answer.

[Note: Insofar as the appeals pending before the CESTAT and in respect of which stay was granted before the amendments made by the Finance Act, 2014, readers may like to refer to the Tribunal decision in Venketeshwara Filaments Pvt. Ltd. - 2014-TIOL-2388-CESTAT-AHM.

B. Substituted Section 35F and accordingly amended Section 35B, Section 35C of Central Excise Act, 1944 and Rule 28A of CESTAT (Procedure) Rules, 1982 do not provide for stay by CESTAT

B.1 Section 35F of the Central Excise Act, 1944, before substitution by Section 95 of the Finance (No. 2) Act, 2014 with effect from 06.08.2014, provided for deposit of entire duty or penalty determined by the adjudicating authority during the pendency of appeal. Such condition could, however, be waived or modified by the Tribunal.

After substitution of Section 35F with effect from 06.08.2014, Section 35F provided for mandatory pre-deposit of 7.5% or 10% for filing the appeals in the following cases:

- 7.5% in case of appeal before Commissioner (Appeals)

- 7.5% in case of appeal before Tribunal against the order of Commissioner

- 10% in case of appeal before Tribunal against the order of Commissioner (Appeals) (including the earlier pre-deposit of 7.5%)

B.2 According changes were also made in Section 35B (Appeals to the Appellate Tribunal), Section 35C (Orders of Appellate Tribunal) in Central Excise Act, 1944 and Rule 28A of the CESTAT (Procedure) Rules, 1982.

B.3 Section 35B (relevant provision) before amendment w.e.f. 06.08.2014 used to read as under:

(7) Every application made before the Appellate Tribunal -

(a) in an appeal for grant of stay or for rectification of mistake or for any other purpose; or

(b) for restoration of an appeal or an application,

shall be accompanied by a fee of five hundred rupees:

Section 35B (relevant provision) after amendment w.e.f. 06.08.2014 reads as under:

(7) Every application made before the Appellate Tribunal -

    (a) in an appeal for rectification of mistake or for any other purpose; or

    (b) for restoration of an appeal or an application,

shall be accompanied by a fee of five hundred rupees :

It can be seen that in accordance with substitution of Section 35F, the words 'for grant of stay or' were omitted from clause (a) in Section 35B(7).

B.4 Section 35C (relevant provision) before amendment w.e.f. 06.08.2014 used to read as under:

(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 on which such appeal is filed:

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

Section 35C (relevant provision) after amendment w.e.f. 06.08.2014 reads as under:

(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 on which such appeal is filed:

[****]

It can be seen that in accordance with substitution of Section 35F, the provisos in Section 35C which provided for stay and vacation of stay were also omitted.

B.5 Moving yet further, the relevant provisions in Rule 28A of Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules 1982 were also substituted by CESTAT Notification No. 1/2014 dated 07.11.2014.

Rule 28A of CESTAT (Procedure) Rules 1982 (relevant provision) before substitution read as under:

28A. Procedure for filing and disposal of stay petitions: (1) (a) Every application preferred under the provisions of the Acts for stay of the requirement of making deposit of any duty demanded or penalty levied shall be presented in triplicate by the appellant in person or by his duly authorised agent, or sent by registered post to the Register or any other office authorised to receive memoranda of appeals, as the case may be, at the Headquarters of the Bench having jurisdiction to hear the appeal in respect of which the application for stay arises:

Rule 28A of CESTAT (Procedure) Rules 1982 (relevant provision) after substitution reads as under:

28A. Procedure for filing and disposal of stay petitions. - (1) (a) [Every application preferred under the provisions of the Acts for stay of the operation of impugned orders dealing with refund, under CHA Licensing Regulations, Warehousing, etc. shall be presented in triplicate by the appellant in person or by his duly authorized agent, or sent by registered post to the Registrar or any other officer authorized to receive memoranda of appeals as the case may be, at the Headquarters of the Bench having jurisdiction to hear the appeal in respect of which the application for stay arises:

Here again it can be seen that Rule 28A(1)(a) above which earlier provided for stay of requirement of deposit of duty or penalty was substituted with an altogether different provision.

B.6 Section 35F of the Central Excise Act, 1944 is made applicable to the service tax matters by virtue of Section 83 of the Finance Act, 1994. The changes made in Section 35B were parallelly also made in Section 86(6A) in Finance Act, 1994 and the changes made in Section 35C were parallelly also made in Section 86(7) in Finance Act, 1994.

B.7 It can, therefore, be seen that after the substitution of Section 35F w.e.f. 06.08.2014, the concept of stay on recovery proceedings has been totally eliminated from the Central Excise Act, 1944 and the Finance Act, 1994. Therefore, the present status of law is that after the mandatory pre-deposit is made under Section 35F of the Central Excise Act, 1944, no other recovery can be made from the appellant assessee.

C. Whether the Order of the Apex Court in Asian Resurfacing applies to cases under appeal with CESTAT

C.1 Moving further, let us also look into as to whether the Order of the Hon'ble Supreme Court is even applicable to the cases in CESTAT or not. The language of the Order indicates that it applies to all civil or criminal cases where stay of proceedings in a pending trial is operating in the High Courts or civil and criminal appellate/revisional/trial courts under the jurisdiction of the High Courts.

C.2 Even if the orders of the CESTAT are appealable in High Courts, the CESTAT is cannot be termed as an appellate/revisional/trial court under the jurisdiction of a High Court . The Supreme Court, the High Courts and the Subordinate Courts are defined and detailed in Part V- Chapter IV, Part VI- Chapter V and Part VI- Chapter VI respectively of the Constitution of India, whereas the Tribunals have been defined in Part XIVA of the Constitution.

C.3 In Part XIVA of the Constitution Article 323B reads as under:

323B. Tribunal for other matters.- (1) The Appropriate Legislature may, by law, provide for the adjudication or trial by tribunals of any disputes, complaints, or offences with respect to all or any of the matters specified in clause (2) with respect to which such Legislature has power to make laws.

(2) The matters referred to in clause (1) are the following, namely:--

(a) levy, assessment, collection and enforcement of any tax;

……….

……….

(i) offences against laws with respect to any of the matters specified in sub-clauses (a) to (h) and fees in respect of any of those matters;

(j) any matter incidental to any of the matters specified in sub-clauses (a) to (i).

(3) ……………..

(4) The provisions of this article shall have effect notwithstanding anything in any other provision of this Constitution or any other law for the time being in force.

Explanation.- In this article, "appropriate Legislature", in relation to any matter, means Parliament or, as the case may be, a State Legislature competent to make laws with respect to such matter in accordance with the provisions of Part XI.

C.4 The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) created under Article 323B of the Constitution is a creation of Customs Act, 1962 made by the Parliament. The Tribunal draws its powers and functions from the provisions of Section 129C of the Customs Act, 1962 to deal with the matters relating to Customs, Section 35D of the Central Excise Act, 1944 to deal with the matters relating to Central Excise and Section 86 of Finance Act, 1994 to deal with matters relating to Service Tax.

C.5 Interestingly, the Supreme Court of India had once observed that 'Tribunals, whether they pertain to Income Tax or Sales Tax or Excise and Customs or administration, have now become essential part of the judicial system of the country. Such specialized institutions may not strictly come within the concept of the judiciary, as envisaged by Article 50 of the Constitution of India, but cannot be presumed that such tribunals are not effective part of the justice delivery system, like courts of law'. [Union of India v. Delhi Bar Association (AIR 2002 SC 1347).

C.6 Therefore, the above order of Asian Resurfacing by the Apex Court does not apply to CESTAT.

D. Specific legislative provisions prevail over generality of any law

D.1 Further, there is an established doctrine in law called lex specialis. The doctrine states that if two laws govern the same factual situation, a law governing a specific subject matter (lex specialis) overrides a law governing only general matters (lex generalis). Therefore, whether for recovery of central excise or service tax dues under appeal with CESTAT, recovery proceedings can be initiated or not is a matter covered by a specific legislation i.e. Central Excise Act, 1944 or the Finance Act, 1994 in this case and generality of any other provision of law cannot be applied here.

D.2 In this regard, decision dated 13.03.2008 of the Hon'ble Supreme Court in the case of Gujarat Urja Vikash Nigam Ltd vs Essar Power Ltd in Civil Appeal No. 1940 of 2008 is worth mentioning wherein as regards lex specialis following has been held by the Apex Court:

28. Section 86(1)(f) is a special provision and hence will override the general provision in Section 11of the Arbitration and Conciliation Act, 1996 for arbitration of disputes between the licensee and generating companies. It is well settled that the special law overrides the general law. Hence, in our opinion, Section 11 of the Arbitration and Conciliation Act, 1996 has no application to the question who can adjudicate/arbitrate disputes between licensees and generating companies, and only Section 86(1)(f) shall apply in such a situation.

33. Section 174 provides that the Electricity Act, 2003 will prevail over anything inconsistent in any other law. In our opinion the inconsistency may be express or implied. Since Section 86(1)(f) is a special provision for adjudicating disputes between licensees and generating companies, in our opinion by implication Section 11 of the Arbitration and Conciliation Act, 1996 will not apply to such disputes i.e. disputes between licensees and generating companies. This is because of the principle that the special law overrides the general law. For adjudication of disputes between the licensees and generating companies there is a special law namely 86(1)(f) of the Electricity Act, 2003. Hence the general law in Section 11 of the Arbitration and Conciliation Act, 1996 will not apply to such disputes.

D.3 Therefore, the decision of the Apex Court in Asian Resurfacing cannot be applied to the cases of central excise and service tax pending in appeal with the Tribunal.

E. Recovery shall amount to pre-deposit being in excess of 7.5% or 10%

E.1 There is another technical angle to it also. The Section 35F provides for 7.5% or 10% as the case may be, for appeal with the Tribunal. Any recovery, if made, during the pendency of appeal shall amount to increase in the mandatory quantum of pre-deposit which shall be in violation of Section 35F. Also, the section also provides a cap of rupees ten crores for pre-deposit. The cap itself denotes that recovery cannot be made beyond the mandatorily required pre-deposit.

F. What about the Board Circular dated 16.09.2014?

F.1 In this regard, the Board has already issued a Circular No. 984/08/2014-CX ., dated 16.09.2014 wherein the following has been stated:

"4. Recovery of the Amounts during the Pendency of Appeal:

4.1 Vide Circular No.967/1/2013 dated 1st January, 2013, Board has issued detailed instructions with regard to recovery of the amounts due to the Government during the pendency of stay applications or appeals with the appellate authority. This Circular would not apply to cases where appeal is filed after the enactment of the amended Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962.

4.2 No coercive measures for the recovery of balance amount i.e., the amount in excess of 7.5% or 10% deposited in terms of Section 35F of Central Excise Act, 1944 or Section 129E of Customs Act, 1962, shall be taken during the pendency of appeal where the party/assessee shows to the jurisdictional authorities:

(i) proof of payment of stipulated amount as pre-deposit of 7.5% / 10%, subject to a limit of Rs.10 crores, as the case may be; and

(ii) the copy of appeal memo filed with the appellate authority.

4.3 Recovery action, if any, can be initiated only after the disposal of the case by the Commissioner (Appeal)/Tribunal in favour of the Department. For example, if the Tribunal decides a case in favour of the Department, recovery action for the amount over and above the amount deposited under the provisions of Section 35F/ 129E may be initiated unless the order of the Tribunal is stayed by the High Court/Supreme court. The recovery, in such cases, would include the interest, at the specified rate, from the date duty became payable, till the date of payment."

F.2 The above circular of the Board has neither been withdrawn nor held non-est in law by any Court. Therefore, the above circular is very much applicable even today and cannot be surpassed by the departmental officers on whom the same is binding.

G. High Court can dispense with even the requirement of 'mandatory pre-deposit'

G.1 In this regard, the case of Cyquator Media Services P. Ltd. Versus Union of India - 2018-TIOL-29-HC-ALL-ST in Writ Tax No. 750 of 2017 decided on 20.11.2017 is worth mentioning. It was inter alia observed -

"…Above all, as the Supreme Court held in Shyam Kishore (supra), the High Court under Article 226 of the Constitution is vested with the jurisdiction in an appropriate case to dispense with the requirement of predeposit and the power of the Court under Article 226 is not taken away. This was also held by the Supreme Court in the case of  P. Laxmi Devi [2008(4) SCC 720]  in which the Supreme Court observed that recourse to the writ jurisdiction would not be ousted in an appropriate case…"

  [para 33]

G.2 Therefore, on one side the High Court is going to the extent of waiving the requirement of 'mandatory' pre-deposit under Section 35F of Central Excise Act, 1944 and on the other side the department is heading to recover more than the 'mandatory' pre-deposit.

H. NOT ONLY CBIC, CBDT ALSO MADE SUCH ATTEMPT, BUT THE EFFORTS WERE THWARTED BY DECISIONS OF TRIBUNALS

H.1 The CBIC is not the only one who tried to garner revenue by recovery of stayed demands. While the step taken by the CBIC was curbed down by the Miscellaneous Order No. 20104-20106/2019 dated 07.03.2019 of CESTAT, Bangalore in the case of Vijaynagar Sugars Pvt. Ltd. & Ors. Vs. CCE, Belgaum etc., - 2019-TIOL-861-CESTAT-BANG, a similar attempt by CBDT was thwarted by the Income Tax Appellate Tribunal, "J" Bench Mumbai in its Order pronounced on 15.03.2019 where an appeal by the Income Tax Department for vacating the stay granted to the assessee on the basis of the Hon'ble Supreme Court's decision in the Asian Resurfacing case was dismissed.

H.2 In the above Piramal Enterprises case, the case of Oracle Financial Services Pvt. Ltd. vs. DCIT in Writ Petition No. 542 of 2019 dated 28.02.2019 was also referred wherein the Hon'ble High Court of Mumbai held the following:

"4. We are prima facie of the view that the Revenue Authorities committed serious error. Against the total demand arising out of the order of assessment of Rs. 205 crore, the Assessing Officer has already recovered a total of Rs. 140 crores by now through different means. There is no allegation that the petitioner is responsible for delay in disposal of the appeal before the Commissioner. Merely relying upon the decision of the Supreme Court in the case of Asian Resurfacing of Road Agency Pvt Ltd (supra), Revenue Authorities now held a belief that any stay against the recovery granted would automatically lapse after six months. This is neither the purport of the judgment of the Supreme Court, nor the observations made in the said judgment in the context of civil and criminal litigation can be imported in present set of quasi judicial proceedings. The power of the Assessing Officer to review the situation every six months, would not authorized him to lift the stay previously granted after full consideration and insist on full payment of tax without the assessee being responsible for delay in disposal of the appeal or any other such similar material change in circumstances."

H.3 It is for sure that many assessees have approached the Courts and Tribunals for the Department's attempt to recover the unrecoverable dues. Therefore, many decisions from various courts may follow.

I. When in around 90% of the cases department is unsuccessful, is there any need for running for recovery during pendency of appeal

I.1 It is also high time to recall that in Chapter 9 in the Economic Survey 2017-18 which was titled "'Ease of Doing Business' Next Frontier: Timely Justice", there is a mention that the success rate of department in CESTAT was mere 12% where the decisions were totally or even partially in the favour of the department. The cases where in subsequent appeals in High Courts and Supreme Court the department met defeat were excluded from this calculation. Meaning thereby that the condition of the department as to the success rate in appeals is miserable. Yet surprisingly, the department attempts to recover the dues during the pendency of appeal in CESTAT.

All the above points have been made to prove that the department cannot recover dues during the pendency of appeal when the assessee has made the necessary quantum of pre-deposit in terms of Section 35F of the Central Excise Act, 1944.

(The author is co-founder and Partner at Acumen Tax Consultants, Jaipur and the views expressed are strictly personal.)