SEPTEMBER 27, 2023

By Vijay Kumar

IN a recent order in CIVL APPEAL NO(S). 5195-5201 OF 2012 – Secunderabad Club vs CIT, the Supreme Court observed: 2023-TIOL-127-SC-IT

- What is binding in terms of Article 141 of the Constitution is the ratio of the judgment and the ratio decidendi of a judgment is the reason assigned in support of the conclusion.

- An order made merely to dispose of the case cannot have the value or effect of a binding precedent.

- The decision is an authority for what is specifically decides and not what can logically be deduced therefrom.

- The precedential value of an order of the Supreme Court which is not preceded by a detailed judgment would be lacking inasmuch as an issue would not have been categorically dealt with.

- Declaration of the law by the Supreme Court can be said to have been made only when it is contained in a speaking order, either expressly or by necessary implication and not by dismissal in limine .

- If an order of this Court is brief and meant only for the purpose of closure of the controversy involved in a particular case and with a view to conclude the case, undoubtedly, such an order is binding on the parties to the said order, but in our view, it cannot act as a precedent for subsequent cases.

This reminded me of an old case:

My client imported timber logs and claimed refund of Additional duty of Customs (SAD) as the imported goods were sold on payment of VAT. However, refund claims were allowed only on the logs sold as such and in cases where the logs were sold as “cutsizes", refund was denied. Commissioner (Appeals) also upheld the adjudication orders. The CESTAT allowed the appeals (2016-TIOL-296-CESTAT-HYD) relying upon the decision of the Gujarat High Court in Commissioner of Customs v. Variety Lumbers Private Limited (2012 TIOL-821-HC-AHM-CUS). The Tribunal took note of the fact that against the judgment of Gujarat High Court, Special Leave Petitions were filed and that the Supreme Court had already granted leave and issued notices but did not grant an interim stay of the judgment of Gujarat High Court. (2012-TIOL-98-SC-CUS), but the Court had granted refund subject to providing a bank guarantee for half the amount to be refunded.

Against the orders of the CESTAT, the Department did not immediately file statutory appeals before the High Court but chose to file Miscellaneous Applications before the CESTAT seeking a modification of the order of the CESTAT on the short ground that the CESTAT should have directed the respondent-assessee to furnish bank guarantee at least to the extent of 50% of the amount of refund, as per the interim order passed by the Supreme Court. These applications for modifications were dismissed by the CESTAT on the ground that after the disposal of the appeals, the Tribunal had become functus officio .

Even after the Miscellaneous Applications were dismissed by the CESTAT, the Department refused to grant refund on the ground that the Supreme Court had ordered bank guarantee in some other case. I filed writ petitions seeking a direction to the department to grant refund as per the orders of the CESTAT. In the writ petitions, the department took a stand that they had already filed appeals under Section 130A of the Actagainst the orders of the CESTAT. But after finding that there were actually no appeals registered on the file of the Court, the High Court allowed the writ petitions and directed the refund to be made. It was recorded in the said order that the order passed by the CESTAT, had attained finality as on the date of disposal of the writ petitions and that therefore, the department had no alternative but to refund the amount.

Thereafter, the revenue reached the High Court with appeals with applications for condonation of delay. In spite of my stiff opposition, the High Court allowed the delay condonation applications, only in view of the fact that the matter required examination, in view of the Supreme Court granting leave to appeal against the judgment of Gujarat High Court.

The high Court observed, (2017-TIOL-2165-HC-AP-CUS)

Admittedly, the Supreme Court did not grant interim stay of the judgment of the Gujarat High Court in Variety Lumbers Pvt. Ltd . On the contrary, the Supreme Court directed the refund subject to the assessee furnishing bank guarantee to the tune of 50% of the amount of refund.

Effect of appeal before Supreme Court : The High Court observed,

The grant of leave by the Supreme Court, as against the judgment of a High Court, does not have the effect of wiping out any principle of law laid down by the High Court. Even in cases where a stay is granted by the Supreme court, the question would depend upon whether an interim stay was granted of the operation of the judgment of the High Court or of the further proceedings pursuant to the order of the High Court. If an interim stay of operation of the judgment of the High Court is granted by the Supreme Court, then it could possibly be argued that the judgment of the High Court cannot be followed as a precedent. Even in such cases, there is no embargo upon the other High Courts to follow the reasoning adopted by the High Court whose judgment was stayed by the Supreme Court, to come to the very same conclusion.

In cases where an interim stay is granted by the Supreme Court only in respect of further proceedings, the principle of law laid down by the High Court does not get automatically suspended. In cases where no stay is granted by the Supreme Court, the Tribunal is entitled to follow the judgment of the High Court that is under appeal.

In the case on hand, the Supreme Court did not grant either a stay of operation of the judgment or a stay of further proceedings pursuant to the judgment of the Gujarat High Court. Therefore, the Tribunal was bound to follow the judgment of the Gujarat High Court .

The High Court further observed,

But, unfortunately, for the appellant/revenue, the requirement to sell the imported goods as such in the local market, is not one of the conditions stipulated in the exemption notification.

It is not indicated anywhere in the notification that the imported goods should be sold as such, so as to qualify for exemption. All that the notification says is that the imported goods should be sold locally and that the conditions stipulated in para-2 should be fulfilled.

As rightly observed by the Gujarat High Court, the timber logs imported by anyone, when cut into smaller logs, do not lose the character of being timber logs. Moreover, the size of timber logs that could be imported in huge ships, will be so large that they cannot be transported locally in trucks on roads. What the department had done, is to read one more condition into the exemption notification, which is not found in the notification itself.

The Appellate Maze :

The second question of law raised by the appellant is as to whether the Tribunal could have granted refund without imposing a condition, as imposed by the Supreme Court in the appeals arising out of the decision of the Gujarat High Court in Variety Lumbers Pvt. Ltd .

The High Court observed,

The brief interim order passed by the Supreme Court on 24-11-2011 while granting leave to the Commissioner of Customs in Variety Lumbers, reads as follows:

“In the meanwhile, the claims of the respondents for refund of Special Countervailing Duty, shall be processed by the Assessing Officer and the amount so due to them shall be refunded within four weeks from today, subject to the respondents furnishing bank guarantees for half of the amount to be refunded to the satisfaction of the Assessing Officer. The guarantees shall be kept alive till disposal of these appeals. The quantum of payment of interest to the successful party shall be considered at the time of final disposal of the appeals."

As rightly contended by Mr. K. Vijay Kumar, counsel for the respondent-assessee, the interim order of the Supreme Court extracted above, is dated 24-11-2011. The orders-in-original were passed in all these appeals, on 08-01-2013, 28-09-2012, 05-11-2012, 20-12-2012, 10-05-2013, 20-12-2012, 08-10-2012, 17-09-2012, 24-09-2012 and 05-11-2012.

In other words, the orders-in-original, out of which all the present appeals arise, were passed long after the interim order of the Supreme Court dated 24-11-2011.Therefore, the Jurisdictional Customs Officer, instead of showing great valour in challenging the ratio laid down by the Gujarat High Court, could have simply allowed all the refund claims with a brief order to the effect that the refund claims are allowed (i) subject to the outcome of the appeal before the Supreme Court and (ii) subject to the further condition that a bank guarantee is furnished for half of the amount claimed as refund. The Original Authority did not adopt such a course of action, despite having the benefit of the interim order of the Supreme Court passed in Variety Lumbers Pvt. Ltd . Even the Commissioner (Appeals) did not take recourse to such an option. Therefore, today the department cannot find fault with the CESTAT not passing a similar order as passed by the Supreme Court in Variety Lumbers Pvt. Ltd ., especially when the Original Authority as well as the Appellate Authority themselves did not choose to follow the interim order of the Supreme Court.

As a matter of fact, if the adjudicating authority had passed orders-in-original incorporating the same conditions as found in the interim order of the Supreme Court in Variety Lumbers Pvt. Ltd ., incorporating a condition that the refund was ordered subject to the outcome of the decision before the Supreme Court, the department would have been better off. If the original authority had passed such an order, the department would have become entitled to recover the amount of refund, in the event of their success before the Supreme Court in Variety Lumbers Pvt. Ltd . The department let go this opportunity and invited an order on merits from the Tribunal. After suffering an order on merits from the Tribunal and without challenging the same, the department went before the Tribunal requesting them to incorporate the conditions as found in the interim order of the Supreme court. This is why the Tribunal rejected the Miscellaneous Applications.

Even if the Tribunal had allowed the Miscellaneous Applications, the department could not have achieved anything, in the event of their success before the Supreme Court. Unless the department itself had ordered refund subject to the outcome of the appeal before the Supreme Court, the department could not have achieved anything merely by making the Tribunal incorporate a condition for furnishing of bank guarantee to the extent of 50%. Therefore, the Tribunal was right in rejecting the Miscellaneous Applications and hence, the second substantial question of law is answered against the appellant/revenue.

As a consequence, all the appeals are dismissed.

The department ended up paying interest for the delayed refund, all because they had only contempt for the Supreme Court!