2013 (4) TMI 101 - HC - Central Excise

Court rules against Circular mandating immediate recovery, protects appeal rights and limits undue burden on taxpayers.

PML Industries Ltd. Versus CCE.

The court held that the Circular dated 01.01.2013, mandating recovery proceedings if no stay was granted within 30 days, was illegal as it infringed on ... Vacation of stay order after 180 days - whether the order of waiver of pre-deposit of duty passed by the Tribunal stands vacated after expiry of 180 days, if the appeal is not decided in terms of the provisions inserted by Section 140 of the Finance Act, 2002 with effect from 11.05.2002 - assessee challenged the Circular issued by the CBCE on 01.01.2013 raising a demand raised in pursuance of such Circular - Held that:- Sub-section (4A) inserted in Section 35A vide Section 128 of the Financial Act, 2001 with effect from 11.05.2001 contemplates that the Commissioner (Appeals) shall where it is possible to do so, hear and decide every appeal within a period of six months from the date on which it is filed. The provision contemplating that the Commissioner (Appeals) should decide application within 30 days is directory. Such intention is evident from the fact that it contemplates that Commissioner (Appeals) shall 'where it is possible to do so', decide application to dispense with the requirement of deposit of duty demanded and penalty levied within 30 days. The assessee in no way can insure that the Commissioner (Appeals) shall decide his application for dispensation of the duty demanded and penalty levied within a period of 30 days. In the present case, the Appellate Authority has a power to waive or reduce the amount of pre-deposit, but such power is sought to be taken away only if the Commissioner (Appeals) is not able to decide the application for stay within 30 days. Such a condition is relevant and meaningful, if the Central Government is in a position to ensure that all appeals and/or the applications for dispensation of duty demanded and penalty levied can be decided within a period of 30 days. If the Central Government has no power to control the working of the Appellate The Circular is purportedly issued in terms of judgment in Krishna Sales (P) Ltd. case (1993 (9) TMI 124 - SUPREME COURT OF INDIA). The said judgment lays down that mere filing of an appeal does not operate as stay or suspension of the order appealed against. But the Board over-looked the fact that the assessee is not seeking stay only on account of filing of an appeal, but for the reason that the assessee has sought dispensing with the pre-deposit of duty demanded and penalty levied and has a right to demand decision on such application, the right which is created by the Statute. Therefore, the very basis of the Circular is untenable, misconceived, wholly illegal and arbitrary. Therefore, the condition of recovery, if no stay is granted within 30 days, is illegal, arbitrary, unjustified and consequently set aside. Considering the case of LARSEN & TOUBRO LTD & OTHERS Versus UNION OF INDIA AND OTHERS [2013 (2) TMI 188 - BOMBAY HIGH COURT] it can be concluded that the provisions contained in the impugned circular dated 1 January, 2013 mandating the initiation of recovery proceedings thirty days after the filing of an appeal, if no stay is granted, cannot be applied to an assessee who has filed an application for stay, which has remained pending for reasons beyond the control of the assessee. Where however, an application for stay has remained pending for more than a reasonable period, for reasons having a bearing on the default or the improper conduct of an assessee, recovery proceedings can well be initiated as explained in the earlier part of the judgment. Therefore right of consideration in appeal and on an application for waiver of pre-deposit, is a right conferred by the Statute and such right cannot be defeated on the basis of Circular, which contemplates that the recovery can be effected, is stay is not granted within 30 days. Therefore, such condition in the Circular is not legal and is therefore set aside with the observation that till such time, the application for waiver of pre-deposit is decided in an appeal filed in terms of the Statute, the Revenue shall not proceed to recover the same . Though the right of appeal is a creation of Statute and it can be exercised only subject to the conditions specified therein, but the conditions specified have to be in relation to the assessee as something which is required to be complied with by the assessee. But where the assessee has no control over the functioning of the Tribunal, then the provision of vacation of stay cannot be sustained. The assessee having preferred appeal and that Tribunal being satisfied that condition for dispensing with the pre-deposit of duty demanded and penalty levied is made out, is compelled to pay the duty demanded and penalty levied, if the appeal is not decided within 180 days. The assessee has no control in respect of matters pending before the Tribunal in the matter of availability of infrastructure the members of the Tribunal and the workload. Therefore, for the reason that the Tribunal is not able to decide appeal within 180 days, the vacation of stay is a harsh and onerous and unreasonable condition. The condition of vacation of stay for the inability of the Tribunal to decide the appeal is burdening the assessee for no fault of his. Such a condition is onerous and renders the right of appeal as illusory. An order passed by a judicial forum is sought to be annulled for no fault of assessee. Therefore, in terms of judgments and Seth Nandlal cases (1980 (5) TMI 101 - SUPREME COURT), such condition of automatic vacation of stay on the expiry of 180 days, has to be read down to mean that after 180 days the Revenue has a right to bring to the notice of the Tribunal the conduct of the assessee in delay or avoiding the decision of appeal, so as to warrant an order of vacation of stay. If the provision is not read down in the manner mentioned above, such condition suffers from illegality rendering the right of appeal as redundant. Issues Involved:1. Legality of initiating recovery proceedings based on Circular dated 01.01.2013 when an application for waiver of pre-deposit is pending.2. Whether the second proviso in sub-section (2A) of Section 35C is directory and if the Tribunal can extend the period of stay beyond 180 days.Issue 1: Legality of Initiating Recovery Proceedings Based on Circular Dated 01.01.2013The court examined the Circular issued by the Central Board of Customs and Excise on 01.01.2013, which mandated recovery proceedings if no stay was granted within 30 days of filing an appeal. The petitioner argued that this provision was onerous and made the remedy of appeal illusory, as the stay would automatically be vacated after 180 days without any fault of the assessee. The court noted that the Commissioner (Appeals) is empowered to waive the pre-deposit requirement if it causes undue hardship, and such applications should ideally be decided within 30 days. However, the court found this 30-day requirement to be directory, not mandatory, as the assessee has no control over the Commissioner's ability to decide within this timeframe. The court held that the Circular's provision for initiating recovery if no stay is granted within 30 days contravenes the statutory right of appeal and consideration of waiver applications. Therefore, the Circular was deemed illegal and set aside, ensuring that recovery proceedings should not commence until the application for waiver is decided, provided the assessee does not delay the hearing.Issue 2: Whether the Second Proviso in Sub-section (2A) of Section 35C is DirectoryThe court analyzed the second proviso of sub-section (2A) of Section 35C, which states that if an appeal is not disposed of within 180 days, the stay order shall stand vacated. The petitioner argued this provision was unreasonable as the delay in disposing of appeals often lies outside the control of the assessee. The court referred to precedents where similar provisions were read down to prevent undue hardship to the assessee. It was observed that the assessee has no control over the Tribunal's functioning and the infrastructure available to it. Thus, the automatic vacation of stay after 180 days was found to be harsh and unreasonable, rendering the right of appeal illusory. The court read down the provision to mean that after 180 days, the Revenue can seek vacation of stay only if it proves that the delay in disposing of the appeal was due to the assessee's conduct. This ensures the provision is not used to unfairly burden the assessee for delays beyond their control.ConclusionThe court concluded that:1. The Circular dated 01.01.2013 is illegal as it contravenes the statutory right of appeal and consideration of waiver applications. Recovery proceedings should not commence until the application for waiver is decided, provided the assessee does not delay the hearing.2. The second proviso in sub-section (2A) of Section 35C should be read down to allow the Revenue to seek vacation of stay after 180 days only if the delay is attributable to the assessee. This interpretation ensures the provision is not used to unfairly burden the assessee for delays beyond their control.