2014 (9) TMI 296 - HC - Central Excise

High Court overturns Tribunal's dismissal, directs deposit, fair process, and discretion under Section 35F

The High Court quashed the Tribunal's orders dismissing the request for total waiver of pre-deposit and directed the petitioner to deposit Rs. 10 lakhs, ... Waiver of pre deposit - Sick company - tribunal dismissed the appeal for failure to comply with its direction to deposit whole of amount - non-consideration of overwhelming factual aspects presented by the petitioner along with severe financial crises pleaded for reduction of the pre-deposit amount. - Held that:- Revenue has not denied the factum of liquidity crunch as well as Company being under the control of Inventory Construction Company Limited. It is also not disputed that the same is registered with the Reserve Bank of India. The details of financial hardship and the inability of the Company to even committed to one time settlement after its account become NPA are some of the glaring facts pointing to the undue hardship of the petitioner. Revenue has objected to the order of pre-deposit relying in the judgment of this Court in M/s. Special Prints Ltd. v. UOI reported in [2008 (7) TMI 369 - AHMEDABAD HIGH COURT] where Court held that merely because Company is declared to be a sick industrial undertaking that would not ipso facto entitle them to get relief of waiver of pre-deposit. Moreover it would apt to note at this juncture that the amount of ₹ 10.00 lakhs is already deposited with the Tribunal and therefore, it cannot be said that the petitioner is not desirous of genuinely pursuing the said cause. All the three orders under challenge passed by the Tribunal of rejecting the request of total waiver of pre-deposit and consequently dismissing all the appeals of the petitioner for non-deposit of amount vide its impugned orders respectively dated 9-9-2010, dated 31-1-2011 and dated 29-3-2011 need to be quashed. Resultantly, orders impugned are set aside and quashed. While allowing this petition, it is being specified, however, that the amount of ₹ 10.00 lakhs already deposited by the petitioner by way of pre-deposit with the CESTAT shall continue to remain with the Tribunal till final disposal of the appeals - Decided in favour of assessee. Issues Involved:1. Challenge to the Tribunal's order dismissing the request for waiver of pre-deposit.2. Allegations of clandestine removal of goods and evasion of excise duty.3. Financial hardship and liquidity crisis of the petitioner.4. Examination of evidence, including documents and hard disc data.5. Compliance with Section 35F of the Central Excise Act regarding pre-deposit requirements.Detailed Analysis:1. Challenge to the Tribunal's Order Dismissing the Request for Waiver of Pre-Deposit:The petitioner challenged the Tribunal's order dated 9-9-2010, which dismissed the request for waiving the pre-deposit amount. The Tribunal directed the petitioner to deposit Rs. 50 lakhs towards the duty demanded, which was less than 7% of the total amount of duty, interest, and penalty confirmed against the petitioner. The Tribunal considered the twin aspects of undue financial hardship and safeguarding the interest of the Revenue as laid down by the High Courts under Section 35F of the Central Excise Act.2. Allegations of Clandestine Removal of Goods and Evasion of Excise Duty:The petitioner-company, engaged in manufacturing bi-metric bearings and bi-metal strips, was accused of clandestine removal of goods and evasion of excise duty. The allegations were based on documents recovered during searches at the petitioner's factory and residential premises of the Manager. The Commissioner of Central Excise and Customs, Rajkot, issued a show cause notice on 19-9-2006, confirming the duty demand on the grounds of less quantity found during the factory visit, issuance of parallel invoices, and invoices in the name of sister concerns. The total amount of duty along with a penalty was imposed to the tune of Rs. 1,40,09,670/-.3. Financial Hardship and Liquidity Crisis of the Petitioner:The petitioner argued that the demand for a huge sum of duty and penalty was based on documents generated during the trial run of new software and training sessions for employees. The petitioner faced severe financial hardship, with a loan worth Rs. 4.5 crores from institutions like GIDC and GSFC, which could not be repaid, leading to the company being taken over by an inventory reconstruction company. The petitioner's financial condition was substantiated with the latest balance-sheet and profit and loss account, showing a negative profit and loss account and severe liquidity crunch.4. Examination of Evidence, Including Documents and Hard Disc Data:The petitioner contended that the documents relied upon by the department were generated during the trial run of new software and training sessions. The petitioner requested the examination of the hard disc by a technical expert to prove that the data was generated during the training process. However, the Tribunal did not accede to this request, citing the lapse of four years and the possibility of manipulation. The Tribunal found the presence of signed invoices and documents generated in the name of sister concerns, creating serious doubts about the petitioner's version.5. Compliance with Section 35F of the Central Excise Act Regarding Pre-Deposit Requirements:Section 35F of the Central Excise Act requires the deposit of duty demanded or penalty levied pending appeal, with discretion to waive such deposit in cases of undue hardship. The Tribunal directed the petitioner to deposit Rs. 50 lakhs, considering the financial condition and the need to safeguard the interest of the Revenue. The petitioner argued that the financial hardship was greater than the circumstances warranted, and the Tribunal's order did not adequately consider the severe financial constraints.Conclusion:The High Court quashed the Tribunal's orders dated 9-9-2010, 31-1-2011, and 29-3-2011, rejecting the request for total waiver of pre-deposit and dismissing the appeals for non-compliance. The High Court allowed the petition, specifying that the amount of Rs. 10 lakhs already deposited by the petitioner shall remain with the Tribunal till the final disposal of the appeals. The Tribunal was directed to revive the appeals within four weeks and adjudicate them on merit, providing appropriate opportunities to both parties. The High Court emphasized that the discretion under Section 35F should be exercised in appropriate cases, considering the financial hardship and other relevant factors.