1992 (4) TMI 56 - HC - Central Excise

Waiver of pre-deposit restored under s. 35F where assessee showed arguable case and safeguarded revenue interests

HC held that the appellate authority had improperly exercised discretion under s. 35F of the Central Excises and Salt Act, 1944 in refusing waiver of ... Stay/Dispensation of pre-deposit - term 'factory' - phrase 'undue hardship' - Whether the Appellate Authority had properly exercised its discretion u/s 35F of the Central Excises and Salt Act, 1944, in rejecting the petitioner's application for dispensing with the deposit as a pre-condition to the petitioner's preferring an appeal. - HELD THAT:- It is the petitioner's case that the Refinery Gas from the Refinery Unit is used partly in the Refinery Unit itself and partly consumed as fuel in the Xylene and Polyester Staple Fibre Unit. The Xylene produced in the Xylene Unit is used Polyester Staple Fibre Unit to produce Polyester Staple Fibre. It is therefore contended that the Refinery Gas utilised in the Polyester Staple Fibre Unit and Xylene Unit was exempted from payment of duty of excise because it utilised in the factory of the petitioner in which the Refinery Gas had, in fact, been produced. The assessee had contended that the two units of the assessee were separate and that the goods manufactured in the second unit could not be said to have been manufactured in the assessee's factory. The Tribunal held that the two units comprised one factory because the chromic acid section was admittedly served by the same electricity and water connections. Payments for electricity and water were made by the appellants for the chromic acid section as well as the other sections. The wages and salaries of the workers in the chromic acid section were paid by the appellants. The raw material sodium bichromate was supplied by the appellants to the chromic acid section and the chromic acid manufactured out of the sodium bichromate was removed under the appellants' challans. It was also observed that the assessee was engaged with the manufacture of sodium bichromate, a vital input for manufacture of chromic acid and using it as such. The Tribunal, therefore, held that it was beyond the Tribunal's comprehension as to how in such circumstances the two units could not be said to be one factory. This test should equally be applicable to a case where the assessee claims that the two units comprise one factory. There is no dispute in this case that the units of the petitioner are interlinked in the manner stated by the Tribunal. As already seen the phrase 'undue hardship' would cover a case where the appellant has a strong prima facie case. The phrase also in my view covers a situation where there is an arguable case in the appeal. In the former case the Appellate Authority should dispense with the pre-deposit altogether on the basis of the authorities referred to earlier. In the latter case the authority would have to safeguard the interest of the revenue. The Collector has not applied his mind to this aspect of the matter at all. He had to consider whether, if the deposit were waived, the interest of the revenue would be jeopardized. There was no suggestion or even allegation that there would be any jeopardy to the revenue if the pre-deposit were waived in the petitioner's case. Keeping in view the mandate that a discretionary power must be exercised in favour of the assessee unless there was good reasons to the contrary, no reason has been disclosed by the Collector for refusing to exercise his discretion in favour of the petitioner particularly when the revenue's interest was not said to be un-safeguarded. It is to be remembered that this Court, while remanding the matter back to the Collector had directed the petitioner to give an undertaking to this court that it would not deal with or dispose of any of its assets except in the usual course of business or with the leave of the court. This undertaking is still subsisting. The Collector did not reject this safeguard as inadequate. The demand relates to a period for the clearance had already been made. There is no question of the petitioner recovering the amount from its customers. The writ application must be allowed. The impugned order of the Collector is set aside. The Collector, Central Excise (Appeals) is directed to entertain and decide the appeal in accordance with law by dispensing with the requirement of pre-deposit of the amount of Excise Duty and penalty in dispute subject to the continuance of the undertaking given to this court by the petitioner. Issues Involved:1. Proper exercise of discretion u/s 35F of the Central Excises and Salt Act, 1944.2. Interpretation of the term 'factory' in the context of exemption notification.3. Consideration of 'undue hardship' for waiving pre-deposit requirements.Summary:1. Proper Exercise of Discretion u/s 35F:The primary issue in this writ petition was whether the Appellate Authority correctly exercised its discretion u/s 35F of the Central Excises and Salt Act, 1944, in rejecting the petitioner's application to dispense with the deposit as a pre-condition for appeal. The petitioner, a Government of India Undertaking, contended that the Collector of Central Excise (Appeals) misdirected himself in law by incorrectly interpreting the notification and decisions cited, and failed to determine whether the petitioner had a prima facie case.2. Interpretation of the Term 'Factory':The petitioner's appeal centered on a notification (No. 28/89-C.E., dated 1-3-1989) claiming exemption for Refinery Gas used within the factory. Initially, the Excise Authorities considered the three units (Refinery, Xylene, and Polyester Staple Fibre Units) as one factory, granting the exemption. However, they later reversed this decision, treating the units as separate factories. The High Court found that the Collector's interpretation of 'factory' was flawed, as the units were interlinked and functioned as a single entity under common management, control, and infrastructure. The court referenced the Tribunal's decision in Grauer & Weil India Ltd., which supported the view that interconnected units could be considered one factory.3. Consideration of 'Undue Hardship':The court examined whether the Collector properly considered 'undue hardship' in refusing to waive the pre-deposit. It was noted that the Collector failed to address whether the petitioner's financial condition or the interest of the revenue would be jeopardized by waiving the deposit. The court cited several precedents, including R.P. David and Others v. Agricultural Income-tax Officer and Anr., and V.I.P. Sea Foods v. Collector of Customs, which emphasized that discretionary power should favor the appellant unless there were sound reasons otherwise. The court concluded that the petitioner had a strong prima facie case and that the Collector's decision was riddled with logical and legal loopholes.Conclusion:The High Court set aside the impugned order of the Collector, Central Excise (Appeals), and directed the appeal to be entertained without the pre-deposit requirement, subject to the petitioner's undertaking to the court. The court emphasized that discretionary power must be exercised in favor of the assessee unless there are compelling reasons to the contrary.