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2023 DIGILAW 20 (KER)

Babu Saidaly v. Union Of India

2023-01-09

SHOBA ANNAMMA EAPEN

body2023
JUDGMENT : The petitioner has approached this Court with the following prayers; “i. to issue a Writ of certiorari or any other appropriate writ or order or direction to quash the amendment brought in Section 35F of the Central Excise Act, 1944 as per Section 105 of the Finance (No-2) Act, 2014, declaring the same as unconstitutional and thereby unenforceable. ii. to issue a Writ of certiorari or any other appropriate writ or order or direction to set aside Ext P8 circular issued by the 2nd respondent. iii. to issue a Writ of certiorari or any other appropriate writ or order or direction to set aside Ext P6 order issued by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore iv. to issue a Writ of certiorari or any other appropriate writ or order or direction to set aside Ext P3 order issued by the 3rd respondent, or alternately, v. to issue a Writ of Mandamus or any other appropriate writ or order or direction to the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore to hear and dispose of Ext P4 appeal, on its merits, without insisting the pre-deposit as required under Section 35F of the Section 35F of the Central Excise Act, 1944 as amended as per Section 105 of the Finance (No-2) Act, 2014, in the peculiar facts and circumstances of the case. vi. To direct the respondents to pay cost of this proceedings” 2. Brief facts of the case are as follows; The petitioner is a firm, viz., M/s Ess Bee Plywood Industries, engaged in the manufacture of different types of plywood and selling the same in the open market. From the year 2008, the petitioner has been engaged in the manufacture and sale of excisable goods under the Central Excise Act, 1944 (for short, “the Act”). On 06.10.2012, the business premises of the petitioner were inspected by the Central Excise Officers and a search was conducted, consequent to which, Ext.P1 show cause notice dated 03.04.2013 for the years, 2009-10 to 2011-12, was issued alleging certain defects in the books of accounts as well as suppression of manufactured quantity and value of excisable goods. Subsequently, Ext.P2 second show cause notice dated 31.03.2014 for the year, 2013-14, was issued with a proposal for assessment of excise duty by the Additional Director. Subsequently, Ext.P2 second show cause notice dated 31.03.2014 for the year, 2013-14, was issued with a proposal for assessment of excise duty by the Additional Director. Thereafter, as per Ext.P3 common order dated 07.09.2015, Ext.P1 show cause notice dated 03.04.2013 was dropped and Ext.P2 Notice dated 31.03.2013 was finalized, upholding the estimated value and assessment of duty. Aggrieved by Ext.P3 order, the petitioner filed Ext.P4 appeal before the Customs, Excise & Service Tax Appellate Tribunal, Bangalore. Along with the appeal, Ext.P5 stay application was also filed. Thereafter, as per Ext.P6 order dated 05.10.2016, the Tribunal dismissed Ext.P4 appeal as well as Ext.P5 stay application on the ground that the appeal memorandum is not supported with payment of pre-deposit as mandated in Section 35F of the Act, as amended by the Finance (No.2) Act, 2014, with effect from 06.08.2014. Aggrieved by the said order, the petitioner has filed this writ petition. 3. I have heard the learned counsel for the petitioner and Sri.S.Manu, learned Standing Counsel for respondents. 4. The learned counsel for the petitioner submits that the Parliament enacted the Finance (No.2) Act, 2014, to give effect to the financial proposals of the Central Government for the financial year 2014-15 and the same was received the assent of the President on 06.08.2014. As per Section 105 of the Finance Act (No.2), 2014, Section 35F of the Act, was substituted with a new section, which mandates that unless the appellant deposits 7.5% or 10% of the duty or penalty in dispute, as the case may be, no appeal shall be entertained under Section 35 of the Act before the Commissioner (Appeals) or under Section 35B of the Act before the Appellate Tribunal. The learned counsel further submits that though Section 35F of the Act is substituted with a new section with effect from 06.08.2014, the said amendment cannot be made applicable to Ext.P4 appeal and Ext.P5 stay petition since the relevant show cause notices were issued and the adjudication was initiated prior to the amendment to Section 35F of the Act. It was the further contention of the learned counsel for the petitioner that the proceedings are barred by limitation. It was the further contention of the learned counsel for the petitioner that the proceedings are barred by limitation. The learned counsel also submitted that the amendment brought in Section 35F of the Act is highly arbitrary, unreasonable and unsustainable and violative of Article 14 of the Constitution of India and hence, the amendment to Section 35F of the Act is liable to be held as unconstitutional. 5. Respondents 2 and 3 filed a detailed counter affidavit, wherein it is contended that on getting the information that the petitioner was evading Central Excise duty on the excisable goods manufactured and cleared by them by way of undervaluation of the goods as well as by way of clandestine clearance thereof, simultaneous searches were carried out by the officers of the Directorate General of Central Excise Intelligence in the factory premises, the residence of the proprietor of the unit and the premises of other manufactures/dealers on 06.10.2012 and it is thereafter, final order was passed demanding an amount of Rs.3,10,70,939/-after issuing show cause notices. The appeal filed by the petitioner, without the mandatory pre-deposit of 7.5% of the duty demanded as per Section 35F of the Act, was dismissed for non-payment of pre-deposit. The contention of the petitioner that the proceedings are barred by limitation and hence, it is irrational to impose a pre-condition, was refuted in the counter affidavit filed by the respondents. It is contended by the respondents that there is no limitation in the proceedings initiated by respondents since Section 11A(11) of the Act states that the Central Excise Officer shall determine the amount of duty of excise under Section 11(10) within one year from the date of notice, where it is possible to do so, in respect of the cases falling under Section 11(4) of the Act and that the proceedings are well within time. 6. Sri.S.Manu, learned Standing Counsel for respondents submits that Section 11(4) of the Act relates to cases, where fraud, collusion, willful misstatement, suppression of facts are involved. According to the respondents, it is a case of gross suppression of facts and misstatement and the condition under Section 11A(11)(b) of the Act is applicable and therefore, no question of time bar is attracted in the case. As regards the issue of pre-deposit is concerned, the petitioner filed Ext.P4 appeal without remitting the mandatory pre-deposit as provided under Section 35F of the Act. As regards the issue of pre-deposit is concerned, the petitioner filed Ext.P4 appeal without remitting the mandatory pre-deposit as provided under Section 35F of the Act. Section 35F(ii) of the Act under Chapter VIA stipulates that the Tribunal shall not entertain any appeal unless the appellant has deposited 7.5% of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against. These provisions are applicable to appeals filed against the orders of the Tribunal and not to serving of notice and passing of orders. 7. The impugned Ext.P3 order was passed on 07.09.2015. The amended provisions came into effect on 06.08.2014 and since the impugned order in original had been issued after that date, the amended provisions are to be followed in filing appeals. The intent of the amendment of Section 35F of the Act is further clarified by the second proviso, which stipulates that the provisions of the section shall not apply to stay applications and appeals, which were pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014. The second proviso is a clear indicator that the Parliament has exempted the requirement of complying with the pre-deposit as mandated by Section 35F(i) of the Act, as amended, only in the case of appeals and stay applications, which were pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014. It was further contended that the pre-deposit is not a fee as it is returned if the case is finally decided in favour of the appellant, whereas a fee like court fee is not refundable. It was further contended that Section 35F of the Act was held to be constitutionally valid in a decision of this Court in Muthoot Finance Ltd. v. Union of India & Ors [MANU/KE/0831/2016]. According to the learned Standing Counsel for the respondents, since the petitioner has not made the pre-deposit, Ext.P4 appeal filed by them is not maintainable and they are not entitled to seek the reliefs claimed in the writ petition and hence, the writ petition is liable to be dismissed. 8. The issues that arise for consideration in this case are as follows; (1) Whether Ext.P3 order is barred by limitation? (2) Whether the amendment to Section 35 of the Act is highly arbitrary, unreasonable and unconstitutional? 8. The issues that arise for consideration in this case are as follows; (1) Whether Ext.P3 order is barred by limitation? (2) Whether the amendment to Section 35 of the Act is highly arbitrary, unreasonable and unconstitutional? (3) Whether the dismissal of the appeal filed by the petitioner before the Central and Service Tax Appellate Tribunal for non-payment of 7.5% mandatory pre-deposit under Section 35F of the Act is correct? 9. The first issue that arises for consideration is whether Ext.P3 order is barred by limitation in view of the specific provisions in Section 11A(1),(4) and 11A(11) of the Act. 10. Section 11A of the Act reads as follows; “Section 11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded (1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,- (a) the Central Excise Officer shall, within two years from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice; (b) the person chargeable with duty may, before service of notice under clause (a), pay on the basis of,- (i) his own ascertainment of such duty; or (ii) the duty ascertained by the Central Excise Officer, the amount of duty along with interest payable thereon under section 11AA. (2) The person who has paid the duty under clause (b) of sub-section (1), shall inform the Central Excise Officer of such payment in writing, who, on receipt of such information, shall not serve any notice under clause (a) of that sub-section in respect of the duty so paid or any penalty leviable under the provisions of this Act or the rules made thereunder. (3) Where the Central Excise Officer is of the opinion that the amount paid under clause (b) of subsection (1) falls short of the amount actually payable, then, he shall proceed to issue the notice as provided for in clause (a) of that sub-section in respect of such amount which falls short of the amount actually payable in the manner specified under that sub-section and the period of one year shall be computed from the date of receipt of information under sub-section (2). (4) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by the reason of- (a) fraud; or (b) collusion; or (c) any willful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by any person chargeable with the duty, the Central Excise Officer shall, within five years from the relevant date, serve notice on such person requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under section 11AA and a penalty equivalent to the duty specified in the notice. *(5) to (7) Omitted by Finance Act, 2015 (20 of 2015), dated 14.05.2015 (7-A) Notwithstanding anything contained in subsection (1) or sub-section (3) or sub-section (4), the Central Excise Officer may, serve, subsequent to any notice or notices served under any of those subsections, as the case may be, a statement, containing the details of duty of central excise not levied or paid or short-levied or short-paid or erroneously refunded for the subsequent period, on the person chargeable to duty of central excise, then, service of such statement shall be deemed to be service of notice on such person under the aforesaid sub-section (1) or subsection (3) or sub-section (4) or sub-section (5), subject to the condition that the grounds relied upon for the subsequent period are the same as are mentioned in the earlier notice or notices. (8) Where the service of notice is stayed by an order of a court or tribunal, the period of such stay shall be excluded in computing the period of one year referred to in clause (a) of sub-section (1) or five years referred to in sub-section (4), as the case my be. (8) Where the service of notice is stayed by an order of a court or tribunal, the period of such stay shall be excluded in computing the period of one year referred to in clause (a) of sub-section (1) or five years referred to in sub-section (4), as the case my be. (9) Where any appellate authority or Tribunal or court concludes that the notice issued under subsection (4) is not sustainable for the reason that the charges of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty has not been established against the person to whom the notice was issued, the Central Excise Officer shall determine the duty of excise payable by such person for the period of one year, deeming as if the notice were issued under clause (a) of sub-section (1). (10) The Central Excise Officer shall, after allowing the concerned person an opportunity of being heard, and after considering the representation, if any, made by such person, determine the amount of duty of excise due from such person not being in excess of the amount specified in the notice. (11) The Central Excise Officer shall determine the amount of duty of excise under sub-section (10)- (a) within six months from the date of notice in respect of cases falling under subsection (1); (b) within one year from the date of notice, where it is possible to do so, in respect of cases falling under sub-section (4) (12) Where the appellate authority or tribunal or court modifies the amount of duty of excise determined by the Central Excise Officer under subsection (10), then the amount of penalties and interest under this section shall stand modified accordingly, taking into account the amount of duty of excise so modified. (13) Where the amount as modified by the appellate authority or tribunal or court is more than the amount determined under sub-section (10) by the Central Excise Officer, the time within which the interest or penalty is payable under this Act shall be counted from the date of the order of the appellate authority or tribunal or court in respect of such increased amount. (14) Where an order determining the duty of excise is passed by the Central Excise Officer under this section, the person liable to pay the said duty of excise shall pay the amount so determined along with the interest due on such amount whether or not the amount of interest is specified separately. (15) The provisions of sub-section (1) to 14 shall apply, mutatis mutandis, to the recovery of interest where interest payable has not been paid or part paid or erroneously refunded. (16) The provisions of this section shall not apply to a case where the liability of duty not paid or short-paid is self-assessed and declared as duty payable by the assessee in the periodic returns filed by him, and in such case, recovery of non-payment or short-payment of duty shall be made in such manner as may be prescribed. Explanation 1.-For the purposes of this section and section 11AC,- (a) "refund" includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India; (b) "relevant date" means,- (i) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid, and no periodical return as required by the provisions of this Act has been filed, the last date on which such return is required to be filed under this Act and the rules made thereunder; (ii) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid and the return has been filed, the date on which such return has been filed; (iii) in any other case, the date on which duty of excise is required to be paid under this Act or the rules made thereunder; (iv) in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof; (v) in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund; (vi) in the case where only interest is to be recovered, the date of payment of duty to which such interest relates. (c) Omitted, ibid. (c) Omitted, ibid. Explanation2:-For the removal of doubts, it is hereby declared that any non-levy, short levy, non-payment, short-payment or erroneous refund where no show cause notice has been issued before the date on which the Finance Bill, 2015 receives the assent of the President, shall be governed by the provisions of section 11A as amended by the Finance Act, 2015. 11. Admittedly, the search was conducted on 06.10.2012. Ext.P1 show cause notice was issued on 03.04.2013 and Ext.P2 show cause notice was issued on 31.03.2014, but, served on the petitioner on 30.04.2014. The second notice was received by the petitioner after the expiry of the period of limitation as provided in Section 11A of the Act. The learned counsel for the petitioner submits that Ext.P3 order is also hit by the period of limitation provided in Section 11A(11) of the Act, which provides a maximum six month or one year period to complete the adjudication in the notices. 12. Per Contra, the learned Standing Counsel appearing for respondents submitted that there was gross suppression of facts and misstatement by the petitioner and the condition under Section 11A (11)(b) of the Act, is applicable in this case. It was further submitted that Section 11A(11) of the Act does not mandate the adjudicating authority to adjudicate the case within a year, but, it just says within one year from the date of notice, where it is possible to do so. Hence, it is contended that there is no question of time bar in passing Ext.P3 order. 13. In order to adjudicate the above issue, the appellant has already approached the statutory authority by way of filing an appeal and the said contention can be decided only after a detailed examination of the facts contended by both sides. Hence, I am not inclined to decide the issue regarding the question of limitation and it is left open. 14. As regards the second issue of constitutional validity of Section 35F of the Act is concerned, the similar issue was considered by this Court in Muthoot Finance Ltd. (supra) and the constitutional validity of Section 35F of the Act was upheld by this Court. There is no challenge against the judgment in Muthoot Finance Ltd. (supra) and hence, following the judgment in Muthoot Finance Ltd. (supra), I uphold the constitutional validity of Section 35F Act. 15. There is no challenge against the judgment in Muthoot Finance Ltd. (supra) and hence, following the judgment in Muthoot Finance Ltd. (supra), I uphold the constitutional validity of Section 35F Act. 15. The third as well as the prime question that arises for consideration is as to whether the pre-deposit mandated in Section 35F of the Act is a mandatory condition or not, for filing an appeal before the Customs, Excise & Service Tax Appellate Tribunal. Section 35F of the Act came into effect on 06.08.2014. The impugned Ext.P3 order was passed on 07.09.2015. The petitioner filed Ext.P4 appeal before the Customs, Excise & Service Tax Appellate Tribunal on 01.02.2016. 16. Section 35F of the Act reads as follows; “Section 35F. Deposit of certain percentage of duty demanded or penalty imposed before filling appeal The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal, - (i) under sub-section (1) of section 35, unless the appellant has deposited seven and a half per cent. of the duty demanded or penalty imposed or both, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Commissioner of Central Excise; (ii) against the decision or order referred to in clause (a) of sub-section (1) of section 35B, unless the appellant has deposited seven and a half per cent. of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against; (iii) against the decision or order referred to in clause (b) of sub-section (1) of section 35B, unless the appellant has deposited ten per cent. of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against: PROVIDED that the amount required to be deposited under this section shall not exceed rupees ten crores: PROVIDED FURTHER that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014. Explanation -For the purposes of this section "duty demanded" shall include, - (i) amount determined under section 11D; (ii) amount of erroneous Cenvat credit taken; (iii) amount payable under rule 6 of the Cenvat Credit Rules, 2001 or the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.” 17. Explanation -For the purposes of this section "duty demanded" shall include, - (i) amount determined under section 11D; (ii) amount of erroneous Cenvat credit taken; (iii) amount payable under rule 6 of the Cenvat Credit Rules, 2001 or the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.” 17. The learned counsel for the petitioner submits that since the amended Section 35F of the Act came into effect only on 06.08.2014, it is not applicable to the case of the petitioner because Exts.P1 & P2 show cause notices were issued on 03.04.2013 & 31.03.2014 respectively, i.e., prior to the amendment. 18. The Parliament, while substituting new provisions to the Act by the Finance Act (No.2) of 2014, has laid down that unless an appellant deposits 7.5% or 10% of the duty or penalty in dispute, as the case may be, no appeal shall be entertained under Section 35 of the Act and that the Tribunal or the Commissioner (Appeals) “shall not entertain any appeal” unless the appellant has deposited duty or penalty, as the case may be, to the stipulated extent. These words in Section 35F of the Act would indicate that, on and after the enforcement of the amendment to Section 35F of the Act, an appellant has to deposit the duty or penalty as stipulated and if the appellant fails to do so, the Tribunal shall not entertain any appeal. This provision would, therefore, indicate that it would apply to all appeals, which would be filed on and from the date of enforcement of the amended provisions to Section 35 of the Act. 19. The intent of Section 35F of the Act is further clarified by the second proviso, which stipulates that the provisions of the section shall not apply to appeals and stay applications, which were pending before any appellate authority prior to the commencement of Finance (No.2) Act, 2014. The second proviso is a clear indicator that the Parliament has exempted the requirement of complying with the pre-deposit as mandated by Section 35F(1) of the Act, as amended, only in the case of those appeals and stay applications, which were pending before any appellate authority prior to the commencement of Finance Act (No.2), 2014. The second proviso is a clear indicator that the Parliament has exempted the requirement of complying with the pre-deposit as mandated by Section 35F(1) of the Act, as amended, only in the case of those appeals and stay applications, which were pending before any appellate authority prior to the commencement of Finance Act (No.2), 2014. Consequently, by virtue of the opening words of Section 35F(1) of the Act as well as by the second proviso to the provision, it is clear that the appeals, which are filed on or after the enforcement of the amended provision on 06.08.2014, shall be governed by the requirement of pre-deposit as stipulated therein. The only category, to which the provision will not apply, would be those appeals or the stay applications, as the case may be, which were pending before the appellate authority prior to the commencement of Finance (No.2) Act, 2014. 20. The pre-deposit is not a fee, because, if the appeal is finally decided in favour of the appellant, the pre-deposit made will be refunded, whereas duty or fee paid at the time of filing the appeal is not refundable. The right of appeal is a creature of statute and the legislature and is well within its competence to impose conditions for the exercise of such a right, subject only to the restriction that the conditions, so imposed, are not so onerous, which amount to unreasonable restrictions rendering the right almost illusory. Prior to the amendment, the rule was that the person desirous of filing an appeal should deposit the duty demanded, during the pendency of the appeal. But, the Commissioner (Appeals) and the Appellate Tribunal were granted a discretion to dispense with the requirement of such deposit, in full or in part, if the Appellate Authority is satisfied that such pre-deposit would cause undue hardship to such person. The important aspect to be looked into is that, by the amendment, the rule requiring a pre-deposit of the entire duty as well as the first proviso empowering the appellate authority to dispense with the deposit, stand deleted. Now, the only rule without any kind of discretion being vested with the Appellate Authority is that a fixed amount representing 7.5% of the duty or penalty, as the case may be, has to be deposited. Neither assessee nor the Appellate Authority has any discretion either to demand more or to accept less. 21. Now, the only rule without any kind of discretion being vested with the Appellate Authority is that a fixed amount representing 7.5% of the duty or penalty, as the case may be, has to be deposited. Neither assessee nor the Appellate Authority has any discretion either to demand more or to accept less. 21. In Satya Nand Jha v. Union of India & Others [SLP(C) No.31643/2016], the Apex Court has held that even if the show cause notice was issued prior to 06.08.2014 or even if the order in original is passed prior to 06.08.2014 or even if the company and few of its Directors have preferred appeals prior to 06.08.2014, if the left out Director prefers appeal on or after 06.08.2014, looking to the second proviso to the substituted Section 35F of the Act, the newly substituted Section 35F shall be applicable to his appeal and such an appellant shall have to deposit 7.5% or 10% of the duty demanded or penalty levied, as the case may be. The fact as to whether it will be beneficial to the assessee or not, does not merit any consideration as individual benefit is not to be appreciated at all. It is further held that endless litigations, arising out of waiver applications, have been brought to an end and looking to the very meagre percentage of the amount to be deposited, Section 35F of the Act, as amended, cannot be said to be violative of Article 14 of the Constitution of India much less of Article 19(1)(g) of the Constitution of India. The Apex Court has further held that the relevant date is the date of filing the appeal and not the date of show cause notice or the order passed by the concerned authorities. 22. On a consideration of the entire facts of the case, I am of the opinion that the order of the Tribunal, dismissing the appeal for non compliance of the mandatory pre-deposit, has to be upheld and the writ petition is liable to be dismissed. 23. However, at the time of hearing, the learned counsel for the petitioner has requested to grant time to make the pre-deposit for filing the appeal. 23. However, at the time of hearing, the learned counsel for the petitioner has requested to grant time to make the pre-deposit for filing the appeal. I am of the opinion that the petitioner, if so advised, may move an application before the appellate authority for enabling him to make the pre-deposit and to receive the appeal filed by the petitioner on file. This shall be done within a period of one month from the date of receipt of a certified copy of this judgment. Accordingly, the writ petition is dismissed. No order as to costs.