Background Section 35F of the Central Excise Act, 1944 (the Act) was amended by the Finance Act (No.2) 2014 with effect from 6th August, 2014 whereby prior to filing an appeal before Commissioner (Appeals) or Appellate Tribunal, an amount of 7.5% duty or penalty in dispute in case of first appeal and a further amount of 10% of the duty or penalty in dispute is required to be paid by way of mandatory pre-deposit. The amount of pre-deposit is restricted to an upper limit of Rs. 10 crore by way of a proviso in the said section. Further, by way of a second proviso, it is provided that the provision would not apply to pending stay applications and appeals filed before any appellate authority prior to 6th August, 2014. Therefore, post the said date of 6th August, 2014, various appeals filed with different jurisdictional Benches of Appellate Tribunals without payment of pre-deposit amount were either not accepted or rejected. Consequently, writ petitions were filed in various High Courts. As a result thereof, the Andhra Pradesh High Court in Rama Mohanrao & Co. 2015-TIOL- 511-HC-AP-CX in an interim order and the Kerala High Court in Muthoot Finance Ltd. vs. Union of India and Others 2015-TIOL-632-HC-Kerala-ST and a couple of other cases as well as the Madras High Court in Fifth Avenue Sourcing (P) Ltd. vs. Commissioner of Service Tax 2015-TIOL-1592- HC-MAD-ST decided that amended provisions relating to mandatory pre-deposit of 7.5% of duty or penalty was not applicable to the cases wherein the cause of action had already commenced prior to the date of amendment of 6th August, 2014 and that the amendment was prospective and therefore would not affect assessment proceedings initiated prior to the amendment date.
As against these decisions, a Division Bench of the Allahabad High Court on the very same issue in Ganesh Yadav vs. UOI and Others 2015-TIOL-1490-HC-ALL-ST distinguished the above decision in Muthoot Finance Ltd. (supra) and K. Rama Mohanrao (supra) and dismissing the petitions held that in terms of express language used in the amended provisions of section 35F(1) of the Act, the constitutional challenge was not vested and all appeals filed post the amendment would be governed by the requirement of pre-deposit. Amidst the controversy, recently the Hon. Karnataka High Court also in a learned Single Judge decision has made detailed analysis and observations on the subject matter and dismissed a bunch of petitions. The said decision is summarised below:
Karnataka High Court: 2015-TIOL- 2637-HC-KAR-CX
The Hon. Karnataka High Court in various writ petitions led by Hindustan Petroleum Corporation Ltd. vs. Union of India reported at 2015-TIOL-2637-HC-KAR-CX and others considered mainly the following two issues:
- Whether section 35F of the Central Excise Act, 1944 (the Act) as amended is a piece of substantive or procedural law prescribing mandatory pre-deposit at the time of filing an appeal, is an unreasonable condition?
- Whether amendment made to section 35F of the Act has a retrospective operation?
The petitioner in this case also on the same issue as involved in various earlier decisions, contended that the requirement of the pre-deposit is violative of Article 14, 19(1)(g) and 265 of the Constitution of India and therefore sought to declare the Circular 984/08/2014-CX and similar Circular F. No.15/ CESTAT /General/2013-14 dated 06/08/2014 issued by the CBEC as ultra vires the constitution and also sought directions to enable petitioners to file their appeals without monetary pre-deposit of 7.5% since lis or the cause of action in the case of petitioner commenced before 06/08/2014, the date of amendment.
Right to Appeal
The Hon. Bench examined section 35 and 35B of the Act providing for Appellate remedy before Commissioner (Appeals) and Appellate Tribunal respectively and also examined section 35F and the amendment made therein effected from 6th August, 2014 as regards mandatory monetary pre-deposit and noted and analysed the concept Right of Appeal as the petitioners claimed that it was adversely affected by the impugned amendment. For this, the Hon. Bench found it expedient to primarily distinguish between substantive law and procedural law and rulings of the Hon’ble Supreme Court in this regard while considering the principles of statutory interpretation. Relying heavily on the ratio of Hoosein Kasam Dada (India) Ltd. vs. State of Madhya Pradesh & Others 2002-TIOL-363-SC-CT, the petitioners claimed that the cause of action in their cases commenced prior to the date of amendment viz. 06/08/2014 and therefore their right to be heard before the Tribunal without the mandatory pre-deposit was not destroyed and denial of such right affected their vested right to file appeal. The Revenue contended that all that was done by the amendment was prescribing the conditions of pre-deposit to file the appeal. This had no nexus with the right to file the appeal as a mere condition of mandatory deposit is provided of 7.5% of the duty or penalty levied at the time of filing appeal and only the discretion vested in the Tribunal with regard to pre-deposit was taken away. The Court therefore decided to consider the applicability of the principles stated in Hoosein Kasam Dada (supra) in the present matter, however only after drawing distinction between substantive law and procedural law.
Substantive law and Procedural law
The petitioners contended that the right to appeal is a substantial right which is pre-vested in the parties on the date, the cause of action commenced. Thus, even when the conditions to file an appeal are altered, it would affect their right to file an appeal. The Court therefore examined meanings of these terms as per Black’s Law Dictionary as provided below:
“Substantive law (seb-sten-tiv). (18c) The part of the law that creates, defines, and regulates the rights, duties and powers of parties.
‘So far as the administration of justice is concerned with the application of remedies to violated rights, we may say that the substantive law defines the remedy and the right, while the law of procedure defines the modes and conditions of the application of the one to the other.” John Salmond, Jurisprudence 476 (Glanville L. Williams ed., 10th ed. 1947)’.
Procedural law:
The rules that prescribe the steps for having a right or duty judicially enforced, as opposed to the law that defines the specific rights or duties themselves.- Also termed adjective law.” Further, on going through the Supreme Court rulings in Hitendra Vishnu Thakur vs. State of Maharashtra [(1994) 4 SCC 602 and Shyam Sunder vs. Ramkumar [(2001)8 SCC 24, it was noted that if a piece of substantive law is amended, such a law would have prospective operation unless made retrospective operation by necessary intendment whereas in the case of amendment of a procedural law, the amendment is always retrospective in operation unless indicated otherwise. On noting the above, it was observed that the right to file an appeal is required to be distinguished from the procedure necessary to follow while exercising the said right to appeal. Section 35A, 35C and 35D of the Act deal with the procedures to be followed by Commissioner (Appeals) or the Appellate Tribunal while considering the appeal filed by an aggrieved party whereas the right to file an appeal before the Commissioner (Appeals) and the appellate authority is prescribed in section 35 ad 35B of the Act respectively. Therefore, the conditions to be followed for exercising the substantive right as prescribed in section 35F of the Act prescribing the pre-deposit to be made by the aggrieved party is a piece of procedural law. Further a litigant has a vested right in substantive law but no such right is available in procedural law. To support these observations, Hon. Court interalia, relied on The Anant Mills Co. Ltd. vs. State of Gujarat & Others 1975 (2) SCC 175, Sheth Nand Lal & Another vs. State of Haryana and Others 1980 (Supp) SCC 574, Vijay Prakash D. Mehta and Another vs. Collector of Customs (Preventive), Mumbai 2002-TIOL-427-SC-CUS, Laxmi Rathan Engineering Works Limited vs. CST [AIR 1968 SC 488], Ganga Bai vs. Vijay Kumar [(1974) 2 SCC 393], Narayan Chandra Ghosh vs. UCO Bank and Others [(2011) 4 SCC 548 and concluded that appeal is a creature of statute and there is no reason why the legislature while granting that right cannot impose conditions for exercising that right. Thus, what emerges from dicta in various cited decisions is that requirement regarding deposit of amount as condition precedent to entertainment of appeal is a means of regulating the exercise of the right of appeal and is not in the realm of right to file an appeal and thus not a piece of substantial law. The said requirement is not an onerous condition precedent for the filing of an appeal particularly when there is a cap on the pre-deposit amount where amount exceeds Rs.10 crore. Thus, the first issue is answered that the amended provisions of section 35F of the Act do not adversely affect the right of appeal before the Commissioner (Appeals) and the appellate authority of the aggrieved party.
Whether the Amendment has Retrospective Application
The Finance Act 2014, which amended section 35F of the Act repealed the existing provision by way of substitution and thus when an existing provision is substituted by a fresh enactment, it is a case of express repeal. In this context, interalia relying on the decision was Zile Singh vs. State of Haryana 2004 (8) SCC 1, it was observed: “13. It is a cardinal principle of construction that every statute is prima facie prospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations.”
However, in the matters of procedures, the Court cited Maxwell: “Interpretation of Statutes” 11th edition, page 216 that “No person has a vested right in any course of procedure. He has only the right of prosecution or defence in the manner prescribed for the time being by or for the Court in which the case is pending and if by an act of Parliament the mode of procedure is altered, he has no other right than to proceed according to the altered mode”.
In the backdrop of these principles, the claim of the petitioners that the amendment to section 35F of the Act was not retrospective was examined and in particular second proviso to the said section 35F was taken note of. The proviso provides that section 35F would not apply to stay applications and appeals pending before the appellate authority filed prior to the commencement of 2014 Act therefrom implying that appeals filed and pending as on 06/08/2014, the earlier provision would apply. While interpreting the said proviso, it was noted that the proviso could not be so construed or interpreted to make it otiose. By virtue of the second proviso, the intendment of the Parliament is clear and therefore to interpret otherwise than the intendment would be to render it redundant. In view thereof but for the circumstances mentioned in the proviso it was held that the main amended provision would apply. The proviso was meant to serve as a saving clause to prevent the pending stay applications from becoming infructuous on account of the amendment. Relying on a number of judicial precedents including in Ishverlal Thakorelal Almaula vs. Motibhai Nagjibhai (AIR 1966 SC 459), S. Sundaram Pillai etc. vs. R. Pattabiraman [AIR 1985 SC 582] which in turn among others relied on Govt. of West Bengal vs. Abani Maity [AIR 1979 SC 1029], conclusion was reached that the right to file an appeal granted u/s. 35 and 35B of the Act remained unaltered and therefore available to an aggrieved party even after the amendment to section 35F of the Act. Whereas these sections constitute substantive law not forming the realm of procedure, on the examination of section 35F it was found that this section is procedural in nature and the amendment of the same was found to be having a retrospective operation and particularly the second proviso. Since the real intention of the Parliament is discernible, it was held that the retrospective effect is provided in respect of pending applications before appellate authorities. However, if no appeal was filed prior to 06/08/2014, it was held that the amended section 35F would apply. The amendment thus has no bearing on the date on which the particular lis commenced. It was observed that the lis in each case would have commenced on a different date. In order to ensure the object of certainty and uniformity as to the applicability of the amendment, the Parliament enacted the second proviso. Considering the Hon. Supreme Court’s rulings on the fine distinction between substantive law and procedural law in decisions subsequent to Hoosein Kasam Dada (supra), wherein it was held that amendment made to procedural law can have retrospective operation, the decision in Hoosein Kasam Dada (supra) was distinguished. It was further noted that in the said decision, the fine distinction between substantive and procedural law and that amendment made in the procedural law could have retrospective operation did not come up for consideration in the manner decided in the later decisions and therefore observations made in Hoosein Kasam Dada (supra) were held as not applicable to the present bunch of petitions.
Lastly, the judgments referred above viz. of the Madras High Court in Deputy Commercial Tax Officer Tirupur vs. Cameo Experts [(2006)147 STC 218 (Mad)], Fifth Avenue Sourcing (P) Ltd. vs. Commissioner of Service Tax Chennai (supra), Kerala High Court in Muthoot Finance Ltd. vs. Union of India (supra) and Andhra Pradesh High Court in K. Rama Mohanrao & Co. vs. Union of India (interim order) (supra) were found as not applicable although they are rendered on section 35F or on similar provisions as those judgments followed the reasoning in Hoosein Kasam Dada (supra) which has been distinguished herein and held to be not applicable to the present cases. Writ Petitions were dismissed accordingly.
Conclusion
Although the applicability of the above may be for a limited time frame, it is to be noted that High Courts of the three States viz. Kerala, Andhra Pradesh and Madras have decided that the cases wherein the lis commenced prior to 06/08/2014, the amendment was not applicable and the Tribunal was bound to entertain such appeals without mandatory predeposit whereas Allahabad High Court in M/s. Ganesh Yadav (supra) and the present decision of Karnataka High Court have held that pre-deposit requirement cannot be dispensed with except in case of appeals and stay applications already filed prior to 6th August, 2014. Therefore, it remains to be seen whether the round of controversy ends with the ruling of Karnataka High Court or litigation continues on the issue before reaching finality.
