Background: Right of appeal is a creation of statute and is
governed by the conditions prescribed under the law. While justice must
be real as well as apparent, justice must be done to both the parties,
(viz. tax department and the tax payer). It has been repeatedly held by
Courts that right of appeal is a substantive right which ought to be
liberally construed generally.
Section 35F of the Central Excise
Act, 1944 (CEA) [corresponding to section 129E of the Customs Act, 1962
(CA’62) and in case of service tax, the said section 35F read with
section 83 of the Finance Act, 1994 (‘Act’)] provided for pre-deposit,
pending appeal of duty and interest demanded and penalty levied. It
provided for full pre–deposit of entire demand subject to waiver thereof
by the Appellate Tribunal
The Tribunals were flooded with stay
applications for waiver of pre-deposit and orders for default therein,
appeal restoration applications, orders for rejection of said
applications or allowing these applications and consequent legal
proceedings. The matter used to be first heard for stay purposes (and
for restoration, if any) and thereafter, for final disposal. The stay
orders of the Tribunal got further challenged before the High Courts,
thereby creating multitude of litigations. It consumed substantial time
of Tribunals and tax payers as well.
Based on representations by
various forums to address the issue of stay applications and related
litigation work, the Government has introduced provisions of mandatory
pre deposit with effect from August 06, 2014, as a step towards reducing
time of Tribunals and tax payers. The new provisions introduced under
Central Excise are applicable to service tax and customs as well.
Similar
provisions have been existing under several VAT laws in the country.
Though several attempts have been made to challenge the legal validity
of provisions of mandatory pre-deposit pending appeal, it is understood
that none have succeeded.
Considering the implications of the
new provisions, CBEC has issued detailed clarifications vide Circular
No. 984/08/2014 – CX dated 16/09/2014.
The newly introduced
provisions are analyzed and discussed below with appropriate extracts of
CBEC Circular dated 16th September, 2014C-16/9/14.
Relevant Statutory Provisions
Deposit of certain percentage of duty demanded or penalty imposed before filing appeal – (section 35F of CEA)
The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal,
under
sub-section (1) of section 35, unless the appellant has deposited seven
and a half percent 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;
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;
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 u/s. 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.
Interest on delayed refund of amount deposited under the proviso to section 35F.- (section 35FF of CEA
Where
an amount deposited by the appellant u/s. 35F is required to be
refunded consequent upon the order of the appellate authority, there
shall be paid to the appellant interest at such rate, not below 5 % and
not exceeding 36 % per annum as is for the time being fixed by the
Central Government by notification in the official Gazette, on such
amount from the date of payment of amount till, the date of refund of
such amount.
Provided that the amount deposited u/s. 35F, prior
to the commencement of the Finance (No.2) Act, 2014, shall continue to
be governed by the provisions of section 35FF as it stood before the
commencement of the said Act.
Implications of the terminology “shall not entertain appeal” in the amended section 35F of CEA
According
to one school of thought, since the amended section 35F of CEA states
that “Tribunal or Commissioner (Appeals) shall not entertain appeal”,
there is a discretion available with the concerned appellate authority
to admit an appeal without the prescribed mandatory pre-deposit.
In
this regard, attention is invited to a recent Mumbai CESTAT ruling in
M/s. Bhatia Global Trading Ltd. & M/s Asian Natural Resources (I)
Ltd. vs. CC(2014) TIOL – 2637 – CESTAT MUM.
In this case, an
appeal was filed against adjudication orders dated 24/07/2014 and
25/07/2014 after 06/08/2014 without any pre-deposit as required under
the amended section 129 E of the Customs Act, 1962.Reliance was placed
by the appellant on the Supreme Court ruling in CCE vs. A.S. Bava (1978)
2 ELT J333 (SC), wherein it was observed that, right of appeal is a
substantive right and if any pre–deposit is required to be made it would
whittle down the substantive right of appeal. Accordingly, it was
pleaded that the appeal be heard without insisting on any pre-deposit.
The Tribunal held as under :
A
plain reading of the provisions make it abundantly clear that the
Tribunal or Commissioner (Appeals) shall not entertain any appeal u/s.
128, unless the appellant has made a pre-deposit of 7.5% of the duty in
such cases, where duty and penalty is in dispute and appeal is filed
before Tribunal. Therefore, in terms of amended section 129E with
effect from 06/08/2014, this Tribunal is barred from entertaining any
appeal unless the predeposit as mentioned in section 129E is complied
with. The law is very clear and there is no ambiguity in the matter. In
view of the above, we hold that the appeal is not admissible before this
Tribunal, inasmuch as the appellants have not complied with the
pre-deposit requirements envisaged in section 129E. Accordingly, the
Miscellaneous Applications are dismissed and consequently the appeal
also gets dismissed.
It would appear that post 06/08/2014, payment of mandatory pre-deposit would be necessary for admission of appeal.
Applicability of mandatory pre-deposit provisions to pending matters:
Clarifications issued by CESTAT vide Circular No. 15/CESTAT/General/ 2013-14 dated 14/10/2014 (2014) 308 ELT T 48 & 49.
Relevant extracts of the circular are as under:
“1.
In terms of the amended provisions of the three statutes viz. Customs
Act, 1962, Central Excise Act, 1944 and Finance Act, 1994, the mandatory
deposit of 7.5%/10%, as the case may be, has to be made for filing
appeal before Tribunal. Section 35F of the Central Excise Act reads as:
………
The above said provisions came into force with effect from 06/08/2014. However, some of the appellants/ consultants/counsels while presenting appeals are expressing reluctance in compliance with the condi-tion of mandatory deposit stipulated under the Act as amended. Some of them have contended that as the Show Cause Notice was issued and demand confirmed earlier to 06/08/2014, the amended provisions are not applicable to their case. Few of them have relied upon judgments of various judicial forums to claim exemption from the mandatory deposit while filing appeal. It is pertinent to mention that no such exemption has been contemplated either in the amended provision of the Act statutes, or even in the clarificatory circular issued by the CBEC on the subject.
In view of above, DRs/ARs/TOs of all Benches are directed that if no evidence in support of mandatory deposit is produced while filing appeal, such appeals, after providing three opportunities/reminders, be numbered and listed on Fridays before the Court presided by the Senior Member, for appropriate orders.”
Some Judicial Considerations:
MBG Commodities Pvt. Ltd. vs. CC, CCE & ST (2014)
310 ELT 302 (Tri – Bang)
In this case, adjudication order was passed on 18/03/2014 and First Appeal to the Tribunal was filed on 06/08/2014, after a delay of 42 days. The Tribunal condoned the delay and held as under :
Pre deposit of 7.5% to be made
No stay application required
10 weeks further time given to make pre-deposit since provisions are new.
ITC Infotech Ltd. vs. CC (2014) 310 ELT 304 (Tri – Bang)
The Tribunal held as under
Post 6/8/14, stay application not required to be filed
Stay application rejected as in fructuous (Section 35F of CEA.)
Refer para 4 above for recent Mumbai CESTAT ruling
Recovery pending appeal
Relevant extracts from CBEC Circular C- 16/9/14 are as under:
Recovery of the Amounts during the Pendency of Appeal (Para 4)
“Para 4.1
Vide Circular No.967/1/2013 dated 1st January, 2013, Board has issued detailed instructions with regard to recovery of the amount due to the Government during the pendency of stay applications or appeals with the appellate authority. This circular would not apply to cases where appeal is filed after the enactment of the amended section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962.
Para 4.2
No coercive measures for the recovery of balance amount i.e., the amount in excess of 7.5% or 10% depos-ited in terms of section 35F of Central Excise Act, 1944 or section 129E of Customs Act, 1962, shall be taken dur-ing the pendency of appeal where the party / assessee shows to the jurisdictional authorities:
Proof of payment of stipulated amount as pre-deposit of 7.5% / 10%, subject to a limit of Rs.10 crores, as the case may be; and
The copy of appeal memo filed with the appellate authority.
Para 4.3
Recovery action if any can be initiated only after the dis-posal of the case by the Commissioner (Appeals) / Tribu-nal in favour of the department. For example, if the Tribu-nal decides a case in favour of the department, recovery action for the amount over and above the amount depos-ited under the provisions of section 35F / 129E may be initiated unless the order of the Tribunal is stayed by the High Court/Supreme Court. The recovery, in such cases, would include the interest, at the specified rate, from the date duty became payable, till the date of payment.”
Refer judicial considerations given above.
Quantum of Pre Deposit
Department clarifications
Relevant extracts from CBEC Circular C – 16/9/14 are as under:
“2. Quantum of pre-deposit in terms of section 35F of Central Excise Act, 1944 and section 129E of the Cus-toms Act, 1962:
Para 2.1
Doubts have been expressed with regard to the amount to be deposited in terms of the amended provisions while filing appeal against the order of Commissioner (Appeals) before the CESTAT. Sub-section (iii) of section 35F of the Central Excise Act, 1944 and section 129E of the Customs Act, 1962 stipulate payment of 10% of the duty or penalty payable in pursuance of the decision or order being appealed against i.e. the order of Commissioner (Appeals). It is therefore, clarified that in the event of ap-peal against the order of Commissioner (Appeals) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Ap-peals). This need not be the same as the amount of duty demanded or penalty imposed in the Order-in-Original in the said case.
Para 2.2
In a case, where penalty alone is in dispute and penalties have been imposed under different provisions of the Act, the pre-deposit would be calculated based on the aggre-gate of all penalties imposed in the order against which appeal is proposed to be filed.
Para 2.3
In case of any short payment or non-payment of the amount stipulated under section 35F of the Central Ex-cise Act, 1944 or section 129E of the Customs Act, 1962, the appeal filed is liable for rejection.”
Department clarifications (during introduction of Fi-nance Bill, 2014)
Attention is invited to the following clarification issued vide Finance Ministry Circular No. 334/15/2014 – TRU dated 10/07/2014 (Annexure II) :
Legislative Changes
………….
Amendments in the Central Excise Act, 1944
………..
“Para 13
“Section 35F is being substituted with a new section to prescribe a mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing appeal with the Commissioner (Appeals) or the Tribunal at the first stage and another 10% of the duty demanded or penalty imposed or both for filing second stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of Rs. 10 crore.”
2 Stage Appeal – Amount of Pre-deposit
On a perusal of the TRU Clarification dated 10/0720/14 reproduced above and the new provisions as enacted, it appears that in a 2 Stage Appeal, despite detailed clari-fications vide C-16/9/14, lack of clarity continues as to whether an additional pre deposit of 10% is to be made or only the differential pre deposit viz. [10% less 7.5%] is to be made. This needs to be clarified at the earliest to avoid litigations.
Duty demanded/Interest
Duty demanded to include “sums collected in name of duty” and CENVAT Credit
For the purposes of new provisions “duty” demanded” shall include, –
amount determined u/s. 11D
amount of erroneous CENVAT credit taken
amount payable under Rule 6 of the CENVAT
Credit Rules, 2001 or the CENVAT Credit Rules, 2002 or the CENVAT Credit Rules, 2004.
It appears that there is no such expression like “duty demanded” in section 35F of CEA. The expression is “duty
in .. dispute”. Nevertheless, going by the principle of purposive interpretation, the disputed duty shall include the amounts listed in Explanation to section 35F of CEA.
Pre–deposit of interest
Contrary to provisions which existed prior to 06/08/2014, there is no requirement for mandatory pre-deposit of interest. This is very much welcome.
Payments during investigation
Relevant extracts from CBEC Circular C – 16/9/14 are as under:
“Payment made during investigation (para 3)
Para 3.1
Payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10%, subject to the limit of Rs 10 crores, can be considered to be deposit made towards fulfillment of stipulation under section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962. Any shortfall from the amount stipulated under these sections shall have to be paid before filing of appeal before the ap-pellate authority. As a corollary, amounts paid over and above the amounts stipulated under section 35 F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962, shall not be treated as deposit under the said sections.
Para 3.2
Since the amount paid during investigation/audit takes the colour of deposit under section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962 only when the appeal is filed, the date of filing of appeal shall be deemed to be the date of deposit made in terms of the said sections.
Para 3.3
In case of any short-payment or non-payment of the amount stipulated under section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962, the appeal filed by the appellant is liable for rejection.”
Procedure for pre-deposit – Government clarifications
Relevant extracts from CBEC Circular C – 16/09/2014 are as under:
“Procedure and Manner of making the pre-deposits (Para 6.)
Para 6.1
E-payment facility can be made use of by the appellants, wherever possible.
Para 6.2
A self-attested copy of the document showing satisfactory proof of payment shall be submitted before the appellate authority as proof of payment made in terms of section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962.
Para 6.3
Column 7 of EA.1, column 6 of CA.1 and column 6 of ST-4 for filing appeal before Commissioner (Appeals), seek details of the duty/penalty deposited. The same may be used for indicating the deposits made under amended section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962.
Para 6.4
The appeal filed before the CESTAT are filed along with the appeal memo in prescribed format (Form EA-3 for Central Excise Appeals and Form CA-3 for the Customs Appeals). Column 14(i) of the said appeal forms seeks information of payment of duty, fine, penalty, interest along with proof of payment (challan). These columns may, therefore, be used for the purpose of indicating the amount of deposit made, which shall be verified by the appellate authority before registering the appeal.
Para 6.5
As per existing instructions, a copy of the appeal memo along with proof of deposit made shall be filed with the jurisdictional officers.”
Refund of Pre–deposit & Interest thereon
Interest on pre-deposit :
The new section 35FF of CEA provides that where an amount deposited by the appellant u/s. 35F –
is required to be refunded
consequent upon the order of the appellate authority, there shall be paid to the appellant –
interest at the rate of 6% p.a.
on such amount
for the date of payment of the amount till the date of refund of such amount
It is further provided that the amount deposited u/s. 35F, prior to 06/08/2014, shall continue to be governed by the provisions of section 35FF as it stood before the com-mencement of the said Act.
Department clarifications
Relevant extracts from CBEC Circular C – 16/9/14 are as under:
Refund of pre-deposit para 5) “Para 5.1
Where the appeal is decided in favour of the party / assessee, he shall be entitled to refund of the amount deposited along with the interest at the prescribed rate from the date of making the deposit to the date of re-fund in terms of section 35FF of the Central Excise Act, 1944 or section 129EE of the Customs Act, 1962.
Para 5.2
Pre-deposit for filing appeal is not payment of duty. Hence, refund of pre-deposit need not be subjected to the process of refund of duty under section 11B of the Central Excise Act, 1944 or section 27 of the Customs Act, 1962. Therefore, in all cases where the appel-late authority has decided the matter in favour of the appellant, refund with interest should be paid to the appellant within 15 days of the receipt of the letter of the appellant seeking refund, irrespective of whether order of the appellate authority is proposed to be chal-lenged by the department or not.
Para 5. 3
If the Department contemplates appeal against the order of the Commissioner (A) or the order of CES-TAT, which is in favour of the appellant, refund along with interest would still be payable unless such order is stayed by a competent Appellate Authority.
Para 5.4
In the event of a remand, refund of the pre-deposit shall be payable along with interest.
Para 5.5
In case of partial remand where a portion of the duty is confirmed, it may be ensured that the duty due to the Government on the portion of order in favour of the revenue is collected by adjusting the deposited amount along with interest.
Para 5.6
It is reiterated that refund of pre-deposit made should not be withheld on the ground that department is pro-posing to file an appeal or has filed an appeal against the order granting relief to the party. Jurisdictional Commissioner should ensure that refund of deposit made for hearing the appeal should be paid within the stipulated time of 15 days as per para 5.2 supra.”
Procedure for refund (para 7)
“Para 7.1
A simple letter from the person who has made such de-posit, requesting for return of the said amount, along with a self-attested xerox copy of the order in appeal or the CESTAT order consequent to which the deposit becomes returnable and attested xerox copy of the document evi-dencing payment of such deposit, addressed to Jurisdic-tional Assistant/Deputy Commissioner of Central Excise and Service Tax or the Assistant/Deputy Commissioner of Customs, as the case may be, would suffice for refund of the amount deposited along with interest at the rate specified.
Para 7.2
Record of deposits made under section 35F of the Cen-tral Excise Act, 1944 or section 129E of the Customs Act, 1962 should be maintained by the Commissionerate so as to facilitate seamless verification of the deposits at the time of processing the refund claims made in case of fa-vourable order from the Appellate Authority.”
Applicability of unjust enrichment
Section 11 B of CEA has not been amended to specifically provide that provisions of unjust enrichment will not apply to refund of pre-deposit of duty or penalty made as per the amended section 35Fof CEA. There are judgments which have held that provisions of unjust enrichment will apply even to pre-deposits made u/s. 35F of CEA. E.g.:
UOI vs. Jain Spinners Ltd. (1992) 61 ELT 321 (SC)
Sahakari Khand Udyog Mandal Ltd. vs. CCE
(2005) 181 ELT 328 (SC)
At the same time, there are other judgments which have held that provisions of unjust enrichment will not apply to pre-deposits made under section 35F of CEA. For e.g.
Mahavir Aluminium (1999) 114 ELT 371 (SC)
Suvidhe Ltd. (1999) 82 ELT 177 (Bom).
In order to avoid disputes, it may be advisable to disclose the amount of pre-deposit under the heading “Advances recoverable in cash or kind” in the balance sheet. It would help to substantiate that the incidence of tax/duty has not been passed on to the customers.
Some issues and concerns
Introduction of mandatory pre-deposit provisions is a wel-come measure. It would save the time of Tribunals and tax payers that was consumed under the earlier regime of stay Petitions and related matters. However, attention is drawn to some issues & concerns:
It is often noticed that adjudication orders are passed totally ignoring settled judicial rulings (including rulings of the Supreme Court and jurisdictional Courts). Apparently, there is no remedy provided in law, for such situations. In such cases, though a tax payer can approach Higher Courts, at a practical level in order to get the appeal admitted, appellants often would be con-strained to make the mandatory pre- deposit rather than risking the non-admission of appeal or at times the cost of going to High Court is found prohibitive by small and medium enterprises. Besides this, in many a cases, on account of non-accountability, a huge amount of tax is demanded invoking extended period of limitation for which the basis may or may not be legally sound yet the demand is routinely confirmed in the adjudication order. In such cases, it is noticed that mandatory payment of 7.5% causes serious cash flow crisis and at times even survival of business becomes questionable. For these assessees where the issue is one of interpretation of law alone, the mandatory pre-deposit appears savageous and requires serious reconsideration.
As discussed earlier, even if an appellant succeeds in appeal, on the basis of judicial rulings, provisions of unjust enrichment are invariably applied and refund denied resulting in further litigation.
It is suggested that, CBEC should issue detailed guide-lines preferably through a Board order, to avoid hard-ships to tax payers
It is appreciative that, in case of success in appeal, in-terest shall be paid to the appellant from the date of payment of the pre-deposit. However, the interest shall be paid only at the rate of 6% P.A.
As all are aware, w.e.f. 01/10/2014 in case of delayed payment of service tax interest is required to be paid at a rate ranging from 18% p.a. to 30% p.a. (for delay beyond 1 year). The disparity in rate of interest to be paid by a tax payer and tax department is unjustified.
It is suggested that in order to promote and encourage fair tax administration practices, parity should be brought in rate of interest at the earliest under all tax laws. This would also help in establishing accountability of the tax department.
