By TIOL News Service

MUMBAI, FEB 07, 2013: IN this batch of Writ Petitions, there is a challenge to a circular dated 1 January 2013 (CIRCULAR NO.967 /01/2013-CX) issued by the Central Board of Excise and Customs. The circular issues directions to Chief Commissioners of Central Excise and Customs about the procedure to be adopted for the recovery of outstanding demands in situations where an appeal is filed against the order of the adjudicating authority before the Commissioner (Appeals) or thereafter before the CESTAT, the High Court or the Supreme Court. The assessees are aggrieved by the stipulation which has now been brought into force, the effect of which is that though an application for stay of the recovery of the demand has been filed before the appellate forum, recoveries would be proceeded with on the expiry of a stipulated period, and in certain cases immediately. According to the Petitioners when the stay application remains to be disposed of due to the inability of the appellate authority to take up the application for hearing and for disposal, and without any default on the part of the assessee, it would be arbitrary to penalize the assessee by enforcing the recovery despite the pendency of the application for stay.

The High Court noted that:

The real dispute in the present batch of cases relates to the instructions, which have been issued in Sr. Nos.3 , 6, 9, 10 and 11 of the table appended to the circular dated 1 January 2013. Sr. Nos., 3 , 6 and 9 all deal with situations where appeals are filed together with an application for stay. Sr. No.3 deals with an appeal to the Commissioner (Appeals), Sr. No.6 with an appeal to the CESTAT against an original order of the Commissioner and Sr. No.9 with an appeal before the CESTAT against an order of the Appellate Authority confirming a demand for the first time. The Board has now mandated that even though an application for stay has been filed with the appeal, recovery would be initiated thirty days after the filing of the appeal if no stay is granted or after the disposal of the stay petition in accordance with the conditions of stay, if any, whichever is earlier. Though an application for stay has been filed with the appeal and is pending disposal before the Appellate Authority, the circular mandates that recovery proceedings should be initiated. The submission is that such a stipulation would be arbitrary and violative of Article 14 of the Constitution.

The Central Excise Act 1944 has introduced provisions by which a time limit has been legislated for the disposal of appeals. But the time limit is obviously not inflexible because sub section ( 4A ) of Section 35A which governs the disposal of appeals by the Commissioner (Appeals) and sub section ( 2A ) of Section 35C which governs the disposal of appeals by the Tribunal prescribe periods for disposal "where it is possible to do so" . As regards stay applications, the second proviso to Section 35F requires the Commissioner (Appeals) again "where it is possible to do so to decide an application for stay within thirty days from the date of its filing". In regard to the Appellate Tribunal sub section ( 2A ) of Section 35C was introduced by Amending Act 20 of 2002. Under the first proviso, it came to be stipulated that where an order of stay is made in any proceedings relating to an appeal filed under Section 35B (1), the Tribunal shall dispose of the appeal within a period of 180 days from the date of such order. The second proviso stipulated that if such an appeal is not disposed of within that period, the stay order shall on the expiry of that period stand vacated. Now the reason why the Appellate Tribunal may not be able to dispose of the appeal within a period of 180 days may have no bearing on the conduct of the assessee , but on the availability of sufficient judicial and administrative infrastructure for the disposal of appeals. Undoubtedly, in a given case the failure of a judicial body to dispose of the appeal expeditiously may be the consequence of dilatory tactics by the assessee , but that is not necessarily so.

This issue was dealt with by the Supreme Court in a judgment in Commissioner of Customs and Central Excise, Ahmedabad v. Kumar Cotton Mills Pvt. Ltd. - (2005-TIOL-42-SC-CESTAT ) . The Supreme Court noted that sub section ( 2A ) of Section 35C was a provision which has been made by Parliament to curb dilatory tactics of those assesses who, having got an interim order in their favour , seek to continue their operation by delaying the disposal of the proceedings, thus, depriving the revenue not only of the benefit of the assessed value, but of a decision on points which may have an impact on other cases. At the same time, the Supreme Court emphasized that the provision cannot be interpreted to punish an assessee whose appeal has not been disposed of within the stipulated time limit for reasons beyond the control of the assessee .

The Supreme Court observed as follows :

"The sub-section which was introduced in terrorem cannot be construed as punishing the assessees for matters which may be completely beyond their control. For example, many of the Tribunals are not constituted and it is not possible for such Tribunals to dispose of matters. Occasionally by reason of other administrative exigencies for which the assessee cannot be held liable, the stay applications are not disposed within the time specified. The reasoning of the Tribunal expressed in the impugned order and as expressed in the larger Bench matter, namely, IPCL v. Commissioner of Central Excise, Vadodara (2004-TIOL-556-CESTAT-MUM-LB ) cannot be faulted. However we should not be understood as holding that any latitude is given to the Tribunal to extend the period of stay except on good cause and only if the Tribunal is satisfied that the matter could not be heard and disposed of by reason of the fault of the Tribunal for reasons not attributable to the assessee ."

The High Court observed,

Where the failure of the Appellate Authority to dispose of the appeal or the application for stay arises without any default on the part of the assessee , and without the assessee having resorted to any dilatory tactics, there would be no reason or justification to penalize the assessee by recovering the demand in the meantime. Undoubtedly, where the assessee has been responsible for the delay in the disposal of the stay application, such an assessee cannot be heard to complain if the Revenue were to initiate steps for recovery.

But the vice of the circular of the Board dated 1 January 2013 is that it mandates that steps for recovery must be initiated thirty days after the filing of the appeal if no stay is granted.

Counsel appearing on behalf of the Revenue submits that the Board has directed that a period of thirty days should be allowed to lapse after the filing of the appeal, allowing the assessee time to move the Appellate Authority for the disposal of the stay application. The reason why the submission cannot be accepted is because, in a situation where the Commissioner (Appeals) or, as the case may be, the CESTAT are unable to decide the application for stay within a period of thirty days of the filing of the appeal, it would be completely arbitrary to take recourse to coercive proceedings for the recovery of the demand until the application for stay is disposed of. Administrative reasons including the lack of adequate infrastructure, the unavailability of the officer concerned before whom the stay application has been filed, the absence of a Bench before the CESTAT for the decision of an application for stay or the sheer volume of work are some of the causes due to which applications for stay remain pending. In such a situation, where an assessee has done everything within his control by moving an application for stay and which remains pending because of the inability of the Commissioner (Appeals) or the CESTAT to dispose of the application within thirty days, it would, to our mind, be a travesty of justice if recovery proceedings are allowed to be initiated in the meantime. The protection of the revenue has to be necessarily balanced with fairness to the assessee . That was why, even though a specific statutory provision came to be introduced by Parliament in Section 35C (2A) to the effect that an order of stay would stand vacated where the appeal before the Tribunal was not disposed of within 180 days, the Supreme Court held that this would not apply to a situation where the appeal had remained pending for reasons not attributable to the assessee .

Sr. No. 10 of the circular of the Board deals with an appeal to the CESTAT where the Commissioner (Appeals) has confirmed a demand in an order in original of the adjudicating authority. The circular stipulates that recovery has to be initiated immediately on the issue of the order in appeal. In a situation where the Commissioner (Appeals) has confirmed the demand made in the order of adjudication, the assessee is permitted by the provisions of Section 35F to move the Tribunal for a dispensation of the requirement of deposit. But the circular mandates that recovery shall be made immediately on the issue of an order in appeal implying thereby that recovery would be initiated without allowing the assessee , the time which is allowed by the statute for filing an appeal and for applying for a waiver of pre-deposit. Similarly, Sr. No.11 stipulates that where the Tribunal has confirmed the demand, a recovery would be initiated immediately on the issuance of the order of the Tribunal. The assessee is therefore deprived of even a reasonable period of time to move the High Court against the order of the Tribunal.

The circular which is issued by the Board is in terrorem and its plain effect and consequence is to deprive the assessee of the remedy which is provided under the law of moving, as the case may be, the CESTAT , the High Court or the Supreme Court against an order of adjudication of the competent appellate forum.

Initiating recovery proceedings because a stay application has not been disposed of within thirty days of the filing of an appeal would be to penalize an assessee for the inability of the judicial or, as the case may be, quasi-judicial authority to conclude the disposal of the stay application within that period. If the assessee is not responsible for the delay in the disposal of the stay application and the application remains pending for reasons not attributable to the conduct of the assessee , initiation of recovery proceedings would be arbitrary and unfair.

However, if the failure to dispose of an application for stay is because of the conduct of the assessee , such as by a resort to dilatory tactics, the revenue would in such a situation be justified in commencing recovery action. Moreover, there is no justification to commence recovery immediately following an order in appeal where a period of limitation is laid down by the relevant provision of law for challenging the decision of the Appellate Authority.

Counsel appearing on behalf of the Revenue submitted during the course of the hearing that the field officers of the Revenue who initiate recovery action are independent of the adjudicating or appellate forum and hence have no means of verifying the status of the applications for stay and it is hence for the assessee , when recovery action is initiated to inform the jurisdictional Commissioner of the pendency of the stay application.

The High Court did not find this to be a valid justification for penalizing an assessee whose conduct is otherwise free from blame. Modern technology has made rapid strides and in our view, it is time that the Union Ministry of Finance takes steps to ensure that proceedings before the adjudicating authorities as well as the Appellate Authorities including the Commissioner (Appeals) and the CESTAT are recorded in the electronic form.

Suggestions to the Board : The High Court made the following suggestions.

The High Court also commended to the Union Ministry of Finance the urgent need to introduce electronic software that would ensure that the orders and proceedings of the CESTAT are duly compiled, collated and published in the electronic form.

Matters involving Revenue have large financial implications for the Union Government.

The incorporation of electronic technology in the functioning of judicial and quasi-judicial authorities constituted under the Central Excise Act, 1944, the Customs Act, 1962 and cognate legislation would provide a measure of transparency and accountability in the functioning of the adjudicating officers, the appellate Commissioners as well as the Tribunal.

But equally significant is the need to protect the interest of the Revenue which the adoption of electronic technology would also achieve.

The High Court was not unmindful of the fact that an application for stay may be kept pending for an indefinitely long period of time at the behest of an unscrupulous assessee and a willing administrative or quasi-judicial authority. This would be obviated by incorporating the requirement of disseminating and uploading the proceedings of judicial and quasi-judicial authorities under the Central Excise Act 1944 as well as the Customs Act 1962 in an electronic form. This would ensure that a measure of administrative control can be retained with a view to safeguarding the position of the Revenue as well as in ensuring fairness to the assessees .

The High Court hoped and trusted that this suggestion of the Court will receive serious and urgent consideration by the Union Ministry of Finance.

Held: the provisions contained in the impugned circular dated 1 January 2013 mandating the initiation of recovery proceedings thirty days after the filing of an appeal, if no stay is granted, cannot be applied to an assessee who has filed an application for stay, which has remained pending for reasons beyond the control of the assessee . Where however, an application for stay has remained pending for more than a reasonable period, for reasons having a bearing on the default or the improper conduct of an assessee , recovery proceedings can well be initiated.

(See 2013-TIOL-99-HC-MUM-CX)