JULY 10, 2014

By B.N.Gururaj, Advocate

THERE is a proverb in Kannada which goes to state that if ox gets fever, brand the buffaloes. This was what the second and third proviso to section 35C(2A) of the Central Excise Act, 1944 sought to achieve (corresponding to section 129B(2A) of the Customs Act, 1962). If the Tribunal failed to decide the appeal within six months or one year, the stay order in favour of the assessee appellant would get vacated. Now, the amendment to section 35C(2A) by clause 96 of Finance (No.2) Bill 2014 removes all the three provisos (corresponding to clause 81, ibid in respect of Section 129B(2A)). This is good news.

The somewhat bad news is thatnow every appellant has to mandatorily pre-deposit 7.5% of the adjudged dues while filing appeal before the first appellate authority. If second appeal is filed before the CESTAT, an additional pre-deposit of 10% of the adjudged dues has to be made as a condition for filing the appeal.The provisions speak of “duty demanded, or penalty imposed or both”. Thus, interest portion escapes pre-deposit net. If the appeal to the CESTAT is from the order of the first appellate authority, the pre-deposit would be totally 17.5%. If the appeal is directly from the order of the Commissioner, it would be only 7.5%. This seems somewhat discriminatory. On a lower adjudicating authority's order, one ends up depositing more money.

The silver line to the dark cloud is that in any case, the total pre-deposit cannot exceed Rs.10 crores, even if it were another ITC case of Rs.800 crores demand! Refer clause 83 and 98 of the Bill. There cannot be any dispute on the computation of this Rs. ten crores limit. As per first proviso, the pre-deposit under this section cannot exceed Rs.10 crores. Period.

The proposed amendment does not take cognizance of financial hardship, much less undue hardship. One who has no money to make pre-deposit loses the right of appeal, unless of course, someone challenges this provision before the High Courts under Article 226 of the Constitution of India. Since the Courts have consistently held that the right of appeal is a statutory right and not a fundamental right, the right of appeal may be subject to reasonable conditions. Therefore, such a challenge might not succeed. Consequently, if one doesn't have money to deposit 17.5% of estimated dues, he has no business to litigate. Instead, he has to pay up cent per cent of the dues!

The larger public interest served by this provision is that once new section 35F (129E of Customs) comes into force, there will be no more stay applications. Once, the Registry is satisfied that prescribed pre-deposit has been made, the appeals have to be listed for final hearing. After disposal of present pending stay applications, one can expect speedy disposal of appeals by the CESTAT. Incidentally, the counsels will lose their earnings on one round of hearing, that is stay hearing!