JULY 10, 2014

By Shailesh P Sheth, Senior Advisor (Indirect Tax), BDO India LLP

IT is indeed, rather interesting that just before commending his maiden Budget to the August Lower House of the Parliament, the FM announced a proposal thathappens to be one of the most significant proposals of the Budget concerning the Indirect Tax appellate mechanism.

The FM announced:

"252. To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal."

The amendments made vide the relevant clauses of the Finance (No.2) Bill, 2014 to the relevant provisions of the Customs Act, 1962(‘CA' for short)as well as the Central Excise Act, 1944 (‘CEA' for short)as further explained vide the DOF No. 334/15/2014-TRU-1 can be summarized as under:

(a) Section 129E of CA/Section 35F of CEA [as made applicable to service tax vide Section 83 of the Finance Act, 1994 (‘FA' for short)]are being substituted with new Sections so as to prescribe a mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing appeal with Commissioner (Appeals) or the Tribunal at the first stage and additional 10% of the duty demanded or penalty imposed or both for filing second stage appeal before the Tribunal. However, the amount of pre-deposit payable shall be subject to a ceiling of Rs. 10.00 crore.

(b) First, Second and Third proviso to sub-section (2A) of Section 129B of CA/Section 35C(2A) of CEA are being omitted.

Implications of the amendments:

With the aforesaid proposed amendments, the present-day requirement of filing of stay applications before the Commissioner (Appeals) and/or Appellate Tribunal in the matter of Customs, Central Excise and Service Tax would become the thing of past! So also, the headache of ensuring the disposal of appeal by the Appellate Tribunal within 180 days of the date of stay order or grant of extension of the stay order upto or beyond 365 days by the Tribunal and all the absurdity surrounding these dreaded provisions would be relegated to the dust- bin !

In terms of the amendments proposed, an Assessee would be required to pre-deposit 7.5% of the duty (or service tax) demanded or penalty imposed or both for filing the appeal at the first stage before Commissioner (Appeals)against the adjudication order of the Assistant/Deputy/Joint/Additional Commissioner of Customs/Central Excise or Appellate Tribunal, against the adjudication order of the Commissioner. In case of second stage appeal being filed before the Appellate Tribunal against the Order-in-Appeal of the Commissioner (Appeals), additional 10% of the duty (or service tax) demanded or penalty imposed or both would be required to be pre-deposited. A cap of Rs. 10.00 crore has however been prescribed for the purposes of pre-deposit.

With the compliance of the above requirement, the filing of stay application would not be necessary and the Commissioner (Appeals) or Appellate Tribunal would be able to finally decide and dispose of the appeal itself. It is obvious that due to such mandatory pre-deposit as prescribed, the issue of prima-facie strong case on merits or on limitation or otherwise and/or financial hardship so as to plead for unconditional waiver of condition of pre-deposit would also become irrelevant.

The artificial quantum of pre-deposit prescribed may appear to be arbitrary and unreasonable, particularly when one considers the upper ceiling of Rs. 10.00 crore. Thus, even while the appeal may involve the adjudged dues involving hundreds of crores, the pre-deposit would remain restricted to Rs. 10.00 crores. Moreover, for computing the prescribed 7.5% or 10%, even the penalty imposed is also required to be considered and that may be quite harsh and unreasonable. This part of the proposed amendment certainly requires re-consideration. Likewise, even while the Assessee has a strong case in his favour, he would be forced to shell out 7.5% or additional 10% of the total adjudged dues merely for hearing of his appeal and this may be absolutely unjustified. This is more so as the departmental authorities have no qualms whatsoever in routinely confirming huge demands - even if patently illegal - against the Assessees. It is therefore likely that the proposed provision may remain susceptible to challenge before the High Courts.

Nevertheless, considering the hardships being faced by the Appellants to-day in securing the unconditional waiver and stay, notwithstanding the strong prima-facie case in their favour and also the quantum of pre-deposit as being routinely directed - at times quite unreasonable -, the amount of pre-deposit as proposed may come as a great relief to the Appellants.

One must also appreciate that the Appellant would no longer be required to run from pillar to post seeking disposal of its appeal within the 180 days of the stay order or extension of stay order upto or beyond 365 days as is presently the situation. The Appellant would no longer be at the mercy of the Appellate authorities nor would be facing the highhanded recovery action from the department on the expiry of stipulated 180 days or 365 days, as the case may be. This is because the three provisos to Section 129B (2A) of CA and similar three provisos to Section 35C(2A) of CEA are also be omitted.

As the Netizens are aware, the issue of pendency of the appeal beyond 180 days from the date of stay order before the Appellate Tribunal for no fault of the Assessee and the Tribunal's power to extend the stay beyond 365 days has been a sore point for the helpless Assessees. TheAssessee's plight has only increased due to the recent decisions of the Appellate Tribunal reported in 2014-TIOL-1217-CESTAT-DEL and 2014-TIOL-1218-CESTAT-DEL, wherein it was, inter alia, held that the CESTAT cannot stand stay beyond 365 days even if the delay in disposal of appeal, beyond the sunset period prescribed, is not attributable to the Appellant. That the same Bench headed by the Hon'ble President of the CESTAT has reportedly referred the matter to the Larger Bench, has only added further spice to this already contentious issue.

Therefore, taking a very realistic and pragmatic view, the mandatory pre-deposit of the amount as proposed may relieve the Assessees from lots of hassles, hardships and criminal waste of time, money and energy, though the professional community may actually rue this proposal !

Lastly, the number of pending appeals between the 6 Benches of the CESTAT has already crossed the unimaginable and equally, unmanageable level of 1,00,000 - a dubious distinction of which one cannot be proud of! The proposed amendments may pave the way for the CESTAT to expeditiously dispose of the appeals finally. The amendments may therefore actually unclog the appellate machinery that is getting choked to death due to ever-increasing number of pending appeals. One may have to see the proposal in this perspective.