JULY 12, 2014

By S Murugappan, Advocate

The proposal made in Finance Bill, 2014 with regard to pre-deposit of Customs / Excise duties and penalties pending disposal of appeals, on the face of it, appears to be a welcome move. The bill proposes mandatory deposit of 7.5% of the duty and penalty for the first appeal and 10% for the second appeal, by deleting the discretionary powers now given to the appellate authorities.

This proposal can -

a) Speed-up the appeal process since Commissioner (Appeals) and the Appellate Tribunal will have more time to consider the appeals for final hearing.

b) Remove the periodical threats from the Superintendents and Assistant Commissioners to recover the dues, to stop rebate claims and to hold-up consignments that are pending clearance, in the absence of stay orders from the appellate authorities or after the expiry of the validity period of the stay orders.

c) Eliminate inappropriate exercise of discretionary powers vested with appellate authorities and

d) Remove the need to rush to High Courts against stay orders perceived to be unjust and passed without application of mind.

But all these, at what cost? While theoretically this proposal appears to be excellent, practically there are several pitfalls.

a) It is a known fact that generally quasi-judicial authorities believe it is safe to err on the revenue side and confirm the demands in any proceedings.

b) There is a lurking thought in the minds of the officers that if a demand is dropped (especially when huge amounts are at stake) vigilance department will be after them. (I believe that there is a circular to the effect that any case involving a demand of Rs.50 lakhs or more, if dropped should be referred to vigilance section, automatically). c) Disregard for judicial discipline is rampant and in the place of precedents subjective conclusions are substituted.

d) The higher the demand amount, the lesser will be the inclination on the part of the authorities to judiciously decide an issue. Protection of their seats takes precedence over dispensation of justice.

e) Many a time hair splitting interpretation is at the root of huge and fanciful demands accompanied by allegations of suppression and misstatement.

In this background, if a uniform 7.5% or 10% deposit is insisted upon, then, it will result in real hardship and injustice to assessees and importers who may be, after all right in their belief / claim. In the present regime, they can hope for total waiver of pre-deposit of demands from the appellate authorities. But in the proposed regime they have to shell out the mandatory pre-deposit amount.

Now turn to the cases of clandestine removal, clear-cut evasion of import duties, fraudulent exports and misuse of schemes (for which there is no shortage). In these cases, at present, generally the appellate authorities insist for pre-deposits to the extent of 50% or even 100% of the dues. But in the proposed scheme, the appellants in such cases can merrily walk away with 7.5% or 10% deposit and ultimately vanish in thin air, unscathed, when the appeals are finally disposed off after five or ten years.

The proposed change involves another notable future. The mandatory pre-deposit will cover duty as well as penalty. At present, the appellate authorities direct the litigants to pre-deposit full or part of the duty amount and generally grant waiver of pre-deposit of penalty amounts. But this will not be the case in future. For example, if Rs.4 crores is the duty demand with an equal amount as penalty, then, the appellant has to deposit 7.5% or 10% of both. Effectively, this will mean that 15% or 20% of the duty amount is to be deposited.

A prudent litigant will pay the demand pending appeal to avoid payment of interest on such duty at a later date. On the other hand, when mandatory pre-deposit is to be made, the litigant will get back, after several years, only the amount deposited if he succeeds in appeal without any interest, whatsoever, on the deposit made. Thus, this causes pecuniary loss to the appellants. Apart from this, in all cases where the appellants succeed in appeal proceedings, there has to be a claim for

refund of the deposits made. In the Indian context, such a process is tortuous and susceptible to delays and corrupt practices to avoid such delays.

Therefore, there is an imperative need to strike a balance. The wisdom of the appellate authorities to maintain this balance is sought to be replaced by a uniform code, which does not have its own mind (Therefore, there cannot be a hue and cry anymore regarding non-application of mind).

Countries across the world, either do not insist for payments pending appeals, because the appeals are disposed off in a matter of a few weeks or months or they give option to the appellants and discretion to the authorities regarding payment of dues, pending appeals.

No doubt the Indian judicial system including quasi-judicial authorities, are at present, burdened with a huge load of cases. But there can be better ways to provide speedy as well as fair justice. Such measures can include increase in manpower, creating more benches of CESTAT, ensuring better quality in adjudication proceedings and fixing responsibility for frivolous, un-sustained demands setting a reasonable but mandatory time limit for completion of adjudication and appeal proceedings at all levels as well as proposing speedy settlement of pending cases with an option for waiver of penalties, interest etc.

On the other hand, the present proposal appears to suggest that the efficiency ingrained in the judicial process, as per the present law, is to be sacrificed at the altar of expediency. And one is reminded “Justice hurried is Justice buried”.