JULY 15, 2014

By S K Choudhury, I.R.S. (Retd.) Former Member, CBEC

WHILE the proposal in the Finance Bill 2014 relating to mandatory pre-deposit of specified percentages of duty / penalty for filing appeals puts an end to discretionary powers with the appellate authorities in the matter, it does not seek to separate the chaff from the grain. You could have perhaps walked the extra mile and dispensed with the requirement of making pre deposit once for all. This would have gone a long way in providing a more efficacious and speedy tax disputes redressal mechanism. I will explain why.

2. Under the proposed law, even in cases where demands of duty or imposition of penalties imposed, on the face of it, are highly arbitrary, contrary to settled laws and suffering from the vice of total non-application of mind, (which are not too uncommon) yet an appellant, as a matter of the rule of thumb, has to make a pre deposit of 7.5% or 10% of duty /penalty or both as the case may be for his appeal to be entertained. What is even worse, is that if he dares to go for further appeal before Tribunal, he has to cough up additional deposit of 10% of such amounts, while one going in appeal against adjudicating Commissioner's order before Tribunal is mandated to pre-deposit only 10%. Further, though not many in number, now in all cases with demands running into hundreds of crores, the big sharks will get away by paying maximum pre deposit of only 10 crores. The rationale behind fixing this ceiling that amounts to treating the big sharks with kid gloves has not been explained. This is highly discriminatory. Under the existing law, there have been instances of some of the Tribunal Benches directing appellants to pre deposit amounts running into more than a hundred crores in each case and the same were duly complied by such appellants that includes some globally so called well reputed multinationals. With the new law fixing a ceiling of 10 crores, this will bring cheer to the likes of them.

3. These anomalies apart, it would be a total miscarriage of justice if certain ground realities are ignored. It is a matter of record that in a majority of cases at Tribunal's stage, demands are invariably quashed or amounts drastically reduced and appeals against such orders by the revenue mostly end in dismissal with consequential benefit of refund of pre deposits. But getting back such pre deposits from the department, has always been a nightmarish experience. It would be even greater now. The department, too, would gain nothing by getting itself bogged down in most unproductive work of dealing with such refunds.

4. I would,therefore, venture to offer my considered views for reconsideration of the proposed amendment:

i) From the quantum of amounts required to be pre deposited, it does not seem that the proposed amendment is influenced by revenue consideration. Therefore, if the same has been necessitated by the twin objectives of doing away with the existing discretionary powers of appellate authorities and more importantly also to expedite the process of final disposal of ever increasing pendency of appeals, I strongly feel that doing away with the very requirement of making any kind of pre deposit will administratively be a much better option. This would also be in line with the provisions under IT laws where an assessee going in appeal does not have to make any pre deposit of assessed tax demanded or penalty imposed. It does not stand to any cogent reason as to why there should be two separate sets of laws on pre deposit administered by the same Ministry in matters of seeking appellate remedy in tax disputes even though one may be direct tax and the other indirect. Why adopt some VAT laws of some states making provisions for justifying such mandatory pre deposit ? These state laws are by no stretch of the imagination a model to be adopted for central legislation.

ii) Alternatively, if dispensing with pre deposit totally is not acceptable, in that case ,the existing laws on pre deposit may be suitably amended to the extent of making the requirement of pre deposit of duty and penalty applicable only to appeals involving duty of Rs. 50 lakhs and above and let the appellate bodies in their discretion decide on waiver of such amounts in part or full as is the case at present. In other words, an appeal involving duty / penalty of less than the above threshold can be entertained without an appellant having to make any pre deposit. If this is accepted, the number of stay petitions would automatically come down to a manageable level enabling the Tribunal to concentrate and accelerate its pace of disposal of pending appeals. Additional Benches already sanctioned will further bring down the pendency.

iii) Mercifully, the obnoxious law under which a stay granted by Tribunal was valid only for 365 days even while the appeal is pending for no fault of an appellant that led to a spate of litigations is finally on its way out as per the Finance Bill. Therefore, irrespective of whether the proposed bill in its present or modified form eventually becomes a law, a provision should be inserted to explicitly provide that no coercive measures would be taken by the revenue for recovery of the amounts during the pendency of an appeal. Otherwise, an appellant, while filing an appeal will also have to also file a separate stay petition to ward off any possible recovery proceedings from the revenue authorities and in that case we will be back to square one once again. The promised "Achhe din" for such category of appellants would then appear to be a far cry. A pragmatic approach on this issue is called for.