JULY 19, 2014

By Anand Mishra, Advocate, AMLEGALS

SOME crucial aspects emanating from a study of the proposed section 35F of the CEA, 1944 are jotted below:

Query 1: If an appellant has deposited 7.5 % in first appellate stage then whether he is required to deposit another 10% in second appeal or otherwise?

Answer: For simplicity, the proposed section can be bifurcated in the following manner:

First Appellate Stage

If an appeal is filed against the order and decision of an officer lower the rank of Commissioner of Central excise then 7.5% of duty or penalty or both are required to be deposited.

Second Appellate Stage

If an appeal is filed against the order and decision of an officer of the rank of Commissioner of Central excise then 10% of duty or penalty or both are required to be deposited.

On a plain reading of Section 35F of the Central Excise Act, it can be seen that the word " and " or " further " is not used in between sub section (i), (ii) or (iii) of the respective clauses and hence it indicates that the intention is not to fasten an additional burden of pre deposit if one litigant reaches the second appellate stage after complying with the 7.5% pre deposit of the amount in terms of the Act.

In other words it means that if a litigant has deposited 7.5% of duty or penalty or both at first appellate stage then the same litigant is only required to deposit the balance of 2.5% of the duty or penalty or both as per the order of first appellate authority so that it ultimately becomes a total of 10%.

However, a different meaning has been given in the budgetary notes issued by the Ministry of Finance vide D.O.F. No. 334/15/2014-TRU dated 10 July 2014 as below-

"13. Section 35F is being substituted with a new section to prescribe a mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing appeal with the Commissioner (Appeals) or the Tribunal at the first stage and another 10% of the duty demanded or penalty imposed or both for filing second stage appeal before the Tribunal."

This interpretation would, therefore, be certainly challenged in the Court of law.

Query 2: Whether stay application is required to be heard or otherwise?

Answer: Stay application is not required to be heard as this can be understood from the speech of Hon'ble Finance Minister who in part B of Tax proposals at paragraph 252 mentioned:

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 stay applications and to take up regular appeals for final disposal .

Nonetheless in this interesting era where there would be no stay applications, a litigant filing an appeal will be required to inform the department about the compliance of 7.5% and/or 10% at different appellate stages so that recovery proceedings are not initiated by the department .

Query 3: Whether an appeal with merits or settled ratio is still required to make a pre-deposit under the proposed section 35F?

Answer: Unfortunately, the answer is Yes . The proposed section has no provision for dispensing of pre deposit.

Further, the first proviso of the existing Section 35F provided for undue hardship but such words are absent in the proposed section and hence all appeals would be treated as same.

It is ironical that every one of the following appellants would be required to make the mandatory pre-deposit:

•  appeals against duty evasion

•  appeals against erroneous CENVAT credit

•  appeals against interpretation of law

•  appeals against exemption

•  appeals for subsequent period with favourable order for previous period from same authority

Let's hope that before the new section is enacted, it would take care of the following ingredients in the interest of justice:

•  undue hardship

•  financial hardship

•  balance of convenience

•  dispense the deposit in special circumstances

•  merits

•  settled issue

I request the Ministry of Finance to look into these aspects as the intention should be always to support the industry which is the backbone of the nation.