SEPTEMBER 19, 2014

By S T Vishesh

IN the Department, it is a standard practice to call for para-wise comments from the field formations in response to a reply received from an assessee to the SCN etc.

A sample of such para-wise comments would read something like this -

Paragraphs 1 to 4: Narration of Facts

Para 5: The case laws cited are not on all fours with the facts of the case.

Para 6 to 10: Submissions are not acceptable for the reason…x.x…x..x..x…

Para 11: No comments. Adjudicating authority may like to decide as deemed fit.

What is attempted by me in the below mentioned passages is a para-wise comment on the recent Board Circular 984 dated 16th September, 2014 which is now being hotly discussed to understand as to what exactly the Board wishes to convey.

Unlike the sample report shown above, for ease of reference, I have reproduced the paragraphs appearing in the Board Circular and the comments are in RED. Some portions have been highlighted to attract more eyeballs.

Please note that those paragraphs on which I am unable to offer comments or which do not warrant any comments have been avoided altogether.

Let me begin -

1.4 Various doubts / issues have been raised by trade bodies, industry associations and field formations etc. on the implementation of the new provisions. With a view to implement the scheme smoothly, the following clarifications are issued.

Which smooth "scheme" is the Board talking about? - Perhaps a cut and paste or remnant from the VCES era?

2. Quantum of pre-deposit in terms of Section 35F of Central Excise Act, 1944 and Section 129E of the Customs Act, 1962:

2.1 Doubts have been expressed with regard to the amount to be deposited in terms of the amended provisions while filing appeal against the order of Commissioner (Appeals) before the CESTAT. Sub-section (iii) of Section 35F of the Central Excise Act, 1944 and Section 129E of the Customs Act, 1962 stipulate payment of 10% of the duty or penalty payable in pursuance of the decision or order being appealed against i.e. the order of Commissioner (Appeal). It is, therefore, clarified that in the event of appeal against the order of Commissioner (Appeal) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeal). This need not be the same as the amount of duty demanded or penalty imposed in the Order-in-Original in the said case.

What was expected was that the Board clarify in clear terms as to whether when an appellant files an appeal in the Tribunal at the second stage of appeal, he should be paying an additional 10% of the duty demanded or penalty imposed/upheld by the Commissioner(A) or can he adjust the amount of 7.5% already paid by him when he first filed an appeal before the Commissioner(A). Obviously, in those cases where the appeal was already filed with the Commissioner(A) before 06.08.2014, there was no occasion for the appellant to have paid 7.5% as the law did not mandate it then.

2.3 In case of any short payment or non-payment of the amount stipulated under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962, the appeal filed is liable for rejection.

But is this not a curable defect?

3. Payment made during investigation:

3.1 Payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10%, subject to the limit of Rs 10 crores, can be considered to be deposit made towards fulfillment of stipulation under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962. Any shortfall from the amount stipulated under these sections shall have to be paid before filing of appeal before the appellate authority. As a corollary, amounts paid over and above the amounts stipulated under Section 35 F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962, shall not be treated as deposit under the said sections.

Is there any "other" kind of deposit permissible under any other sections except s.35F of the CEA, 1944 or s.129E of the CA, 1962? Why should the treatment to the amount in excess of Rs.10 crores be different when the fact is that any amount paid by the appellant is a deposit under the Act as long as it is not appropriated against any demand of duty/tax or penalty.

3.2 Since the amount paid during investigation/audit takes the colour of deposit under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962 only when the appeal is filed, the date of filing of appeal shall be deemed to be the date of deposit made in terms of the said sections.

When the SCN itself gives it the "colour" of deposit by mentioning as to why the amount ‘voluntarily' deposited during investigation should not be appropriated towards the amount of duty/tax being demanded who is the Board to give a new colour to this "deposit" by stating that only when the appeal is filed does it become a deposit and the ‘date of filing appeal' shall be the ‘date of deposit'.

For example, if the assessee has voluntarily paid an amount in excess of Rs.10 crores and has filed an appeal, the amount in ‘excess' is not to be treated as ‘deposit'. So, then what will this amount be called?

All this "colouration" perhaps is with an eye on the refund & interest that the department would be required to pay if the appellant wins in appeal - more on this is evident from the latter paragraph 5.

4. Recovery of the Amounts during the Pendency of Appeal:

4.1 Vide Circular No.967/1/2013 dated 1 st January, 2013, Board has issued detailed instructions with regard to recovery of the amounts due to the Government during the pendency of stay applications or appeals with the appellate authority. This Circular would not apply to cases where appeal is filed after the enactment of the amended Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962.

Does this mean to say that for appeals that were filed before 06.08.2014 the Board would be resorting to its old age antics of recovery?

When the fact of the matter is that w.e.f 06.08.2014, 7.5% & 10% deposits u/s 35E/129E are considered to be "sufficient" enough for not initiating any recovery of the "balance amounts" of demand confirmed should not this logic be extended to the past cases also? Heavens will not fall if the discrimination sought to be enforced by this Circular is given a bye!

4.2 No coercive measures for the recovery of balance amount i.e., the amount in excess of 7.5% or 10% deposited in terms of Section 35F of Central Excise Act, 1944 or Section 129E of Customs Act, 1962, shall be taken during the pendency of appeal where the party / assessee shows to the jurisdictional authorities:

(i) proof of payment of stipulated amount as pre-deposit of 7.5% / 10%, subject to a limit of Rs.10 crores, as the case may be; and

(ii) the copy of appeal memo filed with the appellate authority.

Is "showing" enough or should the assessee be submitting a "copy" to the recovery officers knocking at his doorstep?

5. Refund of pre-deposit:

5.1 Where the appeal is decided in favour of the party / assessee, he shall be entitled to refund of the amount deposited along with the interest at the prescribed rate from the date of making the deposit to the date of refund in terms of Section 35FF of the Central Excise Act, 1944 or Section 129EE of the Customs Act, 1962.

A harmonious reading of the content of paragraph 3.2 of the present Circular and the above would reveal the following - that the appellant would be entitled to refund of the amount "deposited" along with "interest" from the "date of making the deposit" to the date of refund.

As mentioned below paragraph 3.2, irrespective of any amount that the appellant pays during investigation, only an amount up to Rs.10 crores would be considered as "deposit". Further the "date of deposit" is the date of filing the appeal. So, any amount in excess of "Rs.10 crores" is not to be considered as "deposit" and no "interest" is allowed on such refunds. Secondly, in respect of amounts "coloured as deposits" the interest would begin from the "date of filing appeal" to the "date of refund" and not when the "amount" was initially deposited during investigation.

Board, certainly, has a knack of doing things sub silentio !

5.2 Pre-deposit for filing appeal is not payment of duty. Hence, refund of pre-deposit need not be subjected to the process of refund of duty under Section 11B of the Central Excise Act, 1944 or Section 27 of the Customs Act, 1962. Therefore, in all cases where the appellate authority has decided the matter in favour of the appellant, refund with interest should be paid to the appellant within 15 days of the receipt of the letter of the appellant seeking refund, irrespective of whether order of the appellate authority is proposed to be challenged by the Department or not.

But the fact of the matter is that ‘interest' commences from the ‘date of payment' of amount till the date of refund of such amount. So, 15 days should be the time taken for processing of the ‘refund claim' lest the field formations carry an impression that interest commences only after expiry of 15 days!

7. Procedure for refund:

7.1 A simple letter from the person who has made such deposit, requesting for return of the said amount, along with a self attested Xerox copy of the order in appeal or the CESTAT order consequent to which the deposit becomes returnable and attested Xerox copy of the document evidencing payment of such deposit, addressed to Jurisdictional Assistant/Deputy Commissioner of Central Excise and Service Tax or the Assistant/Deputy Commissioner of Customs, as the case may be, would suffice for refund of the amount deposited along with interest at the rate specified.

The word used is ‘returnable' not ‘refundable', and hopefully it will not make any difference?

8. Amendment to Preamble of Orders:

8.1 In order to make the new provisions known to the assessee / trade every adjudicating authority lower in rank to the Commissioner is directed to incorporate the following sentence in the Preamble to the order being issued by them -

"An appeal against this order shall lie before the Commissioner (Appeal) on payment of 7.5% of the duty demanded where duty or duty and penalty are in dispute or penalty, are in dispute or penalty, where penalty alone is in dispute. "

8.2 The following may be added in the preamble of the orders issued by the Commissioner (Appeals) -

"An appeal against this order shall lie before the Tribunal on payment of 10% of the duty demanded where duty or duty and penalty are in dispute, or penalty, where penalty alone is in dispute".

8.3 The following may be added in the preamble of the orders issued by the Commissioner as original adjudicating authority -

"An appeal against this order shall lie before the Tribunal on payment of 7.5% of the duty demanded where duty or duty and penalty are in dispute, or penalty, where penalty alone is in dispute".

This is a welcome direction.

(The views are strictly personal.)