By TIOL News Service

AHMEDABAD, NOVEMBER 27, 2014: THE worst of the fears have come true…for the department!

Background:

The JS (TRU) vide DOF.No.334/1/2002-TRU dated 28th February, 2002, in the context of the Finance Bill, 2002 mentioned -

2.15 Other important legislative changes made through the Finance Bill that will come into effect with the assent of the President are as follows:

(i) Time period for disposal of appeals by the Appellate Tribunal has been laid down as three years from the date of filing of the appeal, where it is possible to do so. It has also been provided that where a stay order has been issued the final order shall be passed within 180 days of the stay order, failing which the stay shall stand vacated.

Consequently, upon enactment of the Finance Act, 2002 w.e.f 11.05.2002, Section 35C of the CEA, 1944 saw insertion of the following sub-section (2A)–

(2A) The Appellate Tribunal shall, where it is possible to do so, hear and decide every appeal within a period of three years from the date on which such appeal is filed:

Provided that where an order of stay is made in any proceeding relating to an appeal filed under sub-section (1) of section 35B, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such order:

Provided further that if such appeal is not disposed of within the period specified in the first proviso, the stay order shall, on the expiry of that period, stand vacated.

Thereafter a third proviso came to be inserted w.e.f. 10/5/2013 by section 98 of the Finance Act, 2013, (17 of 2013) and which read:

"Provided also that where such appeal is not disposed of within the period specified in the first proviso, the Appellate Tribunal may, on an application made in the behalf by a party and on being satisfied that the delay in disposing of the appeal is not attributable to such party, extend the period of stay to such further period, as it thinks fit, not exceeding one hundred and eighty-five days, and in case the appeal is not so disposed of within the total period of three hundred and sixty-five days from the date of order referred to in the first proviso, the stay order shall, on the expiry of the said period, stand vacated."

The TRU letter D.O.F.No.334/3/2013-TRU dated 28.02.2013 had mentioned the following while informing the salient features of the Finance Bill, 2013 -

Stay Order by Appellate Tribunal and Other Matters

Section 35C (2A) of the Central Excise Act, 1944 and the corresponding provisions under section 129B (2A) of the Customs Act, 1962 are being amended to provide for a maximum ceiling of 365 days up to which the Tribunal can grant stay of recoveries. By inserting a proviso in the abovementioned sections, it is being stipulated that after 365 days from the stay order, this stay shall stand vacated even if the disposal of the case is pending for no fault of the assessee. By virtue of stipulation under section 86(7) of the Finance Act, 1994, the provisions of the Central Excise Act would be applicable for dispute in Service Tax matters.

Against the Tribunal orders extending the stay granted earlier, even beyond the total period of 365 days from the date of granting initial stay, the revenue had preferred Tax Appeals before the Gujarat High Court.

The Gujarat High Court in the case of Small Industries Development Bank of India - 2014-TIOL-1102-HC-AHM-CX inter alia held –

"…it is held that in case and having satisfied that delay in not disposing of the appeal within 365 days (total) from the date of grant of initial stay is not attributable to the appellant / assessee in whose favour stay has been granted and that the Appellate Tribunal is satisfied that such appellant / assessee has fully cooperated in early disposal of the appeal and/or has not indulged into any delay tactics and/or has not taken any undue advantage, the learned Appellate Tribunal may, by passing a speaking order as observed hereinabove, extend stay even beyond the total period of 365 days from the date of grant of initial stay."

The matter was also decided by the Larger Bench of the Tribunal in the case of Haldiram India Pvt. Ltd. & Ors - 2014-TIOL-1965-CESTAT-DEL-LB and when it was held that –

"…even in a case where the period of 365 days has passed from the date of initial grant of stay but the appeal could not be disposed of for reasons not attributable to the appellant/ assessee (in whose favour the stay was granted); and where the Tribunal is satisfied that the appellant/ assessee was ready and willing for disposal of the appeal and/ or had not indulged in any protractive strategies, extension of stay could be granted (beyond the period of 365 days) by passing a speaking order disclosing the satisfaction of the Tribunal as to absence of any delay/ protractive stratagems by the appellant/ assessee resulting in non-disposal of the appeal or that the appeal could not be disposed of on account of pendency of several appeals or other reasons attributable to the structure and context of the Tribunal or other appropriate reasons.

Incidentally all the aforementioned three provisos in section 35C(2A) of the CEA, 1944 [also in 129B(2A) of Customs Act, 1962] were omitted by the Finance Act, 2014 (enacted on 06.08.2014).

So, the section 35C(2A) of CEA, 1944 now reads –

"(2A) The Appellate Tribunal shall, where it is possible to do so, hear and decide every appeal within a period of three years from the date on which such appeal is filed:"

The JS (TRU-I) in D.O.F.No.334/15/2014-TRU dated July 10, 2014 mentions -

"11. Section 35C(2A) is being amended to omit the first, second and third proviso in view of substitution of section 35F with a new section."

So, what would happen to the orders passed by the Tribunal granting initial stay or where extension of stay has been granted beyond the period of 365 days and the Stay order is destined to expire after 6 th August, 2014?

Should the appellant file an application to the CESTAT seeking further extension?

In the present case the appellants were granted stay by the CESTAT and which was subsequently extended. That stay was to come to an end on 21st August, 2014.

Fearing that the department may initiate coercive action, the appellant filed applications seeking further stay in the matter.

Before the Bench, the appellant submitted that since the first, second and third provisos to section 35C(2A) of the CEA, 1944 were omitted by the Finance Act, 2014, the position as on date is that there is no requirement for extension of initial stay granted and subsequent extensions. It is further submitted that no saving clause is enacted in the section and hence once the provisos are omitted nothing survives. Reliance is placed on the apex Court decision in Kolhapur Cane Sugar Works - 2002-TIOL-188-SC-CX & the judgment of the Gujarat High Court in the case of Krishna Processors - 2013-TIOL-72-HC-AHM-CX.

The AR submitted that the submission of the appellant could not be the intention and reading of the legislation.

The Bench after considering the submissions and extracting the provisions of section 35C(2A) of the CEA, 1944 as they existed before the omission of the provisos by the Finance Act, 2014 observed –

++ The omissions of 1st, 2nd and 3rd proviso to section 35C(2A) of the CEA, 1944 now has to be read to the effect that there is no provision for making any further applications for extension of stay nor Tribunal has powers for hearing and disposing the applications for extension of stay from 7.8.2014. In the absence of any provisions for hearing and disposing applications for extension of stay, we find that the applications made by the appellants herein have to be disposed of as such.

++ At the same time it would also mean that after initial granting of stay by the Tribunal, order does not get lapsed. Omission of 1st, 2nd and 3rd proviso would mean that the appeal filed by an assessee needs to be disposed of within a period of 3 years is only the requirement and stay orders which has been passed by the Tribunal under the powers mandated under the powers granted by section 35C of the CEA, 1944 would remain in force.

After noting that the aforesaid views are fortified by the judgment of the Gujarat High Court in the case of Krishna Processors - 2013-TIOL-72-HC-AHM-CX, the Bench concluded thus -

"Any stay order passed by the Tribunal, if it is in force beyond 07.08.2014, it would continue till the disposal of the appeals and there is no need for filing any further applications for extension orders granting stay either fully or partially."

The applications were disposed of.

Battle Royale begins…

(See 2014-TIOL-2388-CESTAT-AHM)