TIOL-DDT 2548
27 02 2015
Friday

T&AP High Court grants Interim Relief - allows appeal to be filed without pre-deposit; waiver can be sought under the old regime. Notice Issued to Attorney General

THIS is a great order. In a few lines, the High Court touched upon very serious issues. As you will remember, from 6.8.2014, appeals in Central Excise, Customs or Service Tax are not accepted if the mandatory pre-deposit of 7.5% or 10% is not paid.

The Petitioner prayed the High Court of Judicature at Hyderabad that:

1. Section 35F of the Central Excise Act, 1944 read with Section 83 of Finance Act, 1994, as amended by Section 105 of the Finance (No.2) Act, 2014 w.e.f. 06.08.2014 which provides for a mandatory pre-deposit of 7.5% for first appeals and 10% for second appeals of the total tax or penalty demanded, as a mandatory condition for the entertainment of the appeal, be declared as unconstitutional;

2. CBEC Circular No.984/08/2014-CX dated the 16th September, 2014, be declared as unconstitutional and ultra vires the Act; (This Circular specifically mentioned that the amended provisions apply to appeals filed after 6th August, 2014. Sections 35F of the Central Excise Act, 1944 and Section 129E of the Customs Act, 1962 contain specific saving clause to state that all pending appeals/stay applications filed till the enactment of the Finance Bill shall be governed by the erstwhile provisions.);

3. CESTAT Circular F.No.15/CESTAT/General/2013-14, dated 14-10-2014, issued by the Registrar, CESTAT, be declared as unconstitutional and ultra vires the Act; (In this Circular, the CESTAT clarified that Pre-deposit is mandatory even for appeals against orders issued prior to 06.08.2014)

4. The Order-in-Original dated 26.11.2014 may be quashed.

The High Court observed that two points are involved:

1. The vires of the amendment of Section 35 (F) of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994.

2. The retroactivity of this amendment viz., from 06th August 2014.

The High Court was of the view that these points require examination by the Court.

So the High Court

1. Issued notice to the respondents.

2. Issued Notice to the Attorney General of India.

The respondents are:

1.  Revenue secretary,

2.  Commissioner of Central Excise and Service Tax,

3.  CESTAT, Bangalore,

4.  Registrar, CESTAT, New Delhi and

5.  CBEC.

The High Court noted that the Show Cause Notice in this case was issued in 2013 and therefore lis has been started long before the amendment.

The High Court is of the prima facie view that on the date of initiation of proceedings the right to appeal also accrues on that date, as appeal is in continuation of the original proceedings. In other words, on the date of initiation of lis the aforesaid amendment was not in force. However, during the pendency of this matter the aforesaid amendment is made.

The Relief: The High Court ordered that the petitioner can very well approach the appellate authority with an application for waiver of pre-deposit. The appellate authority for the time being without insisting upon pre-deposit as per the amended provision, shall consider such application in accordance with law (as it existed prior to 6.8.2014).

Appeals without mandatory pre-deposit?: Now, for Show Cause Notices issued prior to 6.8.2014, for which Adjudication Orders are passed after 6.8.2014, the appellant can file an application for waiver of pre-deposit and need not pay the mandatory pre-deposit - at least in the States of Andhra Pradesh and Telangana.

Will the Tribunal take the High Court order as an order in rem and admit appeals without the mandatory pre-deposit? Or should each appellant go through the High Court? We have to wait for answers.

We bring you the important High Court today. At least for few hours from now, it is TIOL exclusive. Please see - 2015-TIOL-511-HC-AP-CX.

Twist in the Tale: What happens if the Tribunal agrees that mandatory pre-deposit need not be paid, but orders, say a pre-deposit of 50%? The appellant is doomed. Can he plead that as per the present law, there cannot be a pre-deposit of more than 10%?

One more twist: Though the issue is not identical, the Kerala High Court - 2015-TIOL-499-HC-KERALA-CUS in a judgement delivered a day before the date of the Hyderabad High Court's order, held that 7.5% pre-deposit is mandatory. The High Court observed, "the right of appeal granted by the statute is a conditional one and the conditions are not so onerous as to deprive the petitioner of an effective right of appeal. This is more so, because what is required to be deposited by the petitioner, as a condition for maintaining the appeal, is only a small percentage of the duty/penalty amount confirmed against him, and the said amount has to be refunded to the petitioner in the event of his succeeding in the appeal before the Appellate Tribunal."

CBEC Offices to be open tomorrow

THE CBEC has written to all Chief Commissioners that it desires that all offices of the CBEC and field formations may remain open on 28th February (though it is a Saturday), so that the changes made in the Budget and their impact on revenue can quickly be examined and analysed by the field formations so as to guide the trade properly and to bring to the notice of the Board any difficulties/anomalies etc noticed in the tax proposals .

The CBDT doesn't seem to have any such problem.

CBEC Letter F.No.296/42/2013-CX.9, Dated: February 25 2015

Bring Out Black Money - One More Amnesty Scheme

CAG , CBI, PAC, SIT, Supreme Court - all together will not be able to bring in even a fraction of the black money stashed away in foreign banks and for that matter not even the black money in gunny bags in the backyard of almost every politician. We should seriously think of an amnesty scheme to unearth at least the black money lying around in India. The Finance Minister should also seriously think of putting an end to unwanted litigation and try to recover a little of the allegedly evaded taxes.

In Central Excise and Customs alone there are lakhs of cases pending from the level of Assistant Commissioners right up to the Supreme Court of India. It takes about a year or two for an Assistant Commissioner to decide a case, then another year for the first appellate stage, three to ten years for the Tribunal and five to ten years for the higher courts. Sometimes by the time a case is decided by the highest court, the issue is no more relevant! We also have cases pending with Settlement Commission and Revision Authorities. In Customs and Central Excise matters(for that matter any matter), the interests of the assessee is in postponing the liability as far as possible and that of the department in getting as much as possible as quickly as possible. In these contradictory goals, it is the lawyers and consultants who ultimately reap the benefits.  Service Tax has already flooded the judicial system.

While everybody agrees that it is futile to be engaged in a long drawn out legal battle, nobody seems to prepared to get out of the legal wrangle, especially in fiscal matters. They say in a war, the first casualty, is Truth. It is true of many of our legal battles. A lot of money, time and paper are wasted in thousands of pending cases at various levels. Tons and tons of printed orders are delivered often repeating the same old decided cases, sometimes over-ruling sometimes distinguishing, sometimes just referring and almost always surely confusing everybody.

It was once believed that simplification of procedures and simple language of the laws would reduce litigation. The department has been on a long course of simplification and simple laws. And surely and steadily every simplification has provided an opportunity to the legal fraternity to reap rich harvests. Forty years ago there was no CESTAT, there was a Commissioner (Appeals) for three or four states, one tenth the present number of Commissioners, no publications, no web sites and the laws were tough to understand and implement. All the simplification has only added to litigation and all the adjudicating and appellate authorities are always busy churning out orders. And nobody is able to clear the arrears of pending cases. The amount of money spent in monitoring these pending cases is also quite huge. Several reports are called for and compiled about cases pending in various stages and even Parliamentary Committees scrutinise the alarming growth of pending litigation. Dutifully, periodical reports on amount of duty locked up in litigation are prepared, analysed and action plans devised to reduce pending litigation and realise arrears of revenue. But the mountain has been growing steadily from strength to strength and all efforts to reduce pending litigation have not met with any reasonable success, except with increased number of posts for arrears recovery.

WHY?

1. Perhaps basically, we are a litigation loving country.

2. Laws' delays are axiomatic in any country, but we thrive on only the delaying capacity of the judicial institutions.  Many of our assessees go in appeal to Tribunal and courts not because they have any hopes of winning the case, but the very fact of delaying payment would help them and who knows what will happen tomorrow? May be there will be a Kar Vivad Samadhan or some such scheme which are meant more for the benefit of law breakers than the ones who obey the laws!

3. On the other hand the departmental officers are trained and tuned to the music of ‘err on the right side".

4. The departments are more litigation lovers than the assessees. The Commissioner (Appeals) is just an intermediate product, never an end. If the Commissioner's order is against the assessee, he will surely go in appeal. If it is in his favour, the department will promptly appeal. All the strictures against frivolous appeals by department go almost un-noticed.

5. So given an opportunity we will not let go of an opportunity to appeal. No wonder the appellate forums are full to the brink and overflowing.

In spite of a very apparently profitable proposition of waiver of penalty, interest and prosecution for a 50% payment of duty demanded, the earlier Kar Vivad Samadhan was not very successful. Department only lost cases where their cases were very strong and they would have certainly won. Other cases remained and these other cases constituted the major chunk. The Settlement Commission only offers yet another forum and litigation continues merrily. 

Reports are published that thousands of crores are locked up in court cases. Actually this figure is highly exaggerated. Every rupee locked up in litigation is not revenue. Actually what you may ultimately get is only a fraction of the amount under litigation and that too after years of agonising court room battles and may be a little retrospective legislation!

Is there no way out? There is; if we are prepared to take some drastic realistic measures. There is no point in the blaming game for arrears. We should have another Kar Vivad Samadhan Scheme which should kill most of the pending arrears of cases.

The scheme would work like this:-

++ Ask the litigants to pay just ten percent of the duty demanded and give them total immunity from all liabilities pertaining to that case. Cases pending at all levels should be covered in the scheme.

++ After the scheme is closed, if still there are a large number of cases pending, have an Excise and Customs Adalat, again at all levels. The adalat would constitute of members from the trade, department and an independent judge. Once the amount to be paid is determined, give the party one year to pay the amount, if needed in installments.

There should be a Samadhan within the department also as follows:-

++ As a one time measure, close all the provisional assessments ordered before 1.1.2015 with absolutely no liability on either side.

++ Treat all the existing Audit paras, both internal and AG's as closed. Simply destroy all the audit files.

++ In all cases booked, if Show Cause Notices are not issued within six months from the date of seizure/detection, return all the seized goods and records with no liability to the assessee. Destroy all the case records.

++ Do away with the five year limitation for demands for the past five years. The five year period should apply prospectively from 1.1.2015.

Our offices and courts will have a better look with all those mountains of paper destroyed and with better looking officers having no worry about those pending arrears and audit objections. In another fifty years, we are bound to clog the system and all the ills will come back, but for now let there be Samadhan and let's start afresh.

A similar exercise should be done in the Direct Taxes side too.

This may make a lot of consultants lose their work, but consistency and clarity are far more important than consultancy.

(I made these suggestions in 2011 - DDT-1543 - hope something of this sort will be done this year.)

Be with us for Budget

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Stars Predict…

LOOK at the FM as he enters Parliament - if his attire is blue, you will have a good budget; so will he.

Until Monday with more DDT

Have a nice Budget.

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