APRIL 20, 2015

By B N Gururaj , Advocate

WITHIN the space of a fortnight, two different high courts of the country have given us surprises, by reviving the provisions omitted from the statute book. On 19 th February this year, the Hon'ble High Court of Andhra Pradesh & Telangana has passed interim order in K.Ramamanohar Rao & Co v. UOI & others, 2015-TIOL-511-HC-AP-CX , and issued direction to the Tribunal to consider the stay application to be filed by the petitioner under the proviso to erstwhile section 35F of the Central Excise Act, 1944. In this interim order, there is not much discussion about the law. The court finds prima facie basis to inquire further into the challenge to new section 35F and has granted interim relief.

On March 2 nd this year, the Hon'ble High Court of Kerala went another step forward and disposed of writ petition No. 6173 of 2015 filed by Muthoot Finance Ltd, Cochin , 2015-TIOL-632-HC-KER-ST holding that the appellate provisions in force onthe date of commencement of the lis would govern the appellant's rights, throughout the life of the lis . The High Court of Kerala also referred to the interim order of the Hon'ble High Court of AP & Telangana. On this basis, the writ petitioner has been permitted to file an application for stay and waiver of pre-deposit before the CESTAT. Interestingly, both cases will come up before the South Zonal Bench of CESTAT at Bangalore. For good measure, the High Court of Kerala has relied on four judgments of the Hon'ble Supreme Court, which will be discussed in the subsequent paragraphs.

It seems that both the petitions were ill-advised. The said judgment of the Hon'ble High Court of Kerala leads to some unforeseen consequences. If the view adopted by the high courts that the appellate remedy of the litigant is governed by the appellate provisions in force on the date of commencement of lis, this will not only revive the proviso to section 35F (and proviso to section 129E of the Customs Act, 1962), but would also revive the dreaded sub-section (2A) of section 35C of the Act (Section 129B(2A) of the Customs Act, 1962). That, is the stay would expire after 180 days, if the appeal is not disposed off, and even if stay were extended, it could be done only for another 185 days. Thereafter, the revenue can go gunning for the hapless appellant.

No doubt, during the interregnum, the Larger Bench of the Tribunal has, in Haldiram India Pvt Ltd v. CCE, 2014-TIOL-1965-CESTAT-DEL-LB , alleviated the situation by holding that as long as the appellant-assessee is not the cause of non-disposal of appeal before the CESTAT, the Tribunal may extend the stay until the disposal of the appeal, based on the ratio of CCE v. Kumar Cotton Mills Pvt Ltd, 2005-TIOL-42-SC-CESTAT judgment of the Hon'ble Supreme Court. Thus, even if section 35C(2A) gets revived along with section 35F, the assessee-appellant need not cough up the adjudged dues but may make endless applications for extension of stay until the disposal of appeal.

The consequence will be that once again the Tribunal will be flooded with stay applications and stay extension applications. Most of the judicial time will be spent on interlocutory proceedings, with hardly any final disposal as was the case until very recently. These judgments will proliferate low skill, low quality litigation, at the cost of mounting pendency of appeals involving high revenue stakes. To this extent, these interim order(s) and judgment(s) are regressive.

It would be useful to refer to the judgments relied on by the Hon'ble High Court of Kerala. In Hoosein Kasam Dada (India) Pvt Ltd v. State of MP, AIR 1953 SC 221, which arose under the CP & Berar Sales Tax Act, 1947, as per the amendment to Section 22(1), the petitioner was required to deposit entire disputed tax. Whereas, under the unamended provision, there was no such condition of pre-deposit at all. This is a leading case, which has been followed in the other cases relied on by the High Court of Kerala.

Vittalbhai Naranbhai Patel v. State of MP, AIR 1967 SC 344, is an identical case arising under the same Act. Similarly, in Ramesh Singh v. Cinta Devi, AIR 1996 SC 1560, which arose under the Motor Vehicles Act, 1939, the appellant was not required to make any deposit in respect of accident claims. Whereas, under the MV Act 1988, the appellant who contested the award was required to pre-deposit Rs.25,000 or 50% of the award. Thus, in all the three cases, by contending that their right of appeal was governed by the unamended law, the litigants totally avoided the condition of pre-deposit. This is not so under the Central Excise Act or the Customs Act. Condition of pre-deposit has always existed and that too as a matter of discretion of the appellate fora . The appellants cannot assume that they are entitled to unconditional stay as a matter or right.

Garikapatti Veeraya v. N.Subbiah Choudhry, AIR 1957 SC 540, is a well-known case in civil law on the right of appeal. But, this case involved valuation of appeal to be filed in the Supreme Court. There was no issue concerning pre-deposit in this case. The newly formed High Court of AP had dismissed the plea of certificate to appeal to the Supreme Court on the ground that the value of the suit was Rs.11400/- as against the minimum value of Rs.20,000/- prescribed after the States Reorganisation. In this SLP, the Supreme Court upheld the right of appellant to maintain the appeal under the law which was in force when the suit was tried, i.e., in 1950.

It is respectfully submitted that some circumspection was called for before following the ratio of these judgments. Regard ought to have been had for the vastly changed circumstances between present times and the times when those four judgments were delivered. Three were the case which arose in 1940s, when huge pendency of litigation in the courts was not a serious issue as it now is. Besides, a statutory provision cannot be undone or defeated by taking recourse to judicial precedents. It is a principle of jurisprudence that change in the statute law will weaken the probative force of a judicial precedent.

Another interesting fact is that a perusal of Muthoot Finance Judgment shows that there was no challenge to amended Section 35F in that writ petition. It was a plain case of challenging the Commissioner's order on merits. The counsel for Central Government refers to the new section 35F and its condition of pre-deposit and seeks dismissal of petition on the ground of alternative remedy being available. However, the court seems to have granted a relief, apparently, not prayed for. No doubt, in exercise of writ jurisdiction, a High Court can mould the relief to suit the petitioner. But, can it extend to granting relief not sought for, and not argued? This is doubtful. It is submitted that this is a case where the matter has not been fully argued before the court. Hence, it is sub silentio .

The Parliament had consciously decided to amend the law for achieving two-fold objectives: (a) make pre-deposit of fixed percentage of demand a condition for filing the appeal, and (b) relieve the Tribunal from the burden of hearing and disposing of stay applications, and instead focus on the final disposal of appeals. These objectives were clearly spelled out in the Finance Minister's budget speech (Para 252). The question that bothers one is, ‘was the High Court justified in relying on outdated judicial precedentsand set at naught the amendments made to law by the Parliament?'

If the judgment of the Hon'ble High Court of Kerala were to remain unchallenged and hold field, for many more years to come, the new section 35F (or 129E) cannot come into force at all. They will remain dead letter. The new provisions can come into force only in respect of appeal arising from show cause notices issued on or after 6.8.2014. Is this a desirable or intended consequence?

It is a well settled position of law that an appellate remedy is a statutory remedy and not a fundamental right, nor is it an ingredient of the principles of natural justice. It is subject to conditions and restrictions as may be imposed by law. Refer Vijay Prakash D Mehta v. CC (Prev), Bombay, AIR 1988 SC 2010.In this case, the Supreme Court explicitly ruled out the applicability of the ratio of Hoosein Dada case discussed earlier. If the Parliament decides to change the conditions governing the appellate remedies, that is hardly exceptionable. The short term gain of this judgment would be that some of the litigants may obtain full waiver of pre-deposit. But, past experience shows that where partial pre-deposit had been ordered by the CESTAT, it was never as low as 7.5% or 10% of the demand. Thus, it is quite likely that litigants who intend to take the benefit of the said judgment may end up pre-depositing higher sums of money. Or rather, the CESTAT itself may discourage such applications by directing stiff pre-deposit of 25% or more.

This is a fit case for the Union of India to challenge the judgment of the High Court of Kerala before the Division Bench and thereafter before the Supreme Court. Otherwise, the new section 35F will remain inoperative for foreseeable future.