By TIOL News Service

BANGALORE, NOV 19, 2015: THE petitioners have assailed amendment made to Section 35F of the Central Excise Act, 1944, as amended by Section 105 of the Finance Act 2014 with effect from 6/8/2014, which provides for pre-deposit of 7.5% for first appeals and 10% for second appeals on the total tax or tax and penalty, demanded for entertaining such appeals.

The contention of the petitioners is that the requirement of the pre-deposit is in violation of Articles 14, 19(1)(g) and 265 of the Constitution of India. Therefore, they have sought a declaration that Circular No.984/08/2014-CX issued by the CBEC is ultra vires the Constitution of India and a similar Circular F.No.15/CESTAT/General/2013-14 dated 4/10/2014, is also assailed. A direction is also sought to enable the petitioners to file their appeals without monetary pre-deposit of 7.5%, as the lis in so far as petitioners are concerned commenced prior to 6/8/2014, which is the date on which the amendment has been enforced.

It is the contention of the Petitioners that as a result of the said amendment, the right to file an appeal, which is a vested right of the appellant, particularly where the cause of action has arisen prior to the amendment is adversely effected.

After hearing both sides, the High Court held inter alia that:

Substantive Vs Procedural law:

+ In the instant case, it can be assumed that the right to file an appeal, which was available to the petitioners herein prior to 6/8/2014 under Sections 35 and 35B of the Act has been preserved intact, despite the enforcement of 2014 Act, which has amended, inter alia, Section 35F of the Act, with which we are concerned in this case.

+ While Sections 35 and 35B of the Act are substantive law providing the forum and the circumstances under which an appeal could be filed by an aggrieved party, the conditions to be followed for the purpose of exercising the substantive right as prescribed in Section 35F is a piece of procedural law. Section 35F, which is the centre of controversy in this matter, prescribes the pre-deposit to be made by an aggrieved party while availing an appellate remedy.

+ Thus, keeping in mind the distinction between substantive law and procedural law, it is held that Section 35F is a piece of procedural legislation and the principles that are applicable with regard to interpretation of an amendment made to that provision would have to be considered. Hence, the principles applicable to interpret an amendment made to a substantive law are not applicable in the instant case. Further, a litigant has a vested right in substantive law, but no such right exists in procedural law. This aspect becomes clearer on consideration of the judicial precedents on pre-deposit on preferring appeals, wherein the Hon'ble Supreme Court has dealt with the condition of pre-deposit to be made by the appellant at the time of preferring an appeal.

+ A requirement regarding deposit of amount as a condition precedent to the entertainment of appeal is a means of regulating the exercise of right of appeal. The Parliament while granting the right of appeal could also impose conditions to exercise such a right so long as the conditions are reasonable. In the instant case, Section 35F also uses the expression "shall not entertain any appeal….. unless the appellant has deposited 7.5% of duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute….". It is held that the requirement of deposit of 7.5% as stated supra, is not an onerous condition precedent for the filing of an appeal by an aggrieved party. This is particularly so, when there is a cap on the pre-deposit amount, where 7.5% of the disputed amount exceeds Rs.10.00 crore. In which event, only Rs.10.00 crore has to be deposited as a pre-deposit. The above reasoning also applies where the section mandates a pre-deposit of 10%. Thus, the condition of pre-deposit in the instant case does not adversely affect the right of appeal of an aggrieved party and the said condition is not unreasonable.

Whether amended Sec. 35F is retrospective:

+ While analyzing Section 35F, it becomes apparent that the said provision has a retrospective operation, particularly having regard to the second proviso. In case the second proviso was absent, then possibly the contention of petitioners' counsel that the amendment had only a prospective operation may have had greater force. But in light of the second proviso, the real intention of the Parliament can be discerned. If the contention of the petitioners' counsel is to be accepted, it has to be held that the amendment made to Section 35F does not have a retrospective operation and is prospective with effect from 6/8/2014 onwards i.e., the date on which it received the presidential assent and would not apply to a lis which had commenced prior to that date. Then, in that event, second proviso would become otiose and redundant. No provision of an enactment can be interpreted so as to make any part of it redundant or useless. The real intention of the Parliament is, to insert the second proviso as a saving clause, thereby applying the provision prior to amendment, only in respect of those appeals pending before the appellate authority as on 6/8/2014. In all other cases, the main amended provision would apply. The reason for such a proviso was necessitated so as to obviate a situation whereby, applications pending before the appellate authority or tribunal would become infructuous on account of the amendment made to Section 35F as the amendment has a retrospective effect. Parliament was also conscious of the fact that as on 6/8/2014, many appeals would be pending before various appellate authorities throughout the country where applications for exercise of discretion of such appellate authorities regarding pre-deposit of duty or penalty had to be considered and disposed of. Therefore, Parliament was vigilant to ensure that the appellate authority or tribunal would continue to have jurisdiction to exercise discretion in respect of the applications filed under the proviso to Section 35F as it stood prior to amendment. Thus, if prior to 6/8/2014, an appeal had been preferred by an aggrieved party and the application and appeal were pending before the appellate authority, then the appellate authority could exercise its discretion with regard to the pre-deposit to be made by such a party under the provision as it stood prior to amendment. But if no appeal had been filed prior to 6/8/2014, then the amended Section 35F would apply although the lis had commenced prior to 6/8/2014 as the amendment has a retrospective effect. The amendment, thus, has no bearing on the date on which the particular lis had commenced. This is for the obvious reason that in each case, the lis would commence on a different date. But the commencement of the amendment must be certain and from a particular date in respect of all lis. In order to ensure that object and in order to have a uniformity in the matter, Parliament has enacted the second proviso to the amended Section 35F. This would mean that in all cases not covered under the second proviso, the main amended Section 35F would apply, irrespective as to when the lis has commenced. Thus, the date on which the lis has commenced in each case has no bearing on the amendment as it has a retrospective effect. Even if the lis had commenced prior to the date of amendment and an appeal had not been filed on that date, even in such a situation, the main amended Section 35F would apply and a pre-deposit as per amended provision would have to be made. Accordingly, this point is answered by holding that amended Section 35F of the Act has a retrospective operation.

Accordingly, the High Court dismissed all the Writ Petitions.

(See 2015-TIOL-2637-HC-KAR-CX)