By TIOL News Service

NEW DELHI, JUNE 10, 2016: THE Petitioner has challenged the CBEC Circular 984/08/2014-CX dated 16th September, 2014 & the CESTAT Circular dated 14th October, 2014 in the matter of mandatory pre-deposit of 7.5%/10% for filing an appeal before the CESTAT in terms of amendment in Section 35F of the CEA, 1944 with effect from 6th August 2014.

The consequential prayer is that this Court should declare that, where the lis had originated, by means of initiation of proceedings before the lower adjudicating/appellate authorities before 6th August 2014, the appeal filed before the CESTAT should be governed by Section 35F of the CE Act as it stood prior to 6th August, 2014; that a direction be given to the CESTAT to hear and decide the appeal filed by the Petitioner against the Adjudication Order dated 18th May, 2015 passed by the Principal Commissioner of Customs “without requiring any mandatory pre-deposit to be made by the Petitioner.

The Petitioner submitted that notwithstanding the decision of the Allahabad High Court in Ganesh Yadav -2015-TIOL-1490-HC-ALL-ST which has been followed in AnjaniTechnoplast Ltd. -2015-TIOL-2568-HC-DEL-CUS , Suvidha Signs Studios Pvt. Ltd. -2016-TIOL-843-HC-DEL-CX and in Rajdhani Flora & Infrastructure Developers Pvt. Ltd. -2016-TIOL-1104-HC-DEL-ST, the Court should re-visit the issue.

At the outset the Court observed that it is not persuaded to re-consider its aforementioned orders which followed the decision of the Allahabad High Court in Ganesh Yadav (supra) . Inasmuch as the Court is not prepared to reopen the question of the validity of Section 35F of the CE Act.

The Court also noticed that as far as the present case was concerned, although the initial adjudication order was passed on 23rd December 2010, that order was set aside by the CESTAT on 13th December, 2011 and the matter was remanded to the Commissioner of Customs for a fresh adjudication; that in the second round, a fresh adjudication order was passed by the Principal Commissioner on 18th May, 2015[ confirming the CE duty demand of Rs.2,82,49,444/- and a penalty of equal amount ] and it is against this order that an appeal along with application for stay/waiver of pre-deposit was filed.

The High Court made it amply clear that the further appeal having been filed after the amendment to Section 35Fof CE Act would be governed by the said amended provision.

The Petitioner also submitted that in view of the financial hardship of the Petitioner, this Court should in exercise of its powers under Article 226 of the Constitution waive the requirement of pre-deposit.

It is also submitted that Petitioner proprietary concern had ceased to exist and has no source of income.

To this submission, the High Court observed -

"8. What has been recorded in the aforementioned Order-in-Original is that Mr Chopra joined hands with one MrAnoopChawla and an Australian Company to start a joint venture with M/s Samarth Designs Pvt. Ltd. and new entity came into carried out the same line of business as the Petitioner. While Mr Chopra may have decided to close the Petitioner's operations, in reality, the liability of the Petitioner as a legal entity to pay arrears of statutory duties did not cease. In other words, it was not as if Samarth Designs Pvt. Ltd. took over the liabilities of the Petitioner. It is stated that at no stage was a resolution regarding taking over the existing liabilities of the Petitioner passed by the Directors of Samarth Designs Pvt. Ltd.

9. In that view of the matter, it cannot be said that with the Petitioner ceasing its business operations, it ceased to exist as a legal entity for the purposes of its liability under the Central Excise law. In other words, the Petitioner shall continue to be liable to pay Central Excise Duty as a legal entity notwithstanding that it may have ceased to carry on business from a particular date. Unlike a company or partnership firm both of which can be dissolved unless there is an express provision in the law permitting taking over of the liability of the Propriety concern the proprietary concern cannot unilaterally declare itself as non-existent."

The High Court also added that prior to 06.08.2014, a discretion was available to the CESTAT to consider the financial hardship and accordingly determine the pre-deposit amount but this discretion had been consciously sought to be curtailed and thus an amendment was made to requiring making of a pre-deposit of 7.5%/10% subject to an upper cap of Rs.10crores. And, therefore, a direction to the CESTAT that it should waive the pre-deposit would be contrary to the express legislative intent expressed in the amended Section 35F with effect from 6th August, 2014, the High Court observed.

In the matter of the plea by the Petitioner that the Court should, in exercise of its powers under Article 226 of the Constitution, waive the requirement of pre-deposit, the High Court observed that while the jurisdiction of the Court to grant relief notwithstanding the amended Section 35F cannot possibly be taken away, the said power should be used in rare and deserving cases where a clear justification is made out for such interference.

Noting that in the present case the Court is not persuaded to exercise its powers under Article 226 to direct that there should be a complete waiver of the pre-deposit as far as the Petitioner's appeal before the CESTAT is concerned, the Writ Petition was dismissed.

(See 2016-TIOL-1116-HC-DEL-CX)