2014 (5) TMI 1061 - HC - Central Excise

Waiver of pre deposit - Demand of differential duty - Undervaluation of goods - Clearance of goods to sister concern - Section 11A - whether the learned Tribunal was justified in directing the petitioner to deposit ₹ 60 Lakhs as a condition for hearing the appeals - Held that - Prima facie there is not a whisper in the show-cause notice of any fraud, collusion, wilful mis-statement, suppression of facts or of contravention of any particular provision of the Central Excise Act, 1944. There is only a sweeping, vague averment that the petitioner No. 1 appeared to have deliberately undervalued the goods cleared to its sister units, with intent to evade payment of differential Central Excise Duty and Educational Cess. - Prima facie goods cleared by the various units of the petitioner No. 1 to sister concerns and/or units were disclosed and duty was paid thereon. It is doubtful whether it can be said that there was any such suppression of facts or any such contravention of the Central Excise Act to entitle the Revenue to invoke the extended period of limitation. These observation are, however, only prima facie observations which will not influence the adjudication of the pending appeals on merit. Where an assessee has a good prima facie case, and the disputed duty and/or penalty has apparently been charged wrongfully, the requirement of pre-deposit of the disputed tax and/or penalty is liable to be waived, since pre-deposit of tax not payable by an assessee, would in itself cause hardship to that assessee - Where there is a very good prima facie case, pre-deposit would have to be waived altogether. Where the appellant has an arguable case, pre-deposit might be waived on such conditions as would protect the interest of Revenue. In fact, learned Tribunal was conscious of its duty to consider the prima facie case and accordingly recorded a prima facie finding with regard to the merit of the demand, but cursorily without properly applying its mind to the issues involved in the appeal. - Tribunal has cursorily considered the merits of the case. The learned Tribunal has not at all considered the question of limitation, on which, the question of jurisdiction to issue a show-cause notice for realizing a demand, depends. Admittedly, the demand was not raised within one year but almost two/three years by-invoking the extended period of limitation. Prima facie case was in favour of the demand, insofar as recovery of duty is concerned, the learned Tribunal did not consider whether imposition of 100% penalty was justified in the particular facts of the case. - The power to dispense with pre-deposit may be discretionary. However, it is well-settled, that when facts and circumstances of the case warrant exercise of discretion to waive pre-deposit, pre-deposit would have to be waived. - The condition precedent for exercise of power to waive pre-deposit is prima facie satisfaction of the Appellate Authority that pre-deposit would result in undue hardship to the appellant. The Appellate Authority cannot whimsically and arbitrarily waive pre-deposit or even part thereof. Pre-deposit can be waived in part either on satisfaction that payment of the amount that is waived would cause financial hardship to the appellant, but the appellant is, in the financial position to make payment of the rest of the duty and penalty without undue hardship, or alternatively when the Appellate Authority is prima facie satisfied that the appellant has been able to make out a strong prima facie case for setting aside of a part of the duty levied and/or penalty imposed corresponding to the amount, of which pre-deposit is waived. In the instant case, the impugned order does not disclose the reason for directing pre-deposit of ₹ 60 lakhs only and waiving deposit of the balance duty and penalty. - Decided in favour of assessee.

Issues Involved
1. Justification of the Tribunal's direction for pre-deposit of Rs. 60 Lakhs.
2. Alleged undervaluation of goods and the issuance of a show-cause notice.
3. Invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944.
4. Violation of principles of natural justice.
5. Conditions for waiver of pre-deposit under Section 35F of the Central Excise Act, 1944.

Detailed Analysis

1. Justification of the Tribunal's direction for pre-deposit of Rs. 60 Lakhs:

The petitioner challenged the Tribunal's order directing a pre-deposit of Rs. 60 Lakhs as a condition precedent for proceeding with the appeal. The Tribunal's order did not disclose reasons for directing the lump sum deposit, making it arbitrary and in violation of principles of natural justice. The Court emphasized that pre-deposit should be waived in cases of extreme hardship, and when a strong prima facie case is made out, pre-deposit must be waived. The Tribunal failed to consider the prima facie merits of the case adequately.

2. Alleged undervaluation of goods and the issuance of a show-cause notice:

The petitioner was accused of clearing goods to sister concerns at a lesser value than the value at which goods were sold to independent buyers. A show-cause notice was issued alleging undervaluation of goods cleared from the factory between 1st April 2004 and 31st March 2005. The petitioner responded to the notice, denying the allegations and providing detailed explanations.

3. Invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944:

The show-cause notice was issued for the period from 2002-2003 to 31st March 2005. Under Section 11A, any duty not levied or paid must be recovered within one year from the relevant date unless there is fraud, collusion, wilful mis-statement, or suppression of facts. The Court found that the show-cause notice did not make out a case of fraud or deliberate suppression of facts, making the invocation of the extended period of limitation prima facie unsustainable.

4. Violation of principles of natural justice:

The petitioner alleged that the Commissioner relied on reports obtained behind their back without furnishing copies or giving an opportunity to make submissions on such reports. The Court held that this constituted a violation of principles of natural justice, as the petitioner was not given a fair opportunity to contest the reports.

5. Conditions for waiver of pre-deposit under Section 35F of the Central Excise Act, 1944:

Section 35F allows for the waiver of pre-deposit if it causes undue hardship. The Court reiterated that the Appellate Authority must consider the prima facie merits of the case and the financial capacity of the appellant. The Tribunal's order lacked reasons for directing the pre-deposit of Rs. 60 Lakhs and did not adequately consider the undue hardship or the prima facie case.

Conclusion:

The impugned orders directing pre-deposit of Rs. 60 Lakhs were set aside and quashed. The Tribunal was directed to reconsider the stay application afresh, taking into account the observations made by the Court. The petitioners were restrained from selling, transferring, or encumbering their properties or operating their bank accounts except in the usual course of business until the disposal of the appeals and/or applications for waiver of pre-deposit. The appeal was to be disposed of expeditiously, preferably within four months.

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