2016 (7) TMI 1307 - HC - Service Tax

Maintainability of petition - Pre-deposit - Section 35F of the CEA, 1944 - section has been amended with effect from 6th August, 2014 by section 105 of the Finance ( No.2) Act, 2014 - it is submitted by the counsels for the Union of India that the newly substituted section 35F has diluted earlier provisions, so far as the amount to be deposited is concerned. Originally 100% was to be deposited whereas now, only 7.5% or 10% is to be deposited. Thus, 92.5% or 90% of the duty demanded or the penalty levied is already waived by the new section 35F, in each and every case, without any order of Tribunal or without any order of the Commissioner (Appeals) and without any application for waiver of deposit - It is also submitted by the counsels for the Union of India that in a statute relating to taxation, the government should be allowed greater latitude with respect to classification for imposing tax. Held that - the substituted Section 35 F of the Act, 1944 is not applicable to the stay applications and appeals already preferred or pending before any appellate authority, prior to commencement of the Finance (No.2) Act, 2014, which shows the clear intention on the part of Legislature, meaning thereby Finance (No.2) Act, 2014 shall be applicable to all the stay applications and appeals which are being preferred on or after 6th August, 2014. Thus, effect of Section 6 of the General Clauses Act, 1897 is being taken away by 2 nd proviso to Section 35F of the Act, 1944, which is the different intention of the Legislature. The legislature, in its wisdom, has thought it fit to extend the benefit of the Scheme to such of those assessees whose tax arrears are outstanding as on 31-3-1998, or who are issued with the demand or show-cause notice on or before the 31st day of March, 1998, though the time to file declaration for claiming the benefit is extended till 31-1-1999. In extreme cases always the assessees can take recourse to the writ jurisdiction under Article 226 of the Constitution of India. Few extreme cases will not make the substituted Section 35F of the Act, 1944 unconstitutional. All care can be taken with respect to such types of cases under Article 226 of the Constitution of India. Ubi jus, ibi remidum - where there is wrong, there is remedy. How the cut off date has to be fixed and the nature of the cut off date etc. is to be left at the discretion of the legislature. The court should be slow to interfere or in altering a cut off date. The cut off date in question is 6th August, 2014 and looking to the second proviso to Section 35F if any stay application or appeal is already preferred and pending before the appellate authority before 6th August, 2014, those will not be governed by the newly substituted Section 35F. This is the intention of the legislation, in no uncertain terms, meaning thereby that with respect to appeals preferred on or after 6 th August, 2014, the newly substituted Section 35F shall be applicable. Substituted Section 35F, is not at all confiscatory in nature. On the contrary it is more than reasonable and leaning more towards the assessee rather than the revenue. The petitioner would not be justified in urging that the amended provisions of Section 35F(1) of the Act would not apply merely on the ground that the notice to show-cause was issued prior to the enforcement of Finance (No. 2) Act, 2014 - endless litigations, arising out of waiver applications, have been brought to an end and looking to the very meager percentage of the amount to be deposited, Section 35F- as amened cannot be said to be violative of Article 14 of the Constitution of India much less of Article 19(1)(g) of the Constitution of India. Petition dismissed - decided against petitioner.

Summary

Issues Involved:

1. Challenge to the constitutional validity of Section 35F of the Central Excise Act, 1944, as amended by the Finance (No.2) Act, 2014.
2. Alleged violation of Article 14 (Right to Equality) and Article 19(1)(g) (Right to Practice any Profession, or to Carry on any Occupation, Trade or Business) of the Constitution of India.
3. Classification of assessees based on the date of filing appeals.
4. The retrospective application of the amended Section 35F.
5. The procedural versus substantive nature of the right to appeal.
6. The requirement of pre-deposit as a condition for filing an appeal.
7. The impact of the amended Section 35F on pending appeals and stay applications.

Detailed Analysis:

1. Challenge to Section 35F:
The petitioners challenged the amended Section 35F, which mandates a pre-deposit of 7.5% or 10% of the duty demanded or penalty levied before filing an appeal. They argued that this provision is confiscatory and violates the Constitution of India, particularly Article 14 and Article 19(1)(g).

2. Alleged Violation of Article 14 and Article 19(1)(g):
The petitioners contended that the amended Section 35F creates an arbitrary and discriminatory classification between assessees who filed appeals before and after 6th August 2014. They argued that this classification lacks a reasonable nexus with the object sought to be achieved by the amendment and imposes undue hardship, thereby violating Article 14.

3. Classification of Assessees:
The court rejected the argument that the classification of assessees based on the date of filing appeals is arbitrary. It held that whenever a cut-off date is prescribed, some individuals are bound to fall on the wrong side. The court emphasized that the legislature enjoys greater latitude in taxation matters and that the classification has a reasonable nexus with the object sought to be achieved, which includes safeguarding revenue and reducing litigation.

4. Retrospective Application:
The court clarified that the amended Section 35F applies to all appeals filed on or after 6th August 2014, irrespective of whether the show-cause notice or Order-in-Original was issued before this date. The second proviso to Section 35F exempts only those stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014.

5. Procedural vs. Substantive Right:
The court distinguished between substantive and procedural law, holding that the right to file an appeal is a substantive right, but the conditions for filing an appeal, such as the requirement of pre-deposit, are procedural. The court cited several Supreme Court judgments supporting the view that procedural amendments can have retrospective application unless expressly stated otherwise.

6. Requirement of Pre-deposit:
The court upheld the requirement of pre-deposit as a condition for filing an appeal, noting that it balances the right of appeal with the need to safeguard revenue. The court emphasized that the amended provision significantly reduces the burden on assessees by capping the maximum deposit at ?10 crores and waiving 92.5% or 90% of the duty demanded or penalty levied.

7. Impact on Pending Appeals:
The court noted that the amended Section 35F does not apply to appeals and stay applications pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014. However, it applies to all appeals filed on or after 6th August 2014. The court dismissed the argument that the provision creates a class within a class, stating that the differentiation is based on a reasonable and intelligible criterion.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of the amended Section 35F. It held that the provision is neither violative of Article 14 nor Article 19(1)(g) and that it serves the legitimate purpose of safeguarding revenue and reducing litigation. The court also imposed costs on the petitioners for filing the writ petitions.