2013 (5) TMI 625 - HC - Central Excise

Appeal against the stay order - non compliance of stay order - Whether the Appellate Tribunal was justified in directing the appellant to deposit 60% of the liability without considering the fact that under the Government scheme, the appellant was entitled for exemption from excise duty and also for the reason that the appellant company has been referred to BIFR under Sick Industrial Companies (Special Provisions) Act, 1985 - held that - The appeal is a statutory right. The appellant has been deprived of his right of the appeal due to a precondition of deposit of 60% of the liability imposed by the order-in-original. While imposing the condition of predeposit, the Tribunal is required to examine prima facie merit of the appeal as well as the condition of the appellant. In the impugned order the Tribunal found that the appellant company was running under the financial loss and his request for rescheduling the payment of loan has been accepted by the banks. Even then the appellant was directed to deposit 60% of the liability which was a substantial amount for the appellant. In the financial circumstances of the company, it was an impossibility for it. In the meantime the company was also referred to Board of Industrial and Financial Reconstruction treating it as a sick company. The Supreme Court in Sangfroid Remedies Ltd. v. Union of India, 1998 (9) TMI 83 - SUPREME COURT allowed full exemption from the liability to deposit precondition amount in appeal by the company, which was referred to the Board of Industrial and Financial Reconstruction treating it as a sick company. Instead of 60%, appellant directed to pre-deposit 4 crores within 6 weeks.

Summary

Issues involved:
Appeal under Section 35-G of the Central Excise Act, 1944 challenging the rejection of extension of time for deposit of precondition for hearing appeals and the order directing deposit of 60% of the liability as a precondition. Interpretation of Government scheme for exemption from excise duty. Consideration of financial status of the company and its referral to the Board of Industrial and Financial Reconstruction as a sick company.

Analysis:

Issue 1: Rejection of extension of time and imposition of 60% liability deposit
The appeals were filed challenging the rejection of extension of time for deposit of precondition for hearing the appeals and the order directing the deposit of 60% of the liability. The Tribunal imposed the condition of predeposit without examining the prima facie merit of the appeal or the financial condition of the appellant. The appellant argued that the financial position deteriorated due to a fire incident and subsequent referral to the Board of Industrial and Financial Reconstruction as a sick company. The Tribunal's refusal to review its order was contested, and the appellant expressed willingness to deposit Rs. 4 crores if given time.

Issue 2: Interpretation of Government scheme for exemption
The appellant claimed eligibility for exemption from excise duty under a Government scheme dated 10.06.2003, citing substantial expansion and capacity increase. Despite fulfilling conditions and submitting necessary documents, the Central Excise Commissioner issued a show cause notice in 2008, leading to a demand for excise duty, penalty, and interest. The Tribunal's directive to deposit 60% of the liability was challenged, emphasizing the company's compliance with the exemption scheme.

Issue 3: Financial status and referral to the Board of Industrial and Financial Reconstruction
The company's financial hardship, exacerbated by the fire incident, resulted in its classification as a sick company by the Board of Industrial and Financial Reconstruction. The Tribunal's insistence on the liability deposit, disregarding the company's financial challenges, was deemed unreasonable. Citing a precedent where a sick company was granted exemption from depositing the precondition amount, the High Court allowed the appeals in part, setting aside the impugned orders subject to the condition that the appellant deposits Rs. 4 crores within six weeks for the appeal to be heard on merit.