2014 (6) TMI 817 - HC - Customs

Adjustment of penalty amount with the refund payable to the assessee - tribunal has granted stay with regard to penalty - Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in holding that order of adjustment made by the revenue under section 142 of the Customs Act, 1962 stands nullified by interlocutory order of stay passed by the Tribunal in collateral proceedings and the revenue was obliged to suo motu suggestion and prayed refund claim of the respondent without any delay - Held that - When the penalty of ₹ 25 lakh imposed by the orderinoriginal was unconditionally stayed, it was no longer an amount payable by the respondent to the Department. In that view of the matter, in our opinion, the Tribunal committed no error. Allowing Department to adjust the refund against the said liability would virtually nullify the effect of the stay - Decided against Revenue.

Summary

Issues:
Challenge to the judgment of the Customs, Excise and Service Tax Appellate Tribunal by the Department regarding the refund of interest and penalty imposition.

Analysis:
1. The Department challenged the CESTAT judgment, raising multiple questions for consideration. These questions revolved around whether the Tribunal erred in allowing the respondent's appeal without addressing the main controversy, deciding based on an interlocutory order, considering an order that had been vacated, and nullifying the revenue's adjustment order due to a stay order in collateral proceedings.

2. The brief facts presented the scenario where the respondent was owed a refund of interest amounting to Rs.11.02 lakh against a penalty of Rs.25 lakh imposed by the Adjudicating Authority. The authority adjusted the interest refund against the penalty. The Tribunal noted that the penalty had been unconditionally stayed, leading to the justification of the adjustment. The Tribunal directed the Revenue to refund the interest amount promptly.

3. The counsel for the Revenue argued that as per section 142 of the Customs Act, 1962, the authority could adjust the interest against the assessee's duty liabilities, emphasizing that the penalty stay was interim, awaiting a final decision.

4. Section 142 of the Act allows the deduction of payable sums from amounts under the control of customs officers. The Tribunal's decision was based on the penalty being stayed, making it no longer payable by the respondent. Allowing the adjustment would negate the stay's effect.

5. Consequently, the High Court dismissed the Tax Appeal, stating that the adjustment of the refund against the penalty was not permissible due to the unconditional stay. The connected Civil Application was also disposed of accordingly.