2016 (4) TMI 12 - HC - Customs

Waiver of pre-deposit of entire amount of differential duty, not covered by the bank guarantees, interest and penalty - Import of dense wavelength division multiplex equipment (DWDM), and certain imported CDs allegedly used for its functioning - Scope of Section 129-E of the Customs Act and its proviso - Appellant s claimed of financial hardship - Held that - for balance of convenience and irreparable loss, the Tribunal should consider the necessity to safeguard the interests of revenue, and should impose such conditions as may be required in this regard, while passing an order on the application to waive the pre-deposit for preferring an appeal. Two significant expressions, used both in Section 35-F of the Central Excise Act and Section 129-E of the Customs Act, are undue hardship to such person and safeguard the interests of the Revenue. While considering the application, seeking waiver of pre-deposit, these twin requirements should be kept in view. Undue hardship is a matter within the special knowledge of the applicant, and must be established by him. A mere assertion of undue hardship would not suffice. The expression undue hardship is, ordinarily, related to economic hardship. The Tribunal is required to consider the question whether or not a direction to deposit the amount would cause undue hardship. Without considering the said question, it cannot go into the merits of the appeal itself. The other aspect, which relates to safeguarding the interests of Revenue, is a matter which the Tribunal should focus upon, while considering whether pre-deposit should be waived either wholly or partially. It is for the Tribunal to impose such conditions as it deems proper to safeguard the interests of Revenue. While dealing with the application, the Tribunal should consider the material placed by the appellant in support of the plea of undue hardship, and also stipulate such conditions as are required to safeguard the interests of the Revenue. Some principles should be borne in mind while considering applications for stay, or for dispensing with the requirement of pre-deposit, under Section 35F of the Central Excise Act or under Section 129E of the Customs Act, or other similar provisions. As the prima facie findings recorded by the CESTAT, in the order under appeal, disclose a systematic fraud having been committed by several companies and individuals, both within the country and abroad, to evade customs duty; the elaborate steps taken to disguise the software embedded in the imported equipment as customised software; and the conscious and deliberate efforts at misrepresentation only to deprive the Government of its legitimate revenues in the form of customs duty, can it be said that the order of CESTAT suffers from such an illegality as to necessitate interference in appeal by this Court? Whether interference by the High Court is permissible, in the exercise of its appellate jurisdiction under Section 129-B of the Customs Act when the order of the CESTAT give rise to a substantial question of law - Held that - the discretion exercised by CESTAT, to restrict waiver only to the penalty imposed, that too partially, is on a detailed analysis of the evidence on record, and for just and valid reasons. Whether the Tribunal should have exercised its jurisdiction differently is not a substantial question of law justifying interference. While no substantial question of law would arise even if one of the two possible views appeal to the High Court, we are satisfied that, in the facts and circumstances of the present case, no view, other than that formed by the CESTAT, is possible. As the CESTAT has only directed that the customs duty, payment of which was evaded to be paid earlier, be paid along with interest, and has waived a substantial part of the penalty for some of the appellants, and in its entirety for a few others, the orders under appeal cannot be said to suffer from a patent illegality giving rise to a substantial question of law necessitating interference in an appeal under Section 130 of the Customs Act. Whether failure by the appellant to comply with the order passed under the proviso to Section 129-E of the Customs Act, would result in dismissal of the appeal filed before the CESTAT - Held that - it is necessary, in the first instance, to note the legal regime prevalent before sub-section 2-A was inserted to Section 129-B of the Customs Act and Section 35-C of the Central Excise Act. Section 129-E did not expressly provide for rejection of the appeal for non-compliance with the requirement regarding the deposit of penalty or duty but, when Section 129-E made it obligatory on an appellant to deposit the duty or penalty pending the appeal, and if a party did not comply either with the main sub-section or with any order passed under the proviso, the appellate authority was fully competent to reject the appeal for non-compliance with the provisions of Section 129-E of the Customs Act, 1952. Accepting the contention, that Section 129-E of the Customs Act did not give any power to the CESTAT to dismiss the appeal for non-compliance with the requirements regarding deposit of duty, interest or penalty, would have meant that the appeal would have to be kept on file for ever, even when the requirements of Section 129-E was not complied with. Retention of such an appeal on the file would have served no purpose for, unless Section 129-E was complied with, the CESTAT could not have proceeded to hear an appeal on merits. The logical consequence of failure to comply with Section 129-E was rejection of the appeal on that ground. Section 129(1) of the Customs Act, 1952 prior to, and Section 129-E of the Customs Act after, the substitution of Chapter XV by the Finance Act, 1980, (and Section 35-F of the Central Excise Act) provided a conditional right of appeal against the duty demanded or penalty levied. Although these Sections did not expressly provide for rejection of the appeal for non-deposit of duty or penalty, yet it made it obligatory on the appellant to deposit the duty or penalty, pending the appeal, failing which the Appellate Tribunal was fully competent to reject the appeal. So, it is clear that the provisions of Section 129(1)ibid, Section 129-E ibid and its provisos were inserted thereto, as a result, failure to deposit the whole of the duty, interest and penalty, or such part thereof, within the time stipulated by CESTAT would result in dismissal of the appeal, and the appellate proceedings before the CESTAT coming to an end. Therefore, viewed from any angle the orders under appeal, passed by the CESTAT, do not necessitate interference in proceedings under Section 130 of the Customs Act, 1952. - Decided against the appellant

Summary

Issues Involved:
1. Validity of adjudication orders levying customs duty, interest, and penalty on the import of DWDM equipment and related CDs.
2. Examination of whether PISL and VMCL deliberately misrepresented embedded software to evade customs duty.
3. Consideration of financial hardship claimed by appellants for waiver of pre-deposit.
4. Scope of Section 129-E of the Customs Act regarding pre-deposit requirements.
5. Whether the High Court can interfere with the CESTAT's order under Section 130 of the Customs Act.
6. Impact of non-compliance with CESTAT's order on the appeal's status.

Detailed Analysis:

1. Validity of Adjudication Orders:
The appeals were filed against CESTAT's orders concerning the customs duty, interest, and penalties on DWDM equipment and CDs. The adjudicating authorities demanded differential duty and penalties on the grounds that the software was embedded in the equipment but misrepresented as separately imported customized software to evade customs duty.

2. Deliberate Misrepresentation to Evade Customs Duty:
CESTAT was tasked with examining if PISL and VMCL misrepresented embedded software as separately imported to evade customs duty. Various admissions from company officials and employees indicated that the software was indeed embedded in the equipment. The appellants imported blank CDs labeled as customized software to reduce customs duty liability. CESTAT found substantial evidence of a deliberate attempt to evade customs duty, including manipulated invoices and misleading labels on CDs.

3. Financial Hardship for Waiver of Pre-Deposit:
The appellants claimed financial hardship due to unpaid dues from BSNL. However, CESTAT noted that BSNL was also penalized, indicating a prima facie case against them. The appellants' financial difficulties were attributed to their own actions in evading customs duty. CESTAT directed the appellants to deposit the differential duty and a portion of the penalties, considering the need to safeguard revenue.

4. Scope of Section 129-E of the Customs Act:
Section 129-E mandates pre-deposit of duty and penalties for an appeal to be entertained. The proviso allows for waiver in cases of undue hardship, subject to conditions safeguarding revenue. The Tribunal must consider prima facie case, balance of convenience, and irreparable loss while deciding on waiver applications. The appellants' plea for waiver was scrutinized, and CESTAT found no undue hardship warranting full waiver.

5. High Court's Interference Under Section 130 of the Customs Act:
The High Court can interfere with CESTAT's order only if a substantial question of law arises. A substantial question of law involves debatable legal issues, not settled by binding precedents, and materially affects the case's outcome. In this case, the High Court found no substantial question of law as the CESTAT's findings were based on substantial evidence and proper legal principles. The appellants' financial hardship claim was considered and rejected by CESTAT, and the High Court upheld this decision.

6. Impact of Non-Compliance with CESTAT's Order:
Failure to comply with the pre-deposit order results in the dismissal of the appeal. The insertion of sub-section (2-A) to Section 129-B of the Customs Act did not alter this legal position. The High Court referred to previous judgments, confirming that non-compliance with pre-deposit requirements leads to the appeal's dismissal, and the appellate proceedings before CESTAT come to an end.

Conclusion:
The High Court dismissed the appeals, finding no substantial question of law warranting interference with CESTAT's orders. The appellants' plea for waiver of pre-deposit was rejected, and the requirement to safeguard revenue was emphasized. The appeals and miscellaneous petitions were dismissed with no costs.