2017 (6) TMI 964 - HC - Customs

Constitutional validity of Section 129E of the CA, 1962 - mandatory pre-deposit for filing an appeal - duty drawback - Held that - As seen from a plain reading of the provision, Section 129E provides for deposit of certain percentage of duty demanded or penalty imposed or both, as a condition precedent for the appellate authority to entertain an appeal. Subclause (i) and (ii) of Section 129E mandates deposit of 7.5% of the duty demanded or penalty imposed or both, in case of an appeal before the Commissioner (Appeals) (Section 128A) and before the Tribunal (Section 129A) respectively. Clause (iii) of Section 129E provides for deposit of 10% of the duty demanded or penalty imposed or both in pursuance of the order appealed against. The first proviso provides that the amount which is required to be deposited under this section shall not exceed ₹ 10 crores. The aim of the amended provision is also to curtail litigation which had assumed high proportions, leaving no time to the appellate authorities to devote the same to important issues. Considering these hard realties and to have a expeditious disposal of the statutory appeals which undoubtedly is a necessary requirement of effective trade, commerce and business, the Parliament in its wisdom amended the provisions of Section 129E of providing deposit of 7.5% and 10% respectively as subclauses (i), (ii) and (iii) respectively provide. If such is the aim and insight behind the provision, it certainly cannot be held to be unreasonable, onerous, unfair or discriminatory for two fold reasons. Firstly, the object of a public policy sought to be achieved by the amendment, namely speedy disposal of the appeals before the appellate authorities is a laudable object and cannot be overlooked, so as to label the provision as unreasonable and onerous and violative of Article 14 of the Constitution. Secondly that the amount which is required to be deposited is not unreasonable from what the earlier (pre amended) regime provided. The Court considering the provisions of law and considering the decision of the Madras High Court in M/s.Dream Castle Vs. Union of India & Ors. 2016 (5) TMI 672 - MADRAS HIGH COURT held that Section 35F of the Central Excise Act did not defeat or render the vested right of appeal illusory and that the condition of pre-deposit is a reasonable condition and such condition did not defeat the vested right of appeal. The Court accordingly confirmed the order of the Tribunal directing the appellants therein to deposit the sum mandated by Section 35F(1) of the Central Excise Act. Petition dismissed - decided against petitioner.

Issues Involved:
1. Constitutional validity of Section 129E of the Customs Act, 1962.
2. Legality of the Order-in-Original dated 22 January 2016.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 129E of the Customs Act, 1962:

The principal prayer in the petitions challenges the constitutional validity of Section 129E of the Customs Act, 1962, as amended by the Finance Act No.2 of 2014, which prescribes a mandatory pre-deposit for filing an appeal before the Tribunal or the Commissioner (Appeals). The petitioners argue that the provision is discriminatory and violative of Articles 14, 19, and 21 of the Constitution. They contend that the amended Section 129E mandates pre-deposit of a certain percentage of duty or penalty, creating a distinction between two identically placed classes, which is discriminatory.

The petitioners also argue that the amended section has taken away the powers of the appellate authority to waive the pre-deposit upon forming an opinion that it would cause undue hardship. They rely on the Supreme Court decision in "Mardia Chemicals Ltd. Vs. Union of India" where a similar provision mandating a 75% deposit was held to be constitutionally invalid.

The revenue contests the petitions, arguing that the challenge is no longer res integra in view of the Division Bench decision in "Nimbus Communications Ltd. Vs. Commissioner of S.T., Mumbai" and other similar cases. The revenue contends that the amended section facilitates trade, business, and industry by ensuring speedy resolution of disputes and reducing the time spent on adjudicating waiver applications.

The court notes that the amended Section 129E provides for a deposit of 7.5% or 10% of the duty demanded or penalty imposed as a condition precedent for the appellate authority to entertain an appeal. The intention behind the amendment is to expedite the disposal of appeals and reduce litigation. The court finds that the provision is not unreasonable, onerous, or discriminatory. The right to appeal is a statutory right and can be circumscribed by conditions in the grant, as held in "Vijay Prakash D.Mehta and Jawahar D.Mehta Vs. Collector of Customs (Preventive), Bombay" and "Nand Lal Vs. State of Haryana."

The court concludes that Section 129E of the Act cannot be held to be unconstitutional and dismisses the petitioners' reliance on the Supreme Court decision in "Mardia Chemicals Ltd. Vs. Union of India," noting that the required deposit under Section 129E is much lower (7.5% and 10%) compared to the 75% considered in the Mardia Chemicals case.

2. Legality of the Order-in-Original dated 22 January 2016:

The petitioners also challenge the Order-in-Original dated 22 January 2016, passed on the show cause notice dated 24 August 2015, on the grounds that it is illegal and was passed without considering their submissions. The order concluded that the value of the goods exported was intentionally misdeclared to avail ineligible duty drawback, violating Section 50(2) of the Customs Act. The adjudicating officer ordered the redetermination of the declared value, recovery of excess duty drawback, confiscation of goods, and imposed penalties on the firm and its partners under various sections of the Customs Act.

The court notes that an appeal against the Order-in-Original is maintainable under Section 128 of the Customs Act before the Commissioner of Customs (Appeal). The petitioners' counsel, appreciating the settled legal position that the court in exercise of writ jurisdiction under Article 226 of the Constitution would not wield the powers of an Appellate Authority, confined his arguments to the issue of the constitutional validity of Section 129E. The court keeps the challenge to the Order-in-Original open to be agitated by the petitioners before the appellate authority.

Conclusion:

The court concludes that the writ petitions lack merit and dismisses them, upholding the constitutional validity of Section 129E of the Customs Act, 1962. The legality of the Order-in-Original is left open for the petitioners to challenge before the appropriate appellate authority. No order as to costs.

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