TRIBUNAL IS TO ISSUE A SHOW CAUSE BEFORE TAKING UP THE APPEAL FOR DISMISSAL ON ACCOUNT OF FAILURE OF PRE DEPOSIT

[Mr. M. GOVINDARAJAN]

Under Sec. 35F of the Central Excise Act, 1944 (‘Act’ for short) the appellant during the pendency of the appeal is required to pre deposit the duty demanded, which includes the amount under Sec. 11D or under Rule 6 of CENVAT Credit Rules, 2004 and interest and penalty imposed but the Commissioner (Appeals) and Tribunal have the power to dispense with pre-deposit, fully or partially in cases of undue hardship.

Sec. 35C (2A) provides that the Appellate Tribunal shall, where it is possible to do so hear and decide every appeal within a period of three years from the date on which such appeal is filed.   Further where an order of stay is made in any proceeding relating to an appeal filed under Sec. 35B (1), the Appellate Tribunal shall dispose of appeal within a period of 180 days from the date of such order.   If such appeal is not disposed of within the period, the stay order shall, on the expiry of the period stands vacated.

If after passing of the stay order the financial condition of the assessee has further worsened, the assessee can seek modification of the earlier order.   But if the assessee cannot make out a case for modification and does not comply with the terms of stay order within the time or extended time limit granted, his appeal is liable to be dismissed for the said non compliance.   However before ordering such dismissal, the appellate authority, as held by the Tribunal in ‘Master Recording Company V.Commissioner’ (2000 -TMI - 50010 - CEGAT) is required to give a final notice to the assessee.  An appeal dismissed for such non compliance can be restored by the Tribunal if the pre deposit is made even after a gap of the stipulated period.

 In ‘Commissioner of Central Excise, Kolkatta – II V. Shree Gobinddeo Glass Works Limited’ – (2010 (10) TMI 750 - CALCUTTA HIGH COURT ) the core issue involved is whether the Tribunal is justified in dismissing the appeal preferred before it for non compliance of orders passed by it, directing pre deposit under Sec. 35F of the Central Excise Act and under Sec. 129E of the Customs Act, 1962.  The Court disposed of a number of writ petitions along with this appeal as the core issue involved in all these writ petitions are identical and common, however the problem are different.  The writ petitions were filed to challenge the orders passed in appeals by the Appellate Tribunal directing pre deposit under Section 35 of the Central Excise Act, 1944 or under Section 129 (3) of the Customs Act, 1962.  All the said writ petitions were kept pending for hearing and during the pendency of these entire writ petitions, appeals were dismissed by the Appellate Tribunal for non compliance of the orders directing pre-deposit.

The Trial Judge came to the conclusion that on account of failure of pre deposit the Tribunal could not dismiss the appeal.  It was not proper for the Tribunal to dismiss appeal when the writ petition was pending for adjudication. 

The Department submitted the following:

-Orders of dismissal on account of failure to comply with the order of pre-deposit passed by the Tribunal are absolutely justified and ought not to have interfered with the same;

-Relying on the decisions of Supreme Court in ‘Navin Chandra Chhotelal V. Central Board of Excise and Customs and Others’ – [1971 -TMI - 40969 - SUPREME COURT OF INDIA]. and ‘Vijay Prakas D. Mehta V. Collector of Customs’ – [1988 -TMI - 42376 - SUPREME COURT OF INDIA]. the Department submitted that Section 35 of the Central Excise Act, 1944 which is equivalent to Section 129/129E of 1962.   The right of appeal is not an absolute, rather than conditional.   If the condition is not satisfied the appeal shall be dismissed;

-The right of statutory appeal is subject to condition which Parliament can impose and unless this condition is fulfilled the appeal cannot be maintained.

The respondent submitted the following:

• The Tribunal has no jurisdiction to dismiss the appeal on the ground of failure to deposit or non deposit as required under Section 35B of the Central Excise Act pending hearing of the appeal;
• In view of the insertion of Sub-section (2A) to Section 35C the time limit provided is mandatory and the Tribunal has no option but to hear and decide the appeal within the time mentioned irrespective of deposit and this would be clear further from proviso of Sec. 35C (2A) if any appeal is admitted with interim order and it is not disposed of within the period of 180 days from the date of such order then interim order will stand vacated;
• On conjoint reading of the amended provisions it is clear that the ratio decided in the Supreme Court decisions relied on by the Department is diluted and there cannot be any other interpretation except that appeal has to be heard ultimately without any interim order or for that matter without any deposit being made;
• Wherever two interpretation are possible one which prevail before insertion of Sec. 35C(2A) and another after 11.05.2002 the principle of strict interpretation should be applied though, yet the court could not interpret the same in such a manner which could create additional and fiscal burden on a person;
• If appeals are dismissed as a result of non compliance of orders which are outcome of not exercising discretion on relevant materials honestly bona fide and objectivity such appeal must be restored;
• Sec.189 (6) of the Calcutta Municipal Corporation Act, 1980 provides no provision for abatement of appeal on failure to pay the tax in Sec.35F.  The Act itself provides no power to dismiss the appeal for non compliance of order of deposit made by the Tribunal.

The Department contended further as follows:

• The decisions of Supreme Court relied on by the Department still holds the field on the subject as the same is binding and incorporation of Sec. 35C (2A) no way affects the binding nature of the aforesaid two judgments;
• This new sub section merely provides for a time frame for disposal of appeal preferred under Sec. 35C and it makes it clear if the appeal is not disposed of within six months order of stay if passed would stand vacated.   Thus it is clear the said provision of sub section (2A) of Sec. 35C cannot be said to have diluted the law laid down by the Supreme Court in the said decisions;
• It is the duty of the Court to adhere to precedent and not to unsettle things which are settled by theApex Courtand to apply all future cases wherein the facts are substantially same;
• In ‘IPCL V. Commissioner of Central Excise’ – [2004 -TMI - 48991 - CESTAT, NORTHERN BENCH, NEW DELHI]. the Larger Bench held that the Tribunal has power to extend the time of the stay if the appeal could not be disposed of within 6 months.   This judgment has been upheld by the Supreme Court in ‘Commissioner of Customs and Central Excise, Ahamedabad V. Kumar Cotton Mills Private Limited’ – [2005 -TMI - 47203 - SUPREME COURT OF INDIA]. Hence the said judgment and order of the Trial Judge should be set aside.

On considering the submissions of both sides, the Court held as follows:

• The reasons for conclusion of the learned Trial Judge appears to be that the language mentioned in Section 35C (2A) fixing time limit for disposal of the appeal and having regard to various provisions of the Rules framed under the said Act now the Tribunal has no option but to tke up the matter of appeal for hearing on merit;
• The provisions of Sec. 35C (2A) is nothing to do with the provision of pre deposit pending hearing of the appeal.  We are of the view that the provision for pre deposit is an independent provision and it is required in selective cases and situations and not in all appeals which required to be filed under the provision of Sec. 35B of the said Act  and this will be clear from the provision of Sec. 35F of the said Act;
• Section 35F is an independent one and language of the provision appears to be mandatory and in all cases as mentioned therein and the power of dispensation of pre deposit is also provided in fit cases.   The rules framed under the Act cannot provide for any additional right or provision which are inconsistent with the provision of the Act itself.  The Trial Judge has taken the help of few provisions of the rule as well as some notifications.   We think those are of no help to dilute the provision of pre deposit or the ratio of the Supreme Court decisions;
• We agree with the observation of the Trial Judge the application for dispensation of pre deposit has to be considered and disposed of with an objective manner bona fide and honestly;
• The Tribunal cannot dismiss the appeal on account of failure of pre deposit as a matter of course.   Before any order of dismissal is passed reasonable and meaningful opportunities ought to be given, without the same being afforded if the appeal is dismissed it would amount to injustice for an assessee should be given a change as to make pre deposit or to take decision with regard to proceeding of the appeal;
• The conclusion of the Trial Judge that during the pendency of the writ petition the Tribunal ought not to have dismissed the appeal when the issue is pending beforeWrit Court.  There is no provision if the matter is taken up to the higher forum the Appellate Tribunal will automatically stay their hands;
• It is settled position of law pendency of any appeal or for that matter any proceedings which is akin to appeal do not operate as a stay, the stay has to be obtained specifically from the higher forum;
• The proper course and procedure of the Tribunal would be wherever pre-deposit is required either the same should be dispensed with fully or partially on application being made.   If such dispensation is not allowed then the Tribunal would issue a show cause before taking up the appeal for dismissal on account of failure of pre-deposit.  On the date fixed, if cause is shown the Tribunal will consider the same and if sufficient cause is to be found then Tribunal can exercise all discretion and may extend the period or may re-consider the question of dispensation of pre-deposit on subsequent event or fresh materials having been placed after earlier order having been passed;

The Court upheld the order of the Trial Judge and direct the Tribunal to decide all these matters in accordance with the law.