TRIBUNAL IS TO IMPOSE NECESSARY CONDITIONS TO SAFEGUARD THE INTEREST OF REVENUE WHILE GRANTING STAY

[Mr. M. GOVINDARAJAN]

The Finance Act, 1994 confers powers on the Commissioner to issue notice on the person chargeable with tax which has not been paid, requiring him to show cause why he should not pay the amounts specified in the notice. Sec. 73(1) of the Finance Act, 1994 imposes a condition that the show cause notice should be issued within one year.  The said limitation is relaxed to five years if the non levy or non payment of tax is by reason of fraud, collusion, willful mis-statement, suppression of facts or contravention of the provisions of the Finance Act.   After issuing the show cause notice, the Commissioner may conduct such enquiry and pass an order which is appealable under Sec. 86 before the CESTAT.  Section 86(7) mutatis mutandis applies the same procedure and powers exercised by the CESTAT in hearing the appeals under Chapter VI A of the Central Excise Act, 1944.

Sec. 35F of the Central excise act deals with the deposit of duty demanded or penalty levied, pending appeal. It provides where in any appeal the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of central excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied. Where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person may dispense with  such deposit subject to such conditions  as he or it may deem fit to impose so as to safeguard the interests of revenue.  

In ‘Bhavya Apparels (P) Limited V. Union of India’ – [2007 -TMI - 48050 - SUPREME COURT OF INDIA], the Supreme Court interpreted Section 129E of the Customs Act, 1962, which is in pari material with Section 35F of the Central Excise Act, as requiring the Tribunal to consider the question whether or not a direction to deposit the amount would cause undue hardship and held that, without considering the said question, it cannot go into the merits of the appeal itself.  In ‘Indu Nissan Oxo Chemicals Industries Limited V. Union of India’ – [2007 -TMI - 2357 - Supreme Court of India], the Supreme Court reiterated that petitions for stay should not be disposed of in a routine manner unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand.  In ‘Union of India V. Adani Exports Limited’ – 2007 -TMI - 2539 – [SUPREME COURT OF INDIA], the Supreme Court laid down that, besides focusing on prima facie case, balance of convenience and irreparable loss, the Tribunal must necessarily impose conditions as may be necessary to safeguard the interests of revenue, while granting an order to dispense with pre-deposit for filing an appeal.

In ‘Assistant Collector, Central Excise V. Dunlop India’ – AIR 1985 SC 330 the Government of India issued a notification under Rule 8(1) of the Central Excise Rules, 1944 exempting tyres, falling under item 10 of the First schedule to the Central Excise Act, from certain percentage of excise duty to the extent that the manufacturers had not availed such exemption under the earlier notifications. The department, however, denied exemption to Dunlop who approached the Calcutta High Court. The High Court passed an interim order allowing the benefit of exemption to the tune of about Rs.3 crores on condition of assessee furnishing a bank guarantee.  The Assistant Collector filed Letters Patent Appeal in which the order was modified enabling the revenue to encash 30% of the bank guarantee.   In the revenue’s appeal before the Supreme Court the Supreme Court held that Governments are not run on mere bank guarantees. The Court notified that very often some courts acts as if furnishing a bank guarantee would meet the ends of justice. No governmental business or for that matter no business of any kind can be run on mere bank guarantee. Liquid cash is necessary for the running of a Government as indeed any other enterprise. The Supreme Court considered that where matters of public revenue are concerned, it is of utmost important to realize that interim orders ought not to be granted merely because a prima facie case has been shown.   More is required. The balance of convenience must be clearly in favor of the making of an interim order and there should not be the slightest indication of a likelihood of prejudice to the public interest. 

In  ‘Benara Valves Limited V. Commissioner of Central Excise’ – [2006 (11) TMI 6 - SUPREME COURT OF INDIA the Supreme court considered the two significant expressed used in Sec. 35F of the Central Excise act which are ‘undue hardship to such person’ and ‘to safeguard the interests of the Revenue’.   These two aspects have to be kept in view.  One is undue hardship.   This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient.  The other aspect relates to imposition of condition to safeguard the interests of the Revenue.  This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interests of the Revenue. Therefore, the Tribunal, while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the interests of the revenue.

In ‘Commissioner of Central Excise, Guntur V. Sri Chaitanya Educational Committee’ – 2011 (22) STR 135 (AP) the High Court reiterated the Tribunals to consider the aspect to stipulate conditions to safeguard the interests of revenue.   In this case the respondent runs various coaching centres in Andhra Pradesh and other States in India imparting course to intermediate, engineering and medical courses entrance test and other admission tests.  For the four years from 2003 – 04 to 2006 – 07 the respondent allegedly charged monetary consideration from students to the tune of Rs.832,20,45,019/-  The respondent’s activity of commercial training or coaching service attracts levy of service tax under Sections 65(26) and (27) read with 65(105)(zzc) of the Finance Act, 1994. After coming into force the respondent did not obtain registration.  The corporate office of the respondent was inspected and the records were seized.  Later the respondent got registration and paid Rs.9,98,921/- towards service tax liability for the period from April 2006 to June 2006 by submitting the half yearly ST-3 returns.  They did not however pay the tax for the period from July 2003 to March 2007 nor did not furnish half yearly returns.  The Adjudicating authority issued show cause notice and confirmed the demand of duty service tax and penalty on the respondent.

The respondent filed an appeal before CESTAT and also filed stay application with the prayer to waive pre deposit of service tax of Rs.87,38,34,876/-, the interest amount under Sec. 75 and the penalties under Sec. 76,77 and 78 of the Finance Act.  The Tribunal granted stay order against the order of adjudicating authority.   The Revenue filed appeal against the stay order before the High Court. The Revenue contended the following:

• The CESTAT was error in passing the impugned order in a routine manner ignoring Section 35F of the Central Excise Act;
• In the other appeal filed by the respondent against levy of service tax, the CESTAT has directed to deposit 100% of the tax demanded;
• In the present case waiver of pre deposit and stay of recovery was granted without application of mind;
• The Tribunal did not consider the circular dated 28.1.2009 issued by the Central Board of Excise & Customs with regard to retrospectivity.

The respondent submitted the following:

• The matter is pending before the CESTAT the appeal is not maintainable;
• The respondent is a non profit coaching centres, using its surplus only for educational activities, it is not liable to pay service tax;
• The respondent is registered under Section 12A of the Income Tax Act, 1961 as a charitable trust, it cannot be treated as a commercial training or coaching centre;
• The levy of service tax was beyond the period of one year, it is barred by Section 73 of the Finance Act.

The Court held that main section of 35F makes pre deposit mandatory in order to avail the remedy of appeal before the CESTAT. The first proviso is an exception to the general rule.   It confers power on the Commissioner (Appeals) or the CESTAT to dispense with such deposit subject to such conditions as may be imposed so as to safeguard the interests of revenue if the demand would cause undue hardship.   The question of dispensing with pre deposit would arise only when the duty demanded, or the penalty levied would cause undue hardship to the assessee and not otherwise.  Any order to dispense with pre deposit has necessarily subject to certain conditions which are to be imposed to safeguard the interests of revenue. 

The High Court analyzed various decisions of Supreme Court and from the same the Court held that the following principles would emerge which have to be kept in mind while considering the appeal for stay or for dispensing with the requirement of pre deposit under Sec. 35F of the Central Excise Act or under Sec. 129E of the Customs Act, or other similar provisions:

• The applications for stay should not be disposed of a in a routine manner unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand;
• Three aspects to be focused while dealing with the applications for dispensing of pre-deposits are – prima facie case, balance of convenience and irreparable loss;
• Interim orders ought not to be granted merely because a prima facie case has been shown;
• The balance of convenience must be clearly in favour of making of an interim order and there should not be the slightest indication of a likelihood of prejudice to the interest of public revenue;
• While dealing with the applications twin requirements of consideration i.e., consideration of undue hardship and imposition of conditions to safeguard the interests of revenue have to be kept in view;
• When the Tribunal decides to grant full or partial stay, it has to impose such conditions as may be necessary to safeguard the interests of the revenue. This is an imperative requirement; and
• An Appellate Tribunal, being a creature of the statute, cannot ignore the statutory guidance while exercising general powers or expressly conferred incidental powers.

The High Court further held that the order of the CESTAT is not in accordance with law laid down by Supreme Court.   It failed to focus its consideration on prima facie case, balance of convenience and irreparable loss. It did not consider undue hardship which must exist for exercising power under Sec. 35F of the Central Excise Act.  Even assuming that there is hardship, the Tribunal ought not to have granted the order of stay or dispensation of pre deposit without imposing conditions.  The Court set aside the order and remitted the matter to enable to consider the matter afresh.