PRINCIPLES TO BE FOLLOWED WHILE CONSIDERING THE APPLICATION FOR STAY OR FOR DISPENSING WITH THE REQUIREMENT OF PRE DEPOSIT.

[Mr. M. GOVINDARAJAN]

                        Any person aggrieved against the order of Adjudicating authority in service tax matter or excise duty may file an appeal before the Commissioner of Central Excise (Appeals) and against the order of Commissioner (Appeals) before CESTAT.  Sec. 35F of the Central Excise Act requires the person desirous of appealing against a decision or order to deposit with the adjudicating authority the duty demanded or the penalty levied.   The condition of pre-deposit may be dispensed with by CESTAT.   This power is not an absolute power.   It is to be exercised in such a manner as to safeguard the interest of revenue.

                        The first proviso to Section 35F confers power on the Commissioner (Appeals) or the CESTAT to dispense with the pre deposit ‘subject to such conditions as may be imposed to safeguard the interests of revenue’ if the demand ‘would cause undue hardship’.

                        In ‘Asst. Collector, Central Excise V. Dunlop India Limited’ – 1984 -TMI - 40039 – (SUPREME Court) the High Court passed an interim order allowing the benefit of the exemption to the tune of Rs. 3 crores on condition of assessee furnishing a bank guarantee.   For this order the Supreme Court held that Governments are not run on mere bank guarantee.   The bank guarantee would not meet the end of justice.  No governmental business or for that matter no business of any kind can be run on mere bank guarantees.  Liquid cash is necessary for running of a Government.  The Supreme Court held that where matters of public revenue are concerned, it is of utmost importance 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 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 held that two significant expressions used in the provisions of ‘undue hardship to such person’ and ‘safeguard the interests of the Revenue’.  While dealing with the application of twin requirements of consideration the interests of the Revenue have to be kept in view.  Undue hardship 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.

                        In ‘S. Vasudeva V. State of Karnataka’ (1993) 3 SCC 467 AIR 1994 SC 923, the Supreme Court explained the term ‘undue hardship’.  Under Indian conditions ‘undue hardship’ is normally related to economic hardship.  ‘Undue’ means something which is not merited by the conduct of the claimant, or is very much disproportionate to it.   Undue hardship is caused when the hardship is not warranted by the circumstances.  For a hardship to be ‘undue’ it must be shown that the particular burden to observe or perform the requirement is out of proportion to the nature of the requirement itself and the benefit which the applicant would derive from compliance with it.   The word ‘undue’ adds something more than just hardship.   It means an excessive hardship or a hardship greater than the circumstances warrant.  The other aspect relates to imposition of condition to safeguard the interests of the revenue.  It is for the tribunal to impose such conditions as are deemed proper to safeguard the interests of the revenue.   The Tribunal, therefore, while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate condition as required to safeguard the interests of the Revenue.

                        The Supreme Court in the above said further held that the petition 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.   There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved.   Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen’s faith in the impartiality of public administration, interim relief can be given.

                        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 interest of revenue, while granting an order to dispense with pre deposit for filing an appeal.

                        In ‘Commissioner of Central Excise, Guntur V. Sri Chaitanya Educational Committee’ – 2011 -TMI - 204357 – (HIGH COURT ANDHRA PRADESH) while disposing the appeal filed by the Department against the order of CESTAT granting waiver of pre deposit of service tax of over Rs.87 crores besides the other amounts set aside the High Court analyzed the various decisions of Supreme Court in dealing with the stay petition.

                        The High Court on analysis of the various decisions held that the following principles would emerge which are to be kept in mind while considering the application for stay or for dispensing with the requirement of pre deposit under Sec. 35F of the Central Excise Act or under Section 129E of the Customs Act or other similar provisions-

• The applications 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;
• Three aspects to be focused while dealing with the applications for dispensing of pre deposit 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 favor 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 particle stay, it has to impose such conditions as may be necessary to safeguard the interests of the revenue.   This is an impressive 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.

In this case the High Court held that the Tribunal failed to focus its consideration on prima facie case, balance of convenience and irreparable loss.   It did not consider the aspect of undue hardship which must exist for exercising power under Section 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 High Court held that they are not able to sustain the impugned order in spite of the offer of the assessee to deposit Rs.5 crores as a pre condition for continuing stay.    The High Court remitted the matter back to the Tribunal for fresh consideration.