RECOVERY OF CONFIRMED DEMANDS

[Dr. Sanjiv Agarwal]

Recently Central Board of Excise & Customs (CBEC) has issued a Circular directing the Department (Central Excise/Service Tax/Customs) to fast track the recovery proceedings in all cases where demand of tax or duty has been confirmed but not stayed, whether or not the assessee has gone into appeal, which is a legal right provided to the assessee.

Such a pro-revenue and coercive step seems to emanate from the fact that economy is in slow down mode and tax revenues are not on expected lines vis-a-vis budget targets. But the moot question that remains unanswered is that why did the Department wake up after almost two decades of apex court verdict which they are relying on now and that would it not amount to interfering with right of assessee to appeal and stay or waiver of pre- deposit of tax and penalties or even putting indirect pressure on the judicial machinery to hear the appeals and stay applications failing which assessees would be put to undue hardship, harassment and injustice when recovery is enforced. This appears to be true if one looks at the success rate of assessee's appeals at higher appellate forums.

CBEC Circular

CBEC Circular No. 967/01/2013-CX dated 01.01.2013 has come as a new year bomb on the indirect tax assessees for recovery of  confirmed demand of duty or tax, as the case may be, even during the pendency of appeal or stay application. Accordingly,

a) In case an appeal has been filed without stay application against a confirmatory order, then recovery shall be initiated after such an appeal has been filed, without waiting for the statutory 60 days period to be exhausted.

b) Where an appeal has been filed with a stay application against an order, then recovery shall be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any specified, whichever is earlier.

c) Where stay has been granted, then recovery is stayed as per conditions of stay.

Thus, the assessee has to pay the demand within a period of 30 days of filling the stay application, even if same is pending with any appellate authority.

The basis of such a harsh action is a two decade old judicial pronouncement of Supreme Court i.e., Collector of Customs, Bombay v. Krishna Sales Pvt. Ltd. (1993) 9 TMI 124 (SC) wherein it was observed that 'mere filing of an appeal does not operate as a stay or suspension of demand order appealed against.'

Suggestions to Reduce Demand Disputes

The four way remedy to the problem of mounting disputed demands of indirect tax in India requires the following to be observed by all the stakeholders -

a) proactive approach and positive attitude of assessees to comply with the law in letter and spirit and pay taxes or duties, more so when in doubt.

b) diligent, intelligent and practical approach of the officers adjudicating the cases to avoid frivolous demands and demands without logic which have no legal legs to stand on.

c) expeditious disposal of appeals and stay application by appellate authorities such as Commissioner (Appeals), appellate tribunals and court. This even calls for having more benches, courts and judges besides enhancing the number of sittings and disposal rate.

d) proactive and balanced approach in recovery proceedings with the objective of protecting revenue's interest and hardship to assessee.

To reduce the number of disputes, it is also desirable to have simple, unambiguous and clear law and rules leaving almost no room for more than one interpretation, clarity of law at both ends (assessee and the adjudicating authority), quick or timely issuance of clarificatory circulars as and when required, acting on assessee's doubts in a timely manner and strict measures against both – the habitual and willful offenders as well as revenue officers who wrongly adjudicate the demands (as proved by orders getting set aside in appeals).

The Apex Court in Dabur India Ltd. 1990 (7) TMI 109 - SUPREME COURT OF INDIA, where recovery was being coerced, observed and rightly so, that "this is unfortunate. We would not like to hear from a litigant in this country that the Government is coercing citizens of this country to make payment which the litigant is contending not to be leviable. Government, of course, is entitled to enforce payment and for that purpose to take all legal steps but the Government, Central or State, cannot be permitted to play dirty games with the citizens of this country to coerce them in making payments which the citizens were not legally obliged to make".

All said and done, the judgment in Dabur India case (Supra) and West Coast Paper Mills Ltd. Case (2004) 164 ELT 375 (SC) are also relevant. In The West Coast judgment which came offer 10 years of Krishna Sales judgment, it was observed that once an appeal is filed before this court and is entertained, the judgment of high court or Tribunal is in jeopardy and subject matter of the lis unless determined by the last court, can not be said to have attained finality.

Interim Stay

Andhra Pradesh High Court has in WP No. 730 of 2013 filed by Ultratech Cement Ltd. on 9.1.2013 granted interim stay on the operation CBEC of Circular No. 967/01/2013-CX dated 1.1.2013 holding that "there shall be interim stay of recovery of the amount involved, till the appellate authority disposes of the application for stay. It is made clear that the petitioner shall be under obligation to abide by the order that may be passed by the appellate authority and the pendency of this writ petition shall not be treated as a factor to avoid the liability". Thus, there is some relief in the interim.

In conclusion

It would be fair and reasonable that no coercive steps are taken during the pendency of stay applications. While courts and tribunals are expected to take reasonable time to hear and decide upon the stay applications, still, it may take 'some' time. While that may happen, there has to be clarity over the mindset of the department to effect recovery of demands which may be stayed in due course, so as to provide a reasonable remedy to the appellant assessee. As an alternative, where the demands involved are huge, the department as well as assessee, both may in their own interest request the appellate forum to hear the case expeditiously.

It is also surprising that what provoked the CBEC to wake up after a twenty year long sleep that this direction was issued. Is the Government worried at low tax collection or suddenly some demands have become so lucrative that their astonishing figures have provided a suo moto incentive to present day team CBEC to issue this circular or does it speak of the anarchy and 'who bothers' attitude of officers responsible for recovery in all these 20 years or this case law is the discovery of tax research unit which will get due credit. 

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