CRITERION FOR PASSING STAY ORDER BY APPELLATE AUTHORITIES IN DIRECT TAX MATTERS

[Mr. M. GOVINDARAJAN]

Sec. 35 of the Central Excise Act, 1944 provides for appeal to Commissioner (Appeals) and Sec. 35B provides for appeals to Appellate Tribunal.

Likewise Sec. 128 of the Customs Act, 1962 provides for appeals to Commissioner (Appeals) and Sec. 129A provides for appeals to Appellate Tribunal.

                        The provisions of service tax also provide appeals.   Sec. 85 of the Finance Act, 1994 provides for appeals to the Commissioner of Central Excise (Appeals) and the Commissioner of the Central Excise (Appeals) shall  exercise the same powers and follow the same procedure as he exercises and follows in hearing the appeals and making orders under the Central Excise Act, 1944.  Sec. 86 of the Finance Act, 1994 provides for the appeal to the Appellate Tribunal and the Appellate Tribunal shall exercise the same powers and follow the same procedure as it exercises and follows in hearing the appeals and making orders under the Central Excise Act, 1944.

                        Sec. 35F of the Central Excise Act, 1944 and Sec. 129E of the Customs Act, 1962 provide for the deposit of duty/tax and interest demanded or penalty levied pending appeal.  These sections further provide that the Commissioner (Appeals) or the Appellate Tribunal, in any particular case, may dispense with such deposit subject to such conditions, by granting stay order.

                        In order to get stay order for the recovery of duty/tax and interest demanded or penalty levied the assessee shall file application along with the Memorandum of Appeal with the prayer to stay the order of the Authority against which the appeal is filed and to dispense with the deposit of duty/tax and interest or penalty.

                        The principles relating to grant of stay pending disposal of the matters before the concerned forums have been considered in several cases.   The various courts held that in grant of stay order, though discretion is available the same has to be exercised judicially.

                        In 'Silliguri Municipality and others V. Amalendu Das and others' - AIR 1984 SC 653 the applicability principles have been set out.  The Apex court held that on merely establishing a prima facie case, interim order of protection should not be passed.  But if on a cursory glance it appears that the demand raised has no leg to stand, it would be understandable to require the assessee to pay full or substantial part of the demand.   The Supreme Court is of the view that the protection for stay should not be disposed in a routine matter 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.   Merely because the court has indicated the principles that does not give a licence to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest.  When denial of interim relief may lead to public mischief, grave irreparable private injury or share a citizens' faith in the impartiality of public administration, interim relief can be given.

                        In 'Benara Valves Ltd., V. Commissioner of Central Excise' - 2007 -TMI - 866 - SUPREME COURT OF INDIA the Supreme Court expressed its feeling by observing that it has become unfortunate  trend to casually dispose of stay applications to decisions in 'Silliguri Municipality and others V. Amalendu Das and others' (supra) without analyzing the factual scenario involved in a particular case.

                        The Supreme Court analyzed Sec. 35F of the Central Excise Act, 1944.  It provides that-

·  Where in any appeal the decision of order appealed against relates to any duty demanded in respect of goods which are not under the control of Central Excise Authority 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, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interest of revenue;

·  Where an application is filed before the Commissioner (Appeals) for dispensing with the deposit of duty demanded or penalty levied, the Commissioner (Appeal) shall, where it is possible to do so, decide such application within thirty days from the date of its filing.

In Sec. 35F two significant expressions are used which are-

Ø  Undue hardship to any person; and

Ø  Safeguard the interest of revenue.

Therefore while dealing with the application the above requirements have to be kept in view.

                        Among the two above said expressions, one is 'undue hardship'.   This is a matter with the special knowledge of the applicant for waiver and has to be established by him.   The Supreme Court held that a mere assertion about hardship would not be sufficient.  Supreme Court in 'S. Vasudeva V. State of Karnataka and others' - AIR 1994 SC 923 noted that under the expression 'undue hardship' under Indian conditions 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 have to observe or perform the requirement is out of proportion to be 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 is an excessive hardship or a hardship greater than the circumstances warrant.

                        The other aspect relates to imposition of condition to safeguard the interest of revenue.   The Supreme Court held that this is an aspect which the tribunal has to be bring into focus.

                        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 condition as required to safeguard the interest of revenue.