RECOVERY CIRCULAR THRASHED BY JUDICIAL FORUMS

[Dr. Sanjiv Agarwal]

Recovery of Tax Demands

Central Board of Excise & Customs (CBEC) has issued a Circular No. 967 dated 1.1.2013 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.

CBEC Circular No. 967/01/2013-CX dated 01.01.2013 has come as a blow 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.’

The Apex Court in DABUR INDIA LTD. Versus STATE OF UTTAR PRADESH 1990 (7) TMI 109 - SUPREME COURT OF INDIA = (1990) 49 ELT 3 (SC), 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 (2) TMI 344 - SUPREME COURT OF INDIA =  (2004) 164 ELT 375 (SC) are also relevant. In The West Coast judgment which came after 10 years of Krishna Sales judgment, it was observed that once an appeal is filed before apex 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, cannot be said to have attained finality.

Reference to the following pronouncements is also relevant –

• B.G. Chitale 1992 (3) TMI 317 - CESTAT NEW DELHI = (1992) 42 ECR 279 (Cestat) – Recovery cannot be pursued during pendency of appeal
• Manu Udyog Pvt. Ltd. 1992 (1) TMI 314 - ALLAHABAD HIGH COURT  = (1992) 43 ECR 689 and Indodan Industries 1992 (1) TMI 315 - ALLAHABAD HIGH COURT = (1992) 43 ECR 717 (Allahabad) - Recovery to be suspended during pendency of stay application.
• PACKWEL ASSOCIATES Versus UNION OF INDIA 1997 (9) TMI 121 - HIGH COURT OF KARNATAKA AT BANGALORE = (1998) 98 ELT 601 (Karnataka) – Recovery proceedings to remain suspended pending final orders on stay applications.
• SHREE CEMENT LTD. Versus UNION OF INDIA 2001 (4) TMI 95 - HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR = (2001) 133 ELT 301 (Rajasthan) – Specific guideline issued for specific purpose cannot supercede a general guideline issued on the basis of fair and just procedure to be adopted during pendency of stay application that no coercive action to be taken to realize the arrears of revenue in Circular dated 2.3.1990 irrespective of the form at which such application is pending.
• CASCADE SYSTEMS Versus DEPUTY COMMISSIONER OF CUSTOMS, BANGALORE  2003 (12) TMI 65 - HIGH COURT OF KARNATAKA AT BANGALORE = (2004) 165 ELT 400 (Karnataka) – Authorities not to resort to recovery proceedings for a period of one month from the date of adverse orders, should issue notice to initiate recovery proceedings within one month of the order so that the party is kept on guard for further steps and moving to appellate forums.
• Hamdard (Wakf) Laboratories v. State of UP 2011 (9) TMI 773 - HIGH COURT ALLAHABAD = (2013) 29 STR 99 (Allahabad) – Where Tribunal had stayed the recovery proceedings and department adopted coercive process, it was held that it was arbitrary action of authorities which would shake confidence of law abiding dealers and adversely affect development and growth.

 Stay on Circular

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 01.01.2013 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 Larsen & Toubro Ltd. v. Union of India & others 2013 (2) TMI 188 - BOMBAY HIGH COURT = (2013) 29 STR 449 (Bombay) / Mumbai High Court on 07.02.2013 has held that CBEC Circular dated 01.01.2013 to the effect that demand should be recovered even if stay application is not disposed of for no fault of assessee is arbitrary, unjustified and unlawful.

The High Court has held that –

a)    Circular dated 1.1.2013 is arbitrary and violative of Article 14 of the Constitution of India.

b)    If an assessee has done everything in his control by moving a stay application which remains pending for disposal at the end of Commissioner (Appeals) or Tribunal within 30 days, it would not be justified if recovery proceedings are allowed to be initiated in the meantime i.e., where the appeal had remained pending for reasons not attributable to the assessee.

c)     Initiation of recovery proceedings without allowing the assessee, the time which is otherwise allowed by law to file an appeal or apply for waiver of pre-deposit or for filing appeal before high court is not justified.

d)    The Circular deprives the assessee of a remedy to move to appellate authority viz, Tribunal, High Court or Supreme Court against an order of adjudication.

e)     It is not justified to commence recovery or demand immediately following an appellate order where limitation period for filing an appeal against such order has not expired.

f)      It is not justified for the revenue authorities to argue that filed offices do not have means to enquire / verify the status of stay applications.

g)    MOF to ensure steps for recording of proceedings before all authorities in electronic form.

h)    The only relief to the revenue authorities is that if the failure to dispose of the stay application is on account of assessee’s conduct or actions, revenue would be justified in commencing the recovery proceedings against the assessee.

In PML Industries Ltd. v. CCE 2013 (4) TMI 101 - PUNJAB AND HARYANA HIGH COURT =  (2013) 290 ELT 3 (P&H), High Court held as under -

• Neither Central Government nor assessee can ensure that all appeals / stay applications be decided within 30 days. Circular negates remedy of consideration of stay pending hearing of statutory appeal, for no fault of assessee. It renders such right illusory and farce.
• Assessee has a right to appeal and entitled to order thereafter. He has statutory right to decision on stay application / appeal.
• If assessee is delaying the decision, revenue has liberty to move in accordance with Law to get the matter decided expeditiously.
• Right of appeal is a creation of statute

Other Cases

—  Ultra Tech Cement Ltd. v. Union of India 2013 (5) TMI 732 - ANDHRA PRADESH HIGH COURT = (2013) 29 taxmann.com 427  (AP) – Interim stay of recovery of amount till the appellate authority disposes application.

—  Bharat Hotels Ltd. v. Union of India 2013 (5) TMI 654 - DELHI HIGH COURT = (2013) 288 ELT 509 (Delhi) – Coercive measures to recover demand to be stayed till disposal of the appeal.

—  Texonic Instruments v. Union of India 2013 (2) TMI 274 - KARNATAKA HIGH COURT=(2013) 288 ELT 510 (Karnataka) – Till disposal of stay application, department restrained from taking coercive measures to recover demand.

—  RSWM Ltd. v. Union of India 2013 (3) TMI 111 - RAJASTHAN HIGH COURT = (2013) 288 ELT 511 (Karnataka) - Appeal / stay application was pending for over 6 months; Recovery of dues by coercive means stayed.

—  Patel Engineering Ltd. 2013 (4) TMI 97 - BOMBAY HIGH COURT  = (2013) TIOL – 150 (Mumbai) – Recovery proceedings stalled; directed to issue a Circular based on L & T judgment.

—  PML Industries Ltd. v. Union of India (P&H) – CBEC tax recovery circular is untenable, misconceived, wholly illegal and arbitrary.

—  Hamdard (Wakf) Laboratories v. State of UP 2011 (9) TMI 773 - HIGH COURT ALLAHABAD = (2013) 29 STR 99 (Allahabad) – Recovery in haste while stay is in operation is an arbitrary action which would shake confidence of law abiding dealers and adversely affect industrial growth.

—  Siva Sai Constructions v. Government of India 2013 (1) TMI 91 - ANDHRA PRADESH HIGH COURT = (2013) 38 STT 627; 30 taxmann.com 391 (Andhra Pradesh) - Directed not to initiate or pursue any coercive steps against assessee (or others who owe dues to assessee) till disposal of assessee’s application for grant of interim relief in appeal.

—  Hindustan Zinc Ltd v. UOI 2013 (2) TMI 363 - RAJASTHAN HIGH COURT = (2013) 38 STT 627; 30 taxmann.com 401 (Rajasthan) - Till disposal of stay application by Appellate Authority stay was granted over recovery of demand amount.

—  Krishna Saa Fabs (P) Ltd v. UOI 2013 (2) TMI 192 - ANDHRA PRADESH HIGH COURT = (2013) 38 STT 631 (Andhra Pradesh) - Directed not to initiate any coercive measures for recovery of central excise liability or service tax liability or interest and penalties pending disposal of applications for waiver of pre-deposit.

—  Gujarat State Fertilizer Co Ltd v. Union of India 2013 (5) TMI 622 - GUJARAT HIGH COURT  =  (2013) 290 ELT 161 (Gujarat) -  Recovery procedure would be wholly unreasonable and arbitrary for the reason  that the CBEC itself having recognized that an assessee should be provided with reasonable opportunity to question an adverse decision before going ahead with the recovery thereof.

In view of the above, it is stated that the CBEC’s action of coercive recovery under Circular No. 967/01/2013-CX dated 01.01.2013 is not legally tenable and ought to be defended / contested at appropriate forums.

The aggrieved assessees on indication of possible coercive action for recovery may seek legal remedy by filing a writ petition in high court under Articles 226 and 227 of the Constitution of India in seeking relief for non exercise of jurisdiction by the tax authorities.