EXTENSION OF STAY ORDER – RECENT PRONOUNCEMENTS

[Dr. Sanjiv Agarwal]

Finance Act, 2013 has amended section 35C (2A) of the Central Excise Act, 1944 to provide for a maximum ceiling of 365 days upto which the Tribunal can grant stay of recoveries. It has been stipulated that after 365 days from the stay order, the stay shall stand vacated even if the disposal of the case is pending for no fault of the assessee. By virtue of stipulation under section 86(7) read with section 83 of the Finance Act, 1994, the provisions of the Central Excise Act, 1944 would be applicable for dispute in Service Tax matters.

It thus stipulates that on an application made by a party and on being satisfied that the delay in disposing of the appeal is not attributable to such party, the Appellate Tribunal shall have the power to extend the period of stay to such further period, as it thinks fit, not exceeding one hundred and eighty-five days, and in case the appeal is not so disposed of within the total period of three hundred and sixty-five days from the date of order referred to in the first proviso, the stay order stands vacated.

In CIT, Bangalore v. Ecom Gill Coffee Trading Pvt. Ltd. 2012 (7) TMI 562 - KARNATAKA HIGH COURT, high court examined the issue of 'whether the Tribunal was correct in holding that it is entitled to extend the stay beyond a period of 365 days which is contrary to statutory provisions' . The court held as under –

"…….the assessee’s have very vehemently urged that more often than not an assessee cannot be blamed for non-disposal of the appeal either within initial 180 days or extended period of another 185 days and therefore, an assessee should never be deprived of the benefit of stay, which the assessee had otherwise enjoyed till then and the interpretation to be placed on the provisions should not be to cause hardship or injustice to the assessee, as it is the provision which occurs in the context of interpretation of an enabling provision to grant stay etc., while we appreciate this argument, at the same time we cannot ignore the language of Section and intended amendment brought about and the language of the legislature being quite clear about the outer time limit stipulated for the duration of the operation of stay and if the legislature has stipulated the outer time limit of 365 days within which the stay order granted by the Tribunal can operate, it only leaves us to hold that the Tribunal is not enabled to pass orders granting stay beyond the period of 365 days. Any other understanding or interpretation is nothing short of doing violence to the language of the statutory provision in the name of interpretation of the provision and permitting an action which is clearly in contravention of the statutory provisions.

Viewed from any angle, we are of the opinion that the Appellate Tribunal has committed a positive error in consciously extending the interim order of stay granted in the pending appeal beyond the period of 365 days, which is the outer limit stipulated in the Statutory provision."

In Jothi Calendering Mills v. CCE, Salem 2014 (6) TMI 415 - CESTAT CHENNAI,  stay granted in 2006 was extended till disposal of appeal as the appeal was not heard during the stipulated period. The Tribunal relied upon CCE, Ahmedabad v. Kumar Cotton Mills Pvt. Ltd. 2005 (1) TMI 114 - SUPREME COURT OF INDIA wherein Apex Court held as under –

"The sub-section which was introduced in terrorem cannot be construed as punishing the assessees for matters which may be completely beyond their control. For example, many of the Tribunals are not constituted and it is not possible for such Tribunals to dispose of matters. Occasionally by reason of other administrative exigencies for which the assessee cannot be held liable, the stay applications are not disposed within the time specified. The reasoning of the Tribunal expressed in the impugned order and as expressed in the Larger Bench matter, namely, [IPCL v. Commissioner of Central Excise, Vadodara 2004 (6) TMI 52 - CESTAT, NEW DELHI] cannot be faulted. However we should not be understood as holding that any latitude is given to the Tribunal to extend the period of stay except on good cause and only if the Tribunal is satisfied that the matter could not be heard and disposed of by reason of the fault of the Tribunal for reasons not attributable to the assessee."

The bench took note of the proviso inserted in section 35C (2A) and held that -

"The Hon'ble Supreme Court in the context of insertion of sub-section (2A) of Section 35C of the Act provided that if such appeal is not disposed of within the period specified in the first proviso, the stay order shall on the expiry of that period, stand vacated, observed that sub-section which was introduced in terrorem cannot be construed as punishing the assessees for matters which may be completely beyond their control. In the present case, appeal was not disposed of within the stipulated period as specified in Section 35C and therefore vacating the stay order amounts to punishing the assessee."

Kumar Cotton Mills Pvt. Ltd. (supra) had considered a similar provision which enjoined eclipse of an order of stay passed by the Tribunal, wherever the appeal could not be disposed of within 180 days from the date of such order. The relevant provision was characterized as "in terrorem", which would deprive an assessee of the benefit of interim relief granted by judicial! quasi-judicial authority. The Apex Court confirmed the decision of the Larger Bench of the Tribunal in IPCL v. Commissioner reported in 2004 (6) TMI 52 - CESTAT, NEW DELHI and observed that where the appeal could not be disposed of for no fault of the assessee or for reason not attributable to the assessee, provisions of Section 35C(2A) of the Central Excise Act, 1944 would not be applicable. The extension by stay already granted was allowed.

In Shyam Kumar and Co. Pvt. Ltd. v. CCE and ST, Noida 2013 (10) TMI 811 - CESTAT NEW DELHI,  it was held that once discretion is exercised under section 35F of Central Excise Act, 1944, jurisdiction of Tribunal to proceed with adjudication of dispute gets activated. The obligation of Tribunal's decision to hear an appeal after stage of pre-deposit determination is not limited by time. It was held as under:-

"On true and fair construction of the provisions of Section 35F, it is clear that once discretion is exercised under the proviso to the said provision, to grant waiver of pre-deposit either wholly or partly, the jurisdiction of this Tribunal to proceed with further steps to adjudicate the dispute, interlocutory or final, gets activated subject to compliance by the appellant with the condition of pre­deposit, if any ordered by the Tribunal in exercise of discretion under the proviso to the said provision. The obligation of the Tribunal decision to hear an appeal after the stage of pre-deposit determination under the proviso to Section 35F, is not limited by time and there is no sunset clause in the statute which eclipses the right and the corollary obligation of this Tribunal to hear an appeal after the pre-deposit stage.

Section 35C sets out provisions with regard to hearing of appeals by the Tribunal. Sub-section (2A) of this provision enacts that where it is possible to do so the Tribunal should hear and decide the appeal within three years from the date an appeal is filed. First proviso thereto enacts that where an order of stay is made in any proceedings relating to an appeal filed sub-section (1) of Section 35B, the Tribunal shall dispose of the appeal within a period of 180 days from the date of such order. A further proviso to Section 35C(2A) enacts that if the appeal is not disposed within period specified in the first proviso, the stay order shall, on the expiry of that period, stand vacated., A further proviso is introduced by the Finance Act, 2013 with effect from 10-5-2013. This provision enacts that where such appeal is not disposed of within period stipulated in the first proviso, the Appellate Tribunal may on an application made by a party and on being satisfied that the delay in disposing of the appeal is not attributable to such party, extend the period of stay for such further period as it considers appropriate, not extending 180 days, and in case the appeal is not disposed of within the total period of 365 days from the date of the order preferred to the first proviso, the stay order stands vacated.

It requires to be noted there is no specific provision authorising grant of stay of realisation of the adjudicated liability. However the power to grant of stay pending the hearing of an appeal being an inherent power of an appellate forum / quasi-judicial forum, such power is exercised as integral to the appellate jurisdiction. It is this exercise of the power to grant of stay that is the subject matter of the sunset clause in the proviso to sub-section (2A) of Section 35C. The sunset clause does not apply to grant of waiver of pre-deposit, an exercise conditioned by the provisions of Section 35F."

In Poly Fill Sacks v. Union of India 2005 (2) TMI 148 - GUJARAT HIGH COURT, it was held that though, the language employed by the statute appears to be mandatory in terms, considering the objective behind the provision, it has to be understood to be meant as being directory in nature. A legislative intent could not be inferred to curtail / withdraw the powers of the Tribunal to grant stay in appropriate cases. Therefore, Revenue’s contention that the assessee must approach the Tribunal and seek extension of stay already granted was held to be misconceived in absence of any change in circumstances. Legislature would have specifically provided so, if it was so intended. Interpretation that the provisions of section 35C (2A) are mandatory permitting authorities to initiate action once the period of 180 days had expired from the date of order granting stay, is against the plain language of the provision and does not flow from it. [CCE v. Kumar Cotton Mills Ltd. 2005 (1) TMI 114 - SUPREME COURT OF INDIA; Indo-Nippon Chemicals Co. Ltd. v. Union of India 2002 (2) TMI 136 - GUJARAT HIGH COURT relied upon].

Discussions to this article

[Balasubramanian Natarajan]

Dear Dr Sanjeevji

Thank you so much for your analytical article

With the proposed deletion of Proviso to 35C (A) , I feel there is no time limit for vacation of stay .It also appears that when the amount of pre deposit of 7.5% or 10% as the case may be , is made , then the appeal is to be heard . There is no need for filing a Stay petition also. I soilict your views

[Dr. Sanjiv Agarwal]

Yes. The filing of stay applications may not be required now . However , this should have been drafted in provision itself.