POWER OF CESTAT IN GRANTING STAY BEYOND 365 DAYS

[Mr. M. GOVINDARAJAN]

Introduction

Section 35C of Central Excise Act, 1944 deals with the order of the Tribunal.  The power of granting stay by the CESTAT is given through Section 35C (2A) which has been inserted with effect from 01.05.2002.   Section 35C(2A) has traversed the following stages:

• Sub-section (2A) was inserted with two provisos with effect from 01.05.2002;
• Third proviso to Section 35C(2A) was inserted vide Finance Act, 2013 with effect from 10.05.2013;
• The three provisos to Section 35C (2A) was omitted vide Finance Act, 2014.

In this article the developments of Section 35C (2A) in the power of granting of stay order by the Appellate tribunal is discussed with reference to decided case laws.

Insertion of Sub-section (2A)

Section 35C (2A) has been inserted with effect from 01.05.2002.  The plain reading of Section 35C (2A) it becomes apparent what where an order of stay is made in any proceeding relating to an appeal, the Tribunal is require to dispose of the appeal within a period of 180 days from the date of such an order granting stay of recovery and under the second proviso it is laid down that in case of such appeal is not disposed within the period specified in the first proviso, on the expiry of the said period, the stay order shall stand vacated.

In ‘Poly Fill Sacks V. Union of India’ – 2005 (2) TMI 148 - GUJARAT HIGH COURT  the High Court held that the scheme is that an appeal is required to be disposed within a period of three years.   But where stay order is granted by the Tribunal, the said period of three years stands curtailed to180 days from the date of the order granting stay.  Though the language employee by the statute appears to be mandatory in terms, considering the object behind the provision it has to be understood to mean as being directory in nature.   The High Court further observed that the Legislature is well aware of the administrative exigencies and difficulties of the Tribunal.  There could a host of reasons ranging from non availability of a Bench due to non appointment of adequate number of technical and or judicial members at a particular station to the quantum and quality of appeals at a particular station.    The High Court held that the discretion available to CESTAT under Section 35C (2A) of the Act does not stand obliterated by insertion of the two provisos and more particularly by the second proviso.

The High Court further held that sub-section (2A) Section 35C of the Act was brought on statute book to ensure disposal of pending appeals within a reasonable time frame and curtail delays.   But from this it is not possible to infer a legislative intent to curtailment of such powers beyond the period of six months.   The Legislature would have specifically provided so if it was so intended.   Any other interpretation of the sub section with both the provisos would frustrate the object of the Tribunal dispensing justice in deserving cases where the assessee is not at fault in any manner.  The object of the provision is for the curbing the dilatory tactics of assessees, who having obtained an interim order in their favor, seek to continue the interim order while delaying the disposal of the proceedings.   However, in cases where the Revenue finds that a particular assessee having obtained stay is adopting dilatory tactics, it is always open Revenue to move the Tribunal in such an eventuality.  The High Court held that the CESTAT is having power to grant stay exceeding 180 days.

Insertion of third proviso

The third proviso to Section 35C (2A) was inserted vide Finance Act, 2013 with effect from 10.05.2013.   The third proviso provides that where such appeal is not disposed of within the period specified in the first proviso, the Appellate Tribunal may, on an application made in this behalf 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 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 shall, on the expiry of the said period, stand vacated.

This has come to consideration of the High Court in ‘Chhote Lal Virendra Kumar Jain V. Union of India – 2014 (5) TMI 262 - RAJASTHAN HIGH COURT the Tribunal granted stay on 20.09.2012.  The petitioner filed an application on 30.10.2013 seeking extension of stay order passed by the Tribunal on 20.09.2012 since the appeal could not be disposed of by the Tribunal for non fault of the petitioner assessee.  In the mean time by virtue of the third proviso to Section 35(2A) of the Act initiated proceedings to recover the amount from the petitioner-assessee and attached the bank account of the petitioner under Section 87(b) of the Finance Act, 1994.  The Tribunal vide its order dated 23.01.2014 continued the stay which is beyond 365 days.    The petitioner approached the High Court for the release of the bank account.   The High Court held that the recovery proceedings of the Revenue could not be held justified in the eye of law and the Court found substance in the submission made by the petitioner after passing of the order by the Tribunal on 23.01.2014, the Revenue remain under obligation to refund the money which was recovered from the petitioner by debiting the petitioner’s account in 22.01.2014 and the very initiation of the proceedings deserves to be quashed in the eye of law in view of the order of the Tribunal dated 23.01.2014.

The High Court observed that it appears that the third proviso has been inserted to curb dilatory tactics of the assessees who after getting interim order in their favor to continue by delaying the disposal of the proceedings and that certainly deprive the revenue not only of the benefit of the assessed value but at the same time of the decision on the point which may have impact on the other pending matters.   But at the same time it cannot be construed as punishing the assessees for matters which may be completely beyond their control.  It is settled principles of law and which is consistent and recognized that where a case is not considered because of multiplicity of business of the court the party ought not to be prejudiced by that delay and when an act of the court can prejudice no man, ditto would be for an omission in keeping with the aforesaid principles that if the matter has not been taken up for consideration on a given date at least the litigant cannot be left to suffer for such reason over which he has no control. 

In ‘Commissioner V. Small Industries Development Bank of India’ – 2014 (7) TMI 738 - GUJARAT HIGH COURT the High Court considered the following questions of law:

• Whether the learned Appellate Tribunal has jurisdiction to extend the stay granted earlier beyond the total period of 365 days in view of statutory provisions contained in Section 35C (2A) of the Central Excise Act, 1944?
• Whether even if it is held that the learned Appellate Tribunal can extend the stay granted earlier beyond the total period of 365 days, the learned Appellate Tribunal is required to pass a speaking order/reasoned order considering the third proviso to Section 35C (2A) of the Central Excise Act, 1944?

The High Court observed that the third proviso to Section 35C(2A) which has come into effect from 10.05.2013 is to be construed by holding that if the conditions mentioned in the third proviso to Section 35C (2A) is satisfied on an application made by the assessee that delay in disposing of the appeal with the total period of 365 days from the date of grant of initial stay is not attributable to such party and despite the fact that the assessee appellant has co-operated the Appellate Tribunal could not, for various reasons, dispose of the appeal within 365 days, in that case the power of the Appellate Tribunal to extend stay even beyond 365 days from the date of grant of initial stay are not circumscribed.   However the same shall be subject to satisfaction of the learned Appellate Tribunal that the assessee appellant is not at all fault and the delay in not disposing of the appeal within total 365 days is not attributable to such assessee-appellant and that there was non co-operation on the part of the assessee-appellant. 

The High Court held that in a taxing matter any provision is required to be read literal and plain meaning should be adopted, however, while interpreting a provision court is also required to see that it may not lead to any arbitrariness and/or is not in violation of Article 14 of the Constitution of India and by such interpretation if a person who is not at fault at all may not be punished.   While enacting Section 35C (2A) more particularly third proviso to Section 35C (2A) the Legislature could not have either intended to punish even those persons/assessees-appellants who are not at fault.  The High Court answered the first question in favor of the assessee. 

In regard to the second question of law the High Court held that the Appellate Tribunal is required to consider the facts of each case at subjective satisfaction in each case whether the delay in not disposing of the appeal within the period of 365 days from the date of initial grant of stay is attributable to the appellate assessee or not and/or whether the assessee-appellant in whose favor stay has been granted and/or whether such appellant is trying to get any undue advantage of stay in his favor or not.   Therefore while passing order of extension of stay, the Appellate Tribunal is required to pass a speaking order on each application and after giving an opportunity to the Revenue and records its satisfaction.

The High Court held that the Appellate Tribunal may, by passing a speaking order extend stay even beyond the total period of 365 days from the date of grant of initial stay when the appellant assessee has fully co-operated in early disposal of the appeal and/or has not indulged into any delay tactics and/or has not taken any undue advantage.

Omission of three provisos

Section 35F of the Central Excise Act, 1944 has been substituted vide Finance Act, 2014 with effect from 06.08.2014.   According to the newly substituted section he Tribunal shall not entertain any appeal-

• 7.5% of the duty in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute for filing of appeal before the Commissioner(Appeals) or the Tribunal at the first stage; and
• 10% of the duty in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute for filing second stage appeal before the Tribunal.

The first proviso to Section 35F provides that amount of pre-deposit payable is subject to a ceiling of ₹ 10 Crore. The second proviso to Section 35F provides that   the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014.

According to the substituted Section 35F no stay petition could be filed before CESTAT in an appeal.   The appellant is mandatorily required to pay the percentage of duty as discussed above.   Unless the appellant deposited the said amount the appeal will not be entertained.   However the second proviso that the newly substituted Section 35F would not applicable to the stay petitions filed before 06.08.2014. 

Latest position

Even though the three provisos to Section 35C (2A) are omitted vide Finance Act, 2014 it would be applicable to the stay applications filed before 06.08.2014 unless otherwise the appeals are disposed. 

A Division Bench of Delhi Court in the case of Pepsi Foods Pvt. Ltd. Vs. Assistant Commissioner of Income Tax [2015 (5) TMI 655 - DELHI HIGH COURT] has struck down the amendments inserted/ substituted by the Finance Act, 2008 to the third proviso to Section 254(2A) of the Income Tax Act.  as being violative of Article 14 of the Constitution of India.

In ‘Commissioner of Central Excise, Delhi V.  Brew Force Machine Pvt. Ltd’ - 2015 (7) TMI 753 - DELHI HIGH COURT (delivered on 10.07.2015) the challenge in this appeal by the Commissioner of Central Excise (CCE), Delhi is to an order dated 5th January 2015 passed by the CESTAT whereby the Miscellaneous Applications for stay were allowed following the decision of the larger Bench of the CESTAT in Haldiram India Pvt. Ltd. v. CCE, Delhi -2014 (10) TMI 724 - CESTAT NEW DELHI (LB). The view taken by the CESTAT in the said decision was that where delay in disposal of the appeal is not attributable to the Appellant then the extension of stay beyond 365 days can be granted notwithstanding third proviso to Section 35C(2A) of the Central Excise Act, 1944.  The respondent drew attention of the Court to a judgment dated 19th May 2015 of another Division Bench of Delhi  Court in Writ Petition (C) No. 1334/2015 and batch Pepsi Foods Pvt. Ltd. v. Assistant Commissioner of Income Tax - 2015 (5) TMI 655 - DELHI HIGH COURT where the Court was concerned with the challenge to the constitutional validity of the third proviso to Section 254 (2A) of the IT Act on the ground that it sought to obliterate the distinction between Assessees who contributed to the delay in disposal of an appeal and those who had not. By the said judgment the Division Bench allowed the writ petitions and struck down the third proviso to Section 254 (2A) of the IT Act to the extent it obliterates the distinction. 

The decision in Pepsi Foods was delivered two weeks after the decision of the coordinate Division Bench of Delhi Court in CCE v. Haldiram India Pvt. Ltd.  In terms of the judgment in Pepsi Foods the CESTAT would, even in terms of the third proviso to Section 35 C (2A) of the Act, not be denuded of the power to extend the stay beyond 365 days in deserving cases. The Court held that this is however, contrary to the judgment of the coordinate Division Bench in CCE v. Haldiram India Pvt. Ltd. That Court, being a coordinate Bench of equal strength is therefore constrained to refer to a larger Bench the question of correctness of the decision dated 5th May 2015 in CEAC No. 18/2015 Commissioner of Central Excise v. Haldiram India Pvt. Ltd. [2015 (7) TMI 720 - DELHI HIGH COURT].

Conclusion

Since the filing of stay application is dispensed with by making mandatory pre deposit of tax demanded the erstwhile Section 35C (2A) would no longer applicable to the appeals filed after 06.08.2014. There are many cases pending before CESTAT even after more than one year.   In such cases the stay order is to be extended or the appeal is to be disposed at the earliest possible. The assessees could not be penalized for no fault on him for the delayed disposal of appeal. The Revenue has to take care of this aspect while initiating the proceeding against the assessee while the appeal is pending and the stay order has not been extended by the Tribunal.