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TMI Blog2016 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are connected with these imports. While some of them are importers, some others are foreign suppliers. The principal importers were M/s Prithvi Information Solutions Ltd (PISL for short) and M/s VMC Systems Ltd (VMCL for short). In cases where the software is embedded in the equipment itself, and not supplied separately, the value of such embedded software is included in determining the assessable value of the equipment and it is only if the software is not embedded, and is supplied separately, can it not be included in the value of the equipment. On the ground that embedded software was shown separately as customised software only to evade customs duty, the adjudicating authorities, besides demanding differential duty on the value attributable to the so called embedded software, and interest thereon, had also imposed penalties on PISL and VMCL as well as the overseas suppliers M/s Huawei Technologies Co. Ltd (HTCL), M/s Sojitz Corporation (SC) their financial partner based in Japan, several individuals working for these organizations, and Punjab Communications Limited (PCL), a public sector undertaking, which had participated in the auction and had entrusted supplies to VMCL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 the CESTAT, after taking note of the submission urged on behalf of the appellants, extended the time limit for payment of the dues by 8 weeks from the date of receipt of the order; and directed that a compliance report be submitted by 28.1.2015. Sri S. Ravi, Learned Senior Counsel appearing on behalf of the appellants, would submit that the specific plea, regarding the financial hardship faced by the appellants, was not considered by the CESTAT; this gave rise to a substantial question of law; the appellants were ready to deposit a further sum of Rs. 10 crores; this Court should direct waiver of pre-deposit for the balance amount, pending disposal of the appeals by the CESTAT; and, even otherwise, failure to deposit the amount, as directed by the CESTAT, would not result in dismissal of the appeals. Learned Senior Counsel, while referring to the judgment of the Calcutta High Court in Promising Exports Ltd v Union of India (2009) 243 ELT 3 in this regard, would fairly state that the said judgment has been overruled by a Division bench of the Calcutta High Court in Commissioner of Central Excise v Shree Gobinddeo Glass Works (2011) 263 ELT 178. On the other hand Sri Gopalakrishna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to flat-gain optical amplifiers to boost the signal on longer spans; and (iii) on the receiver side, photo detectors and optical de-multiplexers using thin film filters or diffractive elements. This equipment is used by all major communication service providers all over the world, and HTCL is one of the leading manufacturers of DWDM equipment. BSNL called for tenders in the years 2006 and 2007 for supply of DWDM equipment of two types, namely 2.5G, 32 channel and 10G, 40 channel, to be sourced only from domestic manufacturers. The bidders were all domestic manufacturers, including PISL and VMCL who, in turn, entered into an agreement with HTCL for import of the equipment. PISL and VMCL entered into agreements with SC which acted as their financial partner to make payment, through letters of credit, to HTCL after the equipments were dispatched. In the orders under appeal, the CESTAT noted that, when the software is embedded in the equipment itself and not supplied separately, the value of such embedded software is required to be included in determining the assessable value of the equipment; the General Manager of VMCL had admitted that the software received by them was embedded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they had to supply embedded software only; and some of the employees of BSNL had admitted that what they received was fully functional equipment, and software was not required to be supplied separately. The CESTAT observed that the e-mails clearly showed that a specific request was made of the manner in which the invoice should be worded, and the CDs should be labelled; the e-mails also showed that the CDs did not contain any software; this was corroborated by the statement that more than 16,000 CDs were burnt by the appellants; under the agreement between HTCL and the importer, the software was defined only as embedded software; the software was imported through one port, and the hardware through another; and the appellants had planned and conspired to avoid customs duty. After extracting the contents of the test report, the CESTAT further observed that the hardware equipment contained embedded software; the software in the CDs was not required for the equipment to function; the departments case was not only based on statements, but also on the CDs which contained 70 KB text data unconnected to the software; scrutiny of the records showed that the appellants had deliberately imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods which are not under the control of the customs authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the proper officer the duty demanded or the penalty levied : Provided that where in any particular case, the Collector (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 Collector (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 interests of revenue." Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of Central Excise authorities 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. Provided that where in any particular case, the Commissioner Appeals) or the Appellate Tribunal is of opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Section 129E thereof. That right is hedged with a condition, and is thus a conditional right. The appellant has no absolute right of stay. He can obtain stay of realisation of the duty levied, or the penalty imposed, in an appeal subject to the limitations of Section 129E. If the Statute gives a right to appeal upon certain conditions, it is upon fulfilment of these conditions that the right becomes vested in, and exercisable by, the appellant. The proviso gives a discretion to the authority to dispense with the obligation to deposit in case of "undue hardship". It is a discretion vested in an obligation to act judicially and property. That discretion must be exercised on relevant material, honestly, bonafide and objectively. Once that position is established it cannot be contended that there was any improper exercise of the jurisdiction. (Vijay Prakash D. Mehta AIR 1988 SC 2010). The main section (Section 35-F of the Central Excise Act and Section 129-E of the Customs Act) makes pre-deposit mandatory in order to avail the remedy of an appeal before the CESTAT. The first proviso, an exception to the general rule, confers power on the CESTAT to dispense with such deposit "subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal should also consider the necessity to safeguard the interests of revenue, and should impose such conditions as may be required in this regard, while passing an order on the application to waive the pre- deposit for preferring an appeal. (Union of India v. Adani Exports Ltd. [2007] 13 SCC 207; M/s. Sri Chaitanya Educational Committee, Poranki, Vijayawada (Judgment of A.P. High Court Division Bench in CEA No.301 of 2010 dated 19.01.2011)). Two significant expressions, used both in Section 35-F of the Central Excise Act and Section 129-E of the Customs Act, are undue hardship to such person and safeguard the interests of the Revenue. While considering the application, seeking waiver of pre-deposit, these twin requirements should be kept in view. Use of the word undue would mean something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant. Undue means something which is not merited by the conduct of the claimant, or is disproportionate to it. For a hardship to be undue it must be shown that the burden to observe or to perform is out of proportion to the nature of the requirement, and the benefit which the applicant wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be clearly in favour of making an interim order, and there should not be the slightest indication of a likelihood of prejudice to the interest of public revenue; (5) while dealing with such applications, the twin considerations are the undue hardship which the applicant would suffer if his request for waiver (either wholly or partially) of pre-deposit of duty, interest and penalty is not acceded to, and the need to safeguard the interests of revenue (6) when the Tribunal decides to grant full or partial stay, it is imperative that it imposes such conditions as may be necessary to safeguard the interests of revenue; and (7) an appellate Tribunal, being a creature of the Statute, should be guided by the conditions stipulated in the statutory provision while exercising powers expressly conferred or those incidental thereto. (M/s. Sri Chaitanya Educational Committee, Poranki, Vijayawada (Judgment of A.P. High Court Division Bench in CEA No.301 of 2010 dated 19.01.2011)). As noted hereinabove, both VMCL and PISL were required to deposit the entire amount of differential duty, not covered by the bank guarantees, within twelve weeks from the date of receipt of the order, and report comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court is satisfied that the case involves a substantial question of law. Appeal to High Court: An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or after the 1st day of July, 2003 (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law. The right of appeal to the High Court against the order of the CESTAT, under Section 130 of the Customs Act, 1952, is available only if a substantial question of law arises for consideration. The word substantial, as qualifying a question of law, meansof having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contra-distinction withtechnical, of no substance or consequence. In enacting Section 130 of the Customs Act, 1952 Parliament has chosen not to qualify the scope of a substantial question of law by suffixing the words of general importance thereto, as has been done in Article 133(1)(a) of the Constitution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legal issue. A substantial question of law will also arise in a contrary situation, where the legal position is clear, either on account of express provisions of law or binding precedents, but the Court/Tribunal below has decided the matter, either ignoring or acting contrary to such legal principles. In the second type of cases, the substantial question of law arises not because the law is still debatable but because the decision, rendered on a material question, violates the settled position of law. (Boodireddy Chandraiah (2007) 8 SCC 155). When a question of law is fairly arguable, where there is room for difference of opinion on it or where the Court has thought it necessary to deal with that question at some length and discuss alternative views, then the question would be a substantial question of law. On the other hand if the question is practically covered by the decision of the highest Court, or if the general principles to be applied in determining the question are well settled and the only question is of applying those principles to the particular facts of the case, it would not be a substantial question of law. (Boodireddy Chandraiah (2007) 8 SCC 155; Chunilal V. Meht ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pre-deposit and grant stay. It is evident, therefore, that the appellants plea of financial hardship was considered and rejected by the CESTAT. All that the CESTAT has directed the appellants to pay is the customs duty which they had, prima facie, evaded hoodwinking the authorities concerned into believing that the imported equipment did not contain software, and that customised software for such equipment was being imported separately. This elaborate ruse, the CESTAT prima facie held, involved several players both within the country and abroad including all the appellants herein. The facts, as noted in the order of the CESTAT, show that, though the software was embedded in the imported equipment, blank and useless CDs were imported in huge quantities to mislead the authorities into believing that these CDs contained customised software to be loaded into the imported equipment later. The invoices, for the imported equipment, were manipulated, and separate invoices for the alleged customised software were created only to evade customs duty. The prima facie findings recorded by the CESTAT are largely based on the admissions of various persons, and the statements recorded in this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 8 SCC 155; Reserve Bank of India v. Ramkrishna Govind Morey 1976(1) SCC 803 ; Kondiba Dagadu Kadam (1999) 3 SCC 722). While no substantial question of law would arise even if one of the two possible views appeal to the High Court, we are satisfied that, in the facts and circumstances of the present case, no view, other than that formed by the CESTAT, is possible. It is wholly unnecessary for us to dwell on this aspect any further as Sri S. Ravi, Learned Senior Counsel, has not disputed any of the prima facie findings recorded by the CESTAT. As the CESTAT has only directed that the customs duty, payment of which was evaded to be paid earlier, be paid along with interest, and has waived a substantial part of the penalty for some of the appellants, and in its entirety for a few others, the orders under appeal cannot be said to suffer from a patent illegality giving rise to a substantial question of law necessitating interference in an appeal under Section 130 of the Customs Act. III. FAILURE BY THE APPELLANT TO COMPLY WITH THE ORDER, PASSED UNDER THE PROVISO TO SECTION 129- E OF THE CUSTOMS ACT, WOULD RESULT IN DISMISSAL OF THE APPEAL FILED BEFORE THE CESTAT: The onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or penalty, yet it made it obligatory on the appellant to deposit the duty or penalty, pending the appeal, failing which the Appellate Tribunal was fully competent to reject the appeal. (Vijay Prakash D. Mehta AIR 1988 SC 2010 ). On the question whether the insertion of sub-section (2-A) to Section 129-B of the Customs Act and Section 35-C of the Central Excise Act has brought a change to the law declared by the Supreme Court earlier, in Navin Chandra Chottelal AIR 1971 SC 2280 and Vijay Prakash D. Mehta AIR 1988 SC 2010 , it is necessary to read Section 35-C (2A) of the Central Excise Act in juxta-position with Section 129-B(2-A) of the Customs Act. Section 35 C of the Central Excise Act Orders of Appellate Tribunal (2A) The Appellate Tribunal shall, where it is possible to do so, hear and decide every appeal within a period of three years from the date on which such appeal is filed: Provided that where an order of stay is made in any proceeding relating to an appeal filed under sub-Section (1) of Section 35B, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such order: Provided further that if such appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third proviso was inserted w.e.f. 10.05.2013. The scope of Section 35-F of the Central Excise Act (similar to Section 129-E of the Customs Act) in the context of the newly inserted sub-section 2-A of Section 35-C of the Central Excise Act (similar to Section 129-B of the Customs Act, 1952), fell for consideration before the Calcutta High Court in Promising Exports Limited (2009) 243 ELT 3. A learned Single Judge of the Calcutta High Court held that the second proviso to Section 35C(2A) postulated automatic vacation of the order of stay, if the appeal was not disposed of within a period of one hundred and eighty days; there was no question of extension of an order of stay; in a case where the order of stay, passed by the Tribunal, was automatically vacated there were no fetters on the Revenue, in order to safeguard public revenue, from recovering the sum due; after vacation of the order of stay, it was the appeal which remained; in that case the Tribunal should, where it is possible to do so, hear and decide the appeal within a period of three years from the date on which such appeal was filed; the word "Decide" means to "give a judgment concerning a matter or a legal case (Concis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the petitioner, or for it to be decided on merits on the day fixed for hearing of the appeal. The judgment rendered in Promising Exports Ltd1, by the Learned Single Judge of the Calcutta High Court was overruled by the Division bench of the Calcutta High Court in Shree Gobinddeo Glass Works Ltd. (2011) 263 ELT 178). The Division bench opined that they were unable to accept the reasoning and conclusion that the ratio of the judgments of the Supreme Court, in Navin Chandra Chottelal11 and Vijay Prakash D. Mehta AIR 1988 SC 2010, had no binding force or that, with the insertion of Section 35C(2A), the provision of pre-deposit, pending hearing of the appeal, has been rendered otiose; keeping in view the necessity of speedy disposal of revenue matters, the legislature had fixed a time limit under Section 35C(2A) which was not provided earlier; the three year period therein was substituted with 180 days whenever any interim order of stay is granted in an appeal; the second proviso of the said Subsection provides that, if for any reason the appeal is not disposed of where interim order of stay is granted, then the stay order shall, on the expiry of that period, stand vacated; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als to dispose of matters; occasionally, by reason of other administrative exigencies for which the assessee cannot be held liable, stay applications are not disposed within the time specified; and the reasoning of the Tribunal as expressed by the impugned order, and as expressed in the Larger Bench in IPCL (2004) 169 ELT 267, could not be faulted. The Supreme Court made it clear that they should not be understood as holding that any latitude was being given to the Tribunal to extend the period of stay, except on good cause and only if it 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. After the judgment of the Supreme Court, in Kumar Cotton Mills Pvt. Ltd3, a third proviso was inserted to Section 35-C (2-A) of the Central Excise Act, and Section 129-B (2-A) of the Customs Act, w.e.f. 10.05.2013, conferring power on the Tribunal to further extend the period of stay. As held by the Division Bench of the Calcutta High Court, in Shree Gobinddeo Glass Workd Ltd2, Section 35-F of the Central Excise Act (similar to Section 129-E of the Customs Act) is independent of Section 35-C(2A) ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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