CEAT Limited vs The Union of India (UOI) and Others

Ferdino I. Rebello, J.—Rule. Heard forthwith.

The petitioner by the present petition impugns the order dated 24th June 2009 whereby the application of the petitioner herein for waiver of predeposit has been rejected and the petitioner was called upon to predeposit a sum of Rs. 66,62,032/ along with the interest as applicable.

At the hearing of the petition, on behalf of the petitioner their learned Counsel draws our attention to para 6 of the order of the Tribunal wherein it is noted that the amount of Rs. 33,17,170/ was deposited towards duty. The balance is towards the interest. It is submitted that considering the provisions of Section 11B(2) proviso (c) of the Customs Act, the doctrine of unjust enrichment would not apply. It is also pointed out that the said section refers only to the refund of duty and not the interest. In other words, it is submitted that the interest paid on the language of section itself would not be the subject matter of unjust enrichment.

On the other hand, the learned Counsel for the respondents supports the order of the learned Tribunal.

We propose to consider the issue of pre deposit in this case, since recently, a large number of matters are coming up before us from the orders passed by the Tribunal in the matter of pre deposit. The right to appeal is neither absolute nor ingredient of natural justice, principles of which must be followed in all judicial and quasi judicial adjudication. The right to appeal is statutory right and it can be circumscribed fulfillment of conditions, in the instant case predeposit. In considering the case for such deposit, three things are to be considered by the tribunal while dealing with the application for dispensing with the pre deposit. They are prima facie case, balance of convenience and irreparable loss. See Ravi Gupta Vs. Commissioner Sales Tax, Delhi and Another, .

Insofar as Section 35(F) of the Central Excise Act, 1944 is concerned, the relevant provision may be reproduced as:

35F. Deposit, pending appeal, of duty demanded or penalty levied.

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 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:

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

In a case thus where the Appellate Authority is of the opinion that the deposit of duty demanded or penalty levied on the goods, undue hardship may be occasioned to such person, the Appellate Authority may dispense with such deposit subject to such conditions as it may deem fit to impose as to safeguard the interest of the revenue. This had come up for consideration in a large number of judgments. We may only refer to the judgment in the case of Benara Valves Ltd. and Others Vs. Commissioner of Central Excise and Another, and gainfully reproduce the following paragraphs:

8 It is true 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 undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of 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 this Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens'' faith in the impartiality of public administration, interim relief can be given.

It has become an unfortunate trend to casually dispose of stay applications by referring to decisions in Siliguri Municipality and Dunlop India cases (supra) without analysing factual scenario involved in a particular case.

Two significant expressions used in the provisions are "undue hardship to such person" and "safeguard the interests of revenue". Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue hardship aspect and imposition of conditions to safeguard the interest of Revenue have to be kept in view.

As noted above there are two important expressions in Section 35F. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva Vs. State of Karnataka and others, that under Indian conditions expression "Undue hardship" is normally related to economic hardship. "Undue" which 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 the 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 means 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. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interest of revenue. 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.

This view thereafter has been reiterated in Pennar Industries Ltd. Vs. State of A.P. and Others, , in Ravi Gupta Vs. Commissioner Sales Tax, Delhi and Another, , in Monotosh Saha Vs. Special Director, Enforcement Directorate and Another, as also in Indu Nissan Oxo Chemicals Ind. Ltd. Vs. Union of India (UOI) and Others, .

In B.M. Malani Vs. Commr. of Income Tax and Another, , the Supreme Court in a case under the I.T. Act observed as under:

Computation to pay any unjust dues per se would cause hardship.

After saying so the court observed that in such cases the question would arise as to whether the default in payment of the amount was due to circumstances beyond the control of the assessee. Then considering the concept of what can be "genuine hardship", the court observed as under:

The term `genuine'' as per the New Collins Concise English Dictionary is defined as under:

''Genuine'' means not fake or counterfeit, real, not pretending (not bogus or merely a ruse)

For interpretation of the aforementioned provision, the principle of purposive construction should be resorted to. Levy of interest is statutory in nature, inter alia for recompensating the revenue from loss suffered by nondeposit of tax by the assessee within the time specified there for. The said principle should also be applied for the purpose of determining as to whether any hardship had been caused or not. A genuine hardship would, inter alia, mean a genuine difficulty. That per se would not lead to a conclusion that a person having large assets would never be in difficulty as he can sell those assets and pay the amount of interest levied.

The ingredients of genuine hardship must be determined keeping in view the dictionary meaning thereof and the legal conspectus attending thereto. For the said purpose, another wellknown principle, namely, a person cannot take Page 4276 advantage of his own wrong, may also have to be borne in mind. The said principle, it is conceded, has not been applied by the courts below in this case, but we may take note of a few precedents operating in the field to highlight the aforementioned proposition of law. See M/s. Priyanka Overseas Pvt. Ltd. and another Vs. Union of India and others, ; Union of India and others Vs. Major General Madan Lal Yadav (Retd.), ; Ashok Kapil Vs. Sana Ullah (Dead) and Others, ; Sushil Kumar Vs. Rakesh Kumar, ; first sentence, Kusheshwar Prasad Singh Vs. State of Bihar and Others, , paras 13, 14 and 16.

Thus, the said principle, in our opinion, should be applied even in a case of this nature. A statutory authority despite receipt of such a request could not have kept mum. It should have taken some action. It should have responded to the prayer of the appellant.

However, another principle should also be borne in mind, namely, that a statutory authority must act within the four corners of the statute. Indisputably, the Commissioner has the discretion not to accede to the request of the assessee, but that discretion must be judiciously exercised. He has to arrive at a satisfaction that the three conditions laid down therein have been fulfilled before passing an order waiving interest.

We may also gainfully refer to the judgment in Sangfrod Remedies Lvt. v. Union of India 1998(103) ELT 5 (SC), where the Supreme Court was pleased to observe that in considering an application for stay, the fact an industry has been declared sick by the BIFR would be relevant. In Vijay Packaging Systems Ltd. v. Commissioner of Customs and Central Excise, A.P., 2000ECR769(SC) . , in a matter arising under the Central Excise Act, the Supreme Court was again pleased to hold that where the appellant was before the BIFR, the appeal could be heard without calling on the assessee to predeposit.

We may also consider the judgment in Vijay Prakash D. Mehta and Another Vs. Collector of Customs (Preventive), Bombay, , where the Supreme Court was pleased to observe that a right to appeal is a statutory right and considering Section 129E of the Customs Act, there was discretion in the authority to dispense with the application of predeposit in case of undue hardship. The Court then observed that the discretion must be exercised on relevant materials, honesty, bona fide and objectively.

While considering undue hardship, balancesheet of a company or of an individual may be one of the relevant factors. However, at the same time, the Courts cannot be oblivious of the state of economy and the need for companies to have sufficient liquidity to proceed with the business on industrial activity. Any burden by way of deposit of resources required to keep the business running may have effect on productivity as also on employment. No doubt, these are matters which a party approaching a Tribunal must be in a position to establish and cannot be based merely on whims or fancies. The economy therefore is another indicator which could be considered while applying the test of undue hardship.

Considering the law as stated above, a duty is cast on the tribunal after it has considered whether the prima facie case has been made out while considering the issue of balance of convenience and irreparable loss and injury to examine the undue hardship as now understood and explained by the Supreme Court in Benara Valves Ltd. (supra) and B.M. Malani (supra). It is no doubt true that while considering the issue of pre deposit, the Tribunal has a discretion. The application of discretion cannot be subject to any standards. It would be within the jurisdiction of the Tribunal considering the facts of each case by applying the law as declared by the Supreme Court and this Court. If the party has made out a strong prima facie case, that by itself would be a strong ground in the matter of exercise of discretion as calling on the party to deposit the amount which prima facie is not liable to deposit or which demand has no legs to stand upon, by itself would result in undue hardship if the party is called upon to deposit the amount.

We may now set out a few relevant facts. There is a dispute as to whether the petitioner was entitled to credit for duty paid along with the interest. The petitioner had lost before this Court. Ultimately the matter was taken to the Supreme Court. The Supreme Court allowed the appeal filed by the petitioner herein. As there was no stay granted by the Supreme Court against the order of this Court, the petitioner had deposited with the authority the amount of duty as referred to earlier. On the petitioner succeeding before the Supreme Court, they called on the respondents to adjust the credit and refund the amount. The respondents took no action. The petitioner then suo moto took credit of that amount. This was the subject matter of the show cause notice.

When the matter reached the Tribunal, the matter was remanded back with a direction to the authority to consider the petitioner''s application for refund as also the show cause notice. Learned Counsel for the petitioner points out that instead of one authority hearing both the issues, the matter pertaining to unjust enrichment was heard by the Assistant Commissioner who rejected the claim of the petitioner. The issue pertaining to the show cause notice was heard by the Commissioner who by his order directed payment of duty along with interest and penalty. Ultimately, the matter has reached the Tribunal where the petitioner applied for stay in which the impugned order came to be passed directing the petitioner to deposit.

In the instant case, considering the provisions earlier referred to, it would be clear that the doctrine of unjust enrichment would not be applicable. Prima facie, it is a case of refund of duty. Similarly insofar as the interest is concerned, looking at the language of Section 11B proviso, interest paid by the petitioner could not be the subject matter of unjust enrichment.

In these circumstances, in our opinion, the petitioner having made out a strong prima facie case, calling upon the petitioner to deposit would occasion undue hardship. The application for waiver of predeposit ought to have been considered on that test.

In the light of the above, the following order is passed:

(i) The impugned order to the extent it directs the petitioner to deposit the duty along with interest in the sum of Rs. 66,62,032/ is set aside. The petitioner to furnish bond for the said sum. Rule is made absolute accordingly with no order as to costs.

(ii) The learned Tribunal is directed to hear the appeal on merits.