Kumar''s Cotex Ltd. vs Commissioner of Central Excise

G. Rohini, J.—The petitioner company is engaged in the manufacture of cotton yarn and cotton waste. By order dated 9-1-2007 the Commissioner of Customs and Central Excise, Guntur, determined the liability of the petitioner to pay the duty specified therein apart from the penalty. Aggrieved by the said order, the petitioner preferred an appeal u/s 35B of the Central Excise Act, 1944 (for short, ''the Act''), before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, along with an application for waiver of pre-deposit of duty and penalty. By order dated 31-1-2008 the CESTAT while granting the waiver of pre-deposit of duty remanded the matter to the Commissioner for de novo enquiry. Accordingly, a fresh order dated 30-12-2008 came to be passed by the Commissioner. Against the said order, the petitioner had again preferred an appeal before the CESTAT along with an application for waiver of the pre-deposit of duty. The petitioner also sought stay of operation of the order of the Commissioner dated 30-12-2008. The CESTAT by order dated 30-11-2011 directed the petitioner to pre-deposit 50% of the entire amount of duty demanded within six weeks making it clear that subject to such deposit there will be waiver of pre-deposit and stay of recovery in respect of the penalties imposed and the balance amount of duty. The compliance was directed to be reported to the Bench on 8-3-2012. Having found that compliance of the order dated 30-11-2011 with regard to pre-deposit was not reported, the CESTAT by order dated 28-5-2012 rejected the petitioner''s application for waiver and consequently the appeal was also dismissed for want of compliance with Section 35F of the Act. Aggrieved by the same, the present writ petition is filed seeking a declaration that the order of the CESTAT, dated 30-11-2011 as well as the consequential order dated 28-5-2012 are arbitrary and illegal. It is alleged in the writ petition that the order of the CESTAT dated 30-11-2011 was an ex parte order and that it was not communicated at all to the petitioner. Pleading that the petitioner''s counsel by letter dated 27-2-2012 requested the Assistant Registrar of CESTAT to furnish a copy of the order and on 8-3-2012 there was a direction by the CESTAT to communicate the said order, it is claimed that the order dated 30-11-2011 was communicated to the petitioner only in April, 2012. In the meanwhile, the petitioner also filed an application seeking modification of the order dated 30-11-2011 and for full waiver of pre-deposit of 50% of the duty demanded on the ground that the petitioner company has been referred to BIFR. However, without considering the same, the final order dated 28-5-2012 came to be passed by the CESTAT dismissing the main appeal itself and the said order was communicated to the petitioner vide Assistant Registrar''s letter dated 23-8-2012. It is further pleaded that the ex parte order dated 30-11-2011 was without assigning any reasons and even the final order dated 28-5-2012 came to be passed without considering the petitioner''s request for modification of the condition for pre-deposit of 50% of duty.

Thus it is contended that the impugned orders dated 30-11-2011 and 28-5-2012 passed by the CESTAT being arbitrary, illegal and in violation of principles of natural justice are liable to be set aside.

The respondents in their counter-affidavit did not controvert the plea that the order dated 30-11-2011 was communicated to the petitioner only in April, 2012. However it is contended that the petitioner had earlier filed W.P. No. 5111 of 2013 for the same relief which was dismissed as withdrawn on 28-2-2013 and as such the present writ petition is not maintainable. On merits, it is contended that as the petitioner company had clandestinely removed the cotton yarn and also failed to maintain the statutory records properly, the Commissioner had rightly passed the order dated 30-12-2008.

We have heard the learned counsel for both the parties and perused the material available on record.

As we could see, the whole controversy is with regard to the liability of the petitioner to pre-deposit the duty demanded as provided u/s 35F of the Act, 1944. Both the impugned orders dated 30-11-2011 and 28-5-2012 came to be passed by the CESTAT only on the ground that the petitioner failed to pre-deposit the duty demanded. Therefore, there is no need to go into the correctness of the determination made by the Commissioner and thus the only question that requires consideration by us is whether the CESTAT is justified in dismissing the petitioner''s appeal itself by order dated 28-5-2012.

For proper appreciation of the issue involved, it is necessary to refer to Section 35F of the Central Excise Act, 1944.

Section 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 interests 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.

Explanation. - For the purposes of this section "duty demanded" shall include, -

(i) amount determined u/s 11D;

(ii) amount of erroneous Cenvat credit taken;

(iii) amount payable under Rule 57CC of Central Excise Rules, 1944;

(iv) amount payable under Rule 6 of Cenvat Credit Rules, 2001 or Cenvat Credit Rules, 2002 or Cenvat Credit Rules, 2004;

(v) interest payable under the provisions of this Act or the rules made thereunder.

A plain reading of the above provision shows that pre-deposit is not mandatory in all appeals filed u/s 35B of the Act, but in certain appeals specified therein pre-deposit is not required at all. Moreover, the first proviso to Section 35F empowers the Appellate Tribunal to dispense with the pre-deposit if the Tribunal is of the opinion that the deposit of duty demanded or penalty levied would cause undue hardship to the appellant, subject to such conditions as it may deem fit to impose so as to safeguard the interest of Revenue.

The discretion so conferred on the Tribunal to dispense with pre-deposit, in our considered opinion, requires to be exercised judiciously in an objective manner after giving an opportunity of hearing to the appellant.

Coming to the case on hand, the order dated 30-11-2011 itself shows that the writ petitioner was not heard before passing the said order. It may be true that the matter had already undergone several adjournments at the instance of the petitioner and even on 30-11-2011 there was no representation on behalf of the petitioner despite notice. Therefore, though the Tribunal cannot be found fault with in proceeding with the matter in the absence of the petitioner, we are of the view that in such circumstances the Tribunal is bound to pass an order on merits assigning the reasons for its conclusion. As we could see, the order dated 30-11-2011 whereunder the CESTAT directed the writ petitioner/assessee to pre-deposit 50% of the duty demanded is absolutely without any reasons. The operative portion of the said order reads as under:

Para. 3 After examining the records and hearing learned SDR, we have not found prima facie case for the appellant. We direct the assessee to pre-deposit 50% of the entire amount of duty demanded, within six weeks from the date of receipt of a certified copy of this order and report compliance to the Assistant Registrar on 28-2-2012. AR to report to the Bench on 8-3-2012. Subject to such deposit, there will be waiver of pre-deposit and stay of recovery in respect of the penalties imposed on the company and its director and also the balance amount of duty with interest.

Apparently, the Tribunal did not go into the petitioner''s plea of financial hardship, particularly the plea that the petitioner company has been referred to BIFR and no finding as such was recorded on the issue whether the deposit of duty demanded would cause any undue hardship to the appellant.

Be that as it may, the petitioner has subsequently made a petition for modification of the condition for pre-deposit of 50% of duty and there was a specific reference in the order dated 28-5-2012 with regard to the petitioner''s request, for modification of the order dated 30-11-2011. However the order dated 28-5-2012 was also cryptic and did not reflect the application of mind to the facts and circumstances of the case particularly the financial hardship pleaded by the petitioner. Moreover, the said order also came to be passed without hearing the writ petitioner.

It is also relevant to note that the specific plea of the petitioner in the writ petition that the order dated 30-11-2011 was communicated to it only in April, 2012 remained un-controverted. That being so, we find force in the submission of the learned counsel for the petitioner that the Tribunal erred in presuming (hat the petitioner failed to comply with the condition imposed in the order dated 30-11-2011 to pre-deposit 50% of the duty demanded within six weeks from the date of receipt of a certified copy of the said order. We find substance in the petitioner''s plea that the six weeks time granted by the Tribunal would run only from the date of communication of the order dated 30-11-2011.

In the totality of the facts and circumstances of the case, it appears to us that the CESTAT is not justified in concluding that the petitioner failed to comply with the condition of pre-deposit of 50% of the duty demanded and in dismissing the main appeal itself on that ground.

It is also brought to our notice by the learned counsel for the petitioner that against the original order of the Commissioner dated 30-12-2008 the respondent herein/revenue has also preferred an appeal u/s 35B of the Act and that the same is pending on the file of the CESTAT.

For the aforesaid reasons, we are of the opinion that the petitioner deserves to be provided an opportunity to renew its request for waiver of pre-deposit.

Accordingly, the impugned order dated 28-5-2012 is hereby set aside and the Writ Petition is disposed of with a direction that the CESTAT shall consider the petitioners application for modification of the order dated 30-11-2011 and pass appropriate orders in accordance with law after giving an opportunity of personal hearing to the petitioner.

It is made clear that this Court shall not be understood to have expressed any opinion as to the correctness of the order dated 30-11-2011 and it is open to the CESTAT to pass appropriate orders either modifying or retaining the said order, however assigning reasons therefor.

To avoid any further delay and to ensure the appearance of the petitioner before the CESTAT on the date fixed, the petitioner is hereby directed to appear before the CESTAT on 12-8-2013 and shall undertake to appear on the date that may be fixed by the CESTAT for hearing. In the event of the petitioner''s failure to appear on the date so fixed by CESTAT for hearing, no further opportunity of personal hearing need be given to the petitioner and the order dated 28-5-2012 shall stand revived.

The Writ Petition is accordingly disposed of with the above directions. No costs. Consequently, Miscellaneous Petitions, if any, pending in this writ petition shall stand closed.