Trendy Moods vs Customs, Excise and Gold (Control) Appellate Tribunal (now known as Customs, Excise and Service Tax Appellate Tribunal) and Commissioner of Customs

V. Dhanapalan, J.—Appellant is a merchant, exporting various goods, apart from importing raw-materials. He was granted an Advance

Licence on 01.04.1992 under Duty Exemption Scheme. As per the said Scheme, exporters are allowed to import inputs i.e., raw-materials,

components, consumables, packaging materials and mandatory spares required for the manufacture of a given finished product known as ''resultant

product'', without payment of import duty on such inputs, subject to the condition that a specified quantity of the resultant product should be

exported within a specific time limit and the foreign exchange against such exports should be realised. The licence in question permitted the import

of 81 MTs. of Cassia, subject to the condition that 1000 Kgs. of Cassia Oil should be exported. The appellant effected imports of 80.534 MTs.

of Cassia against the Advance Licence. Duty free imports were allowed in terms of Customs Notification No. 159/90.

As a result of certain allegations made by the Directorate of Revenue Intelligence, a show cause notice, dated 07.09.1995, was issued to the

appellant, alleging certain violations, and demanding duty of Rs. 38,91,449/-, by disallowing the duty exemption availed, for which the appellant

sent a reply, pursuant to which, the second respondent, namely, Commissioner of Customs, by his Order-in-Original No. 13 of 1999, dated

15.03.1999, directed the appellant to pay Rs. 26,54,175/-, towards customs duty, in addition to a penalty of Rs. 2.50 lakhs on the firm and a

personal penalty of Rs. 25,000/- on the Power of Attorney Holder of the appellant. The said order was challenged by the appellant in Appeal

Nos. C/268 and 269 of 1999 before the first respondent, namely, Customs, Excise and Service Tax Appellate Tribunal (in short, ""the Appellate

Tribunal"") along with Stay Application Nos. 151 and 152 of 1999. The Appellate Tribunal, by its Stay Order Nos. 89 and 90 of 2000, dated

01.02.2000, directed the appellant to deposit a sum of Rs. 13.00 lakhs within two months, observing that if such amount was deposited and

compliance reported, the balance amount of duty, penalty, personal penalty etc., stood waived and recovery thereof stayed during the pendency of

the appeals. It was also made clear that if the amount was not deposited within the stipulated time, the appeals would be liable for dismissal.

The said order of the Appellate Tribunal, dated 01.02.2000, was challenged before this Court in W.P. No. 5966 of 2000, whereupon, a

learned single Judge, by an order, dated 13.11.2006, modified the order of the Appellate Tribunal, directing the appellant to deposit a sum of Rs.

8.00 lakhs instead of 13.00 lakhs. The correctness of the said order is under challenge in this Writ Appeal.

The only contention of the learned Counsel for the appellant is that the appellant is not doing any gainful business and hence the direction for

pre-deposit will lead to financial hardship to the appellant. The learned Counsel would cite the following authorities:

(i) J.N. Chemical (Pvt.) Ltd. Vs. CEGAT, :

7...On the facts and circumstances of the case, there was full justification for the exercise of the power vested in the Tribunal to dispense with the

requirement of pre-deposit inasmuch as the case of the appellant was fully covered by the decision of a Special Bench of the Tribunal and still to

insist upon the deposit of duty demanded and penalty levied would indubitably cause undue hardship to the appellant. The power to dispense with

such requirement is conferred on the Tribunal to be exercised precisely in cases like these and, if it is not exercised under such circumstances, this

Court will require it to be so exercised.

(ii) Sri Krishna Vs. Union of India (UOI), :

8...The order of the Tribunal should show if the pleas raised before it, have any merit prima facie or not. If the appellant has such a prima facie

strong case as is most likely to exonerate him from payment and still the Tribunal insists on the deposit of the amount it would amount to undue

hardship.

(iii) Mehsana Dist. Co-op. Milk P.U. Ltd. Vs. Union of India (UOI), :

By the impugned order, the appellants have been directed to deposit an amount of Rs. 30 lakhs by way of pre-deposit. The reasoning given in

support of such order is wholly unsatisfactory. The appellate authority has not at all considered the prima facie merits and has concentrated upon

the prima facie balance of convenience in the case. The Appellate Authority should have addressed its mind to the prima facie merits of the

appellants'' case and upon being satisfied of the same determined the quantum of deposit taking into consideration the financial hardship and other

such relevant factors.

(iv) 2003 (89) ECC 624 :

The appellants had applied for the advance licence for the standard inputs as identified by the Standard Input/Output Norms against exports

already made of ceiling fans. The imported goods viz., aluminium alloy having been actually used for manufacture of top and bottom covers and

fans found to have been exported, the allegation of mis-declaration is not invocable.

(v) Northern Doors (P) Ltd. Vs. Commissioner of Central Excise, :

While deciding the application, Court must apply its mind as to whether the appellant has a strong prima facie case on merit. If an appellant, having

strong prima facie case, is asked to deposit the amount of assessment so made or penalty so levied, it would cause undue hardship to him, though

there may be no financial restrain on the appellant.

(vi) ITC Limited Vs. CC (Appeals) and CE and Others, :

It is clear that the Court should not grant interim relief/stay of the recovery merely by asking of a party. While considering the application for

stay/waiver of a pre-deposit, as required under the law, the Court must apply its mind as to whether the appellant has a strong prima facie case on

merit. If an appellant, having strong prima facie case, is asked to deposit the amount of assessment so made or penalty so levied, it would cause

undue hardship to him, though there may be no financial restrain on the appellant running in a good financial condition.

(vii) Bhavya Apparels Private Limited and Another Vs. Union of India (UOI) and Another, :

Section 129-E of the Act would be attracted where the goods in question are not in the custody of the Revenue. The said provision, therefore,

would be attracted only when the ingredients thereof exist.

Conversely, the learned Senior Central Government Standing Counsel, appearing for the respondents, would submit that the EXIM Policy does

not provide for stocking of the duty free imports and later on selling the same in the local market either before or after completion of export

obligation; the duty free imports in this case can in no way be considered as ''replenishment materials'', as the appellant is not a manufacturer and

no attempt had been made to replenish the raw-materials used in the manufacture of export products, but the same had only been kept as stock;

hence, by no stretch of imagination, these duty exempt material, kept as stock, can be termed as replenished material and disposed of as per

Customs Notification No. 159/90 and that the appellant is having sufficient means to pay the pre-deposit. In support of his contention, the learned

Senior Central Government Standing Counsel has relied upon the following decisions:

(i) Benara Valves Ltd. and Anr. v. Commissioner of Central Excise and Anr. 2006 (13) Scc 347:

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.

(ii) Monotosh Saha v. Special Director, Enforcement Directorate and Anr. 2008 AIR SCW 6004:

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 manner 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....

Undisputably, the appellant had deposited the amount which was directed to be deposited. However, for the balance amount demanded with a

view to safeguard the realization of penalty, the appellant shall furnish such security as may be stipulated by the Tribunal. On that being done, the

appeal shall be heard without requiring further deposit if the appeal is otherwise free from defect.

We have heard the learned Counsel for the parties; considered the rival submissions and also gone through the records, coupled with the

authorities cited.

The questions as to the violation of Duty Exemption Scheme and the liability of the appellant have to be decided in the appeal filed before the

first respondent Appellate Tribunal. In this connection, it is more relevant to refer to Section 129-E of The Customs Act, 1962, which reads as

under:

129E. Deposit, pending appeal, of duty and interest, demanded or penalty levied.- Where in any appeal under this Chapter, the decision or order

appealed against relates to any duty and interest demanded in respect 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 duty and interest demanded or penalty levied:

Provided that where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of the opinion that the deposit of duty and

interest 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 and interest

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.

The above Section would make it clear that in order to entertain any appeal against the decision or order relating to any duty and interest

demanded in respect of goods, which are not under the control of the customs authorities, or any penalty levied, the person, preferring appeal, has

to deposit with the proper officer duty and interest demanded or penalty levied, which is mandatory. However, in any particular case, if the

Commissioner (Appeals) or the Appellate Tribunal is satisfied that the deposit of duty and interest demanded or penalty levied would cause undue

hardship to such person, the said authorities may dispense with such deposit, subject to such conditions as they may deem fit to impose.

In this case, originally, in the show cause notice, duty was demanded at Rs. 38,91,449/-. Thereafter, on explanation by the appellant, the

second respondent, namely, Commissioner of Customs, by his Order-in-Original No. 13 of 1999, dated 15.03.1999, restricted the demand to Rs.

26,54,175/-, towards customs duty, in addition to a penalty of Rs. 2.50 lakhs on the firm and a personal penalty of Rs. 25,000/- on the Power of

Attorney Holder of the appellant, instead of Rs. 38,91,449/-. Again, the said sum was reduced to Rs. 13.00 lakhs by the Appellate Tribunal.

Finally, the said sum of Rs. 13.00 lakhs was curtailed to Rs. 8.00 lakhs by the learned single Judge. Though no prima facie case, undue hardship or

financial constraint was shown by the appellant, the Appellate Tribunal and the learned single Judge were lenient enough to reduce the duty to Rs.

13.00 lakhs and thereafter to Rs. 8.00 lakhs respectively. At this stage, if the said amount of Rs. 8.00 lakhs is further reduced or waived, the

interest of the revenue will be jeopardised. Hence, the appellant cannot be allowed to prefer the appeal without pre-deposit, which is a necessary

requirement for entertaining the appeal by the Appellate Tribunal, as per Section 129-E. It is to be stated that the pre-deposit to be made by the

appellant will not in any way prejudice his case, as the matter shall be decided by the Appellate Tribunal on merit and in accordance with law.

With regard to the grievance of the appellant that because of the hardship, he is unable to make pre-deposit, the point is to be decided as to

whether there is any undue hardship, based on which the appellant is entitled for waiver. As regards undue hardship, a proposition has been laid

down by the Supreme Court in a number of decisions. A Division Bench of this Court, on an earlier occasion, considered two of the decisions of

the Supreme Court, namely, (i) S. Vasudeva Vs. State of Karnataka and others, and (ii) Benara Valves Ltd. and Others Vs. Commissioner of

Central Excise and Another, , in an unreported judgment, dated 08.01.2008, passed in W.A. Nos. 1138 to 1144 of 2007. In S. Vasudeva''s

case, the Supreme Court held that the expression ""undue hardship"" is normally related to economic hardship. ""Undue"" means something, which is

not merited by conduct of the claimant or is very much disproportionate to it. Undue hardship is excessive hardship, that is not warranted by

circumstances. In Benara Valves Ltd.''s case, the Apex Court observed that 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. It was also observed therein that the word ""undue"" adds something more than just hardship. It

means, an excessive hardship or a hardship greater than the circumstances warrant.

In the case on hand, the capacity of the appellant to pay the amount having been noticed and in the absence of any financial burden, it cannot

be construed that there is an undue hardship for the appellant to resort to claim waiver of pre-deposit. Therefore, the decisions, relied upon by the

appellant, are not applicable to the present case.

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 Appellate Tribunal,

while dealing with the plea of the appellant for waiver of pre-deposit, has considered the materials available on record and stipulated a condition,

as required, to safeguard the interest of revenue.

Under the circumstances, we are of the considered opinion that the plea of the appellant for waiver of pre-deposit cannot be countenanced.

However, with a view to give the appellant an opportunity, we afford a further time of 15 days to deposit the amount of Rs. 8.00 lakhs, as ordered

by the learned single Judge, if not already deposited. In the event of such deposit, the Appellate Tribunal is directed to take up the appeal for

hearing and decide the matter on merit and in accordance with law.

With the above observation, this Writ Appeal is dismissed. No costs. Consequently, the connected M.P. No. 1 of 2006 also stands dismissed.