Unison Hotels vs Commissioner of Customs (Port-Export)

R. Sudhakar, J.—These Civil Miscellaneous Appeals are filed challenging the Miscellaneous Order Nos. 40753-40756 of 2014, dated 26-5-2014, passed by the Customs, Excise and Service Tax Appellate Tribunal, Chennai (for brevity, "the Tribunal").

1.1. The facts in a nutshell are as under:

"The appellant imported BMW cars under Export Promotion Capital Goods (EPCG) Scheme. As per the said scheme, the vehicles imported should be used for tourist purposes only. The Department noticed that these imported cars were used for private purposes, in contravention of the terms of the EPCG Scheme. In view of the above, the cars were seized by the Department, but were subsequently released on the appellants furnishing bond of Rs. 1,30,74,927/- along with Bank Guarantee of Rs. 1,30,74,927/-. Subsequently, show cause notices were issued to both the applicants proposing to confiscate the cars, apart from demanding duty along with interest and penalty."

1.2. The appellants in their reply to the show cause notice pleaded for dropping of the proceedings sought to be initiated. After affording personal hearing, the matter was taken up for adjudication and by order dated 31-12-2012 made in Order-in-Original No. 20029 of 2013, the respondent ordered confiscation of three BMW cars, apart from demanding payment of duty, interest and penalty and ordering appropriation of the bank guarantee executed by the second appellant towards duty demand, interest, fine and penal liabilities.

1.3. Aggrieved by the said order, the appellants filed appeals before the Tribunal, which held that the appellants have failed to make out a prima facie case for waiver of pre-deposit of the entire amount of duty along with interest and penalty and ordered as under:--

"12. In view of the above discussions, we direct the applicant to pre-deposit the entire amount of duty. At this stage, the learned Counsel fairly submits that the Bank Guarantee may be encashed for collecting the demand of duty. As such, we direct the department to encash the Bank Guarantee to the extent of demand of duty of Rs. 96,11,113/- as pre-deposit and the balance would be kept as a separate Bank Guarantee, within eight weeks from today. Upon deposit of the same, the pre-deposit of interest and penalty of both the applicants would be waived and recovery thereof stayed till the disposal of the appeal. To report compliance on 31st July, 2014."

1.4. Assailing the said order passed by the Tribunal, the present appeals are filed raising the following substantial questions of law:

"(i) Whether the order of the Tribunal is contrary to the period of export obligation of eight years under Chapter 5 - Export Promotion Capital Goods Scheme of the Foreign Trade Policy (2004-2009)?

(ii) Whether the order of the Tribunal is erroneous in not following the precedent set in the case of Air Travel Bureau Ltd. v. Commissioner of Customs, New Delhi reported in 2009 (237) E.L.T. 283 (Tri. - Del.), which was upheld by the Delhi High Court The Commissioner of Customs Vs. Air Travel Bureau Ltd., and also by the Supreme Court [2011 (268) E.L.T. A110 (S.C.)]?

(iii) Whether the order of the Tribunal is erroneous in holding that there is no material available that the imported cars were used for tourist purposes only?

(iv) Whether the order of the Tribunal is erroneous in holding that prima facie there is violation of exemption notification insofar as the appellant failed to produce any evidence that the payments were received in freely convertible foreign currency for services rendered to use of the cars?

(v) Is not the Tribunal bound to look at the issue of "undue hardship" and render a finding on the issue while deciding on pre-deposit by virtue of Section 129E of the Customs Act, 1962?"

At the time of admission, this Court considering the plea made by the learned counsel for the appellants that the order of the Tribunal directing pre-deposit is onerous and is causing great financial difficulties, passed the following order:

"Mr. Xavier Felix, learned Standing Counsel takes notice for respondent.

Heard both sides.

There will be an order of interim stay on condition that the appellant deposits a sum of Rs. 25,00,000/- (Rupees Twenty Five Lakhs) only on or before 7-8-2014, failing which stay granted shall stand vacated.

Post on 7-8-2014."

When the matter was taken up for hearing today, it is stated by the learned counsel for the appellants that the department has encashed the bank guarantee in a sum of Rs. 96,11,113/-, as ordered by the Tribunal and as such, the order of the Tribunal has been complied with by the appellants.

At the present stage, we are concerned with the question of pre-deposit of duty. The Tribunal thought it fit to order only encashment of bank guarantee to the extent of demand of duty of Rs. 96,11,113/-. The interest of the department has been safeguarded by the encashment of the bank guarantee. What remains to be paid by the appellant is the balance amount of duty, interest and penalty, which the Tribunal itself has ordered to be waived on such encashment of bank guarantee.

As on date, the conditional order passed by the Tribunal has been complied with by the appellants and the interest of the Revenue is safeguarded. We also find force in the plea of the appellants regarding financial hardship due to the major fire accident that took place at the premises of the second petitioner/hotel. Therefore, we are of the view that the Tribunal should take up the appeals filed by the appellants and dispose of the same on merits.

The above said view is fortified by a decision of the Supreme Court in Benara Valves Ltd. and Others Vs. Commissioner of Central Excise and Another, , wherein it has been held as under:

"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 legs to stand on, 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 licence 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 citizen''s 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 Others Vs. Amalendu Das and Others, and Assistant Collector of Central Excise, Chandan Nagar, West Bengal Vs. Dunlop India Ltd. and Others, cases without analysing factual scenario involved in a particular case.

Section 35F of the Act reads as follows:

"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 the 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."

Two significant expressions used in the provisions are "undue hardship to such person" and "safeguard the interests of the 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 interests of the 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 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 interests of the 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 interests of the 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 conditions as required to safeguard the interests of the Revenue."

As the encashment of bank guarantee as ordered by the Tribunal has been effected, we uphold the order of the Tribunal with regard to waiver of pre-deposit of interest and penalty of both the appellants and recovery thereof. The Tribunal shall take up the appeals in the usual course and dispose of the same on merits and in accordance with law. Since the conditional order of stay passed by the Tribunal has been complied with by the appellants and we are directing the Tribunal to dispose of the appeals, we are not expressing any opinion on the substantial questions of law raised for consideration at this stage. In the result, these appeals are ordered in the above terms. No costs. Consequently, connected miscellaneous petitions are closed.