• Feb
  • 08
  • 2013

CBEC Circular on recovery during pendency of appeal is arbitrary, unjustified & unlawful – Bombay HC

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Sr. No. 10 of the circular of the Board deals with an appeal to the CESTAT where the Commissioner (Appeals) has confirmed a demand in an order in original of the adjudicating authority. The circular stipulates that recovery has to be initiated immediately on the issue of the order in appeal. In a situation where the Commissioner (Appeals) has confirmed the demand made in the order of adjudication, the assessee is permitted by the provisions of Section 35F to move the Tribunal for a dispensation of the requirement of deposit. But the circular mandates that recovery shall be made immediately on the issue of an order in appeal implying thereby that recovery would be initiated without allowing the assessee, the time which is allowed by the statute for filing an appeal and for applying for a waiver of pre-deposit. Similarly, Sr. No.11 stipulates that where the Tribunal has confirmed the demand, a recovery would be initiated immediately on the issuance of the order of the Tribunal. The assessee is therefore deprived of even a reasonable period of time to move the High Court against the order of the Tribunal. In our view, the circular which is issued by the Board is in terrorem and its plain effect and consequence is to deprive the assessee of the remedy which is provided under the law of moving, as the case may be, the CESTAT, the High Court or the Supreme Court against an order of adjudication of the competent appellate forum. Initiating recovery proceedings because a stay application has not been disposed of within thirty days of the filing of an appeal would be to penalize an assessee for the inability of the judicial or, as the case may be, quasi-judicial authority to conclude the disposal of the stay application within that period. If the assessee is not responsible for the delay in the disposal of the stay application and the application remains pending for reasons not attributable to the conduct of the assessee, initiation of recovery proceedings would be arbitrary and unfair. However, if the failure to dispose of an application for stay is because of the conduct of the assessee, such as by a resort to dilatory tactics, the revenue would in such a situation be justified in commencing recovery action. Moreover, there is no justification to commence recovery immediately following an order in appeal where a period of limitation is laid down by the relevant provision of law for challenging the decision of the Appellate Authority.

Counsel appearing on behalf of the Revenue submitted during the course of the hearing that the field officers of the Revenue who initiate recovery action are independent of the adjudicating or appellate forum and hence have no means of verifying the status of the applications for stay and it is hence for the assessee, when recovery action is initiated to inform the jurisdictional Commissioner of the pendency of the stay application. We do not find that this can be treated as a valid justification for penalizing an assessee whose conduct is otherwise free from blame. Modern technology has made rapid strides and in our view, it is time that the Union Ministry of Finance takes steps to ensure that proceedings before the  adjudicating authorities as well as the Appellate Authorities including the Commissioner (Appeals) and the CESTAT are recorded in the electronic form. Once an appeal is filed before the Commissioner (Appeals), the filing of the appeal must be recorded through an entry made in the electronic form. Every appellant, including the assessee must indicate, when an appeal is filed, an email ID for service of summons and intimation of dates of hearing. The Commissioner (Appeals) must schedule the hearing of stay applications and provide dates for the hearing of those applications which must be published in the electronic form on the website. The order sheets or roznamas of every case must be duly uploaded on the website to enable both the officers of the Revenue and assessees to have access to the orders that have been passed and to the scheduled dates of hearing. We would also commend to the Union Ministry of Finance the urgent need to introduce electronic software that would ensure that the orders and proceedings of the CESTAT are duly compiled, collated and published in the electronic form. A case information software has been adopted for the District judiciary including in the State of Maharashtra under the auspices of the National Informatics Center.Matters involving Revenue have large financial implications for the Union Government. The incorporation of electronic technology in the functioning of judicial and quasi-judicial authorities constituted under the Central Excise Act, 1944, the Customs Act, 1962 and cognate legislation would provide a measure of transparency and accountability in the functioning of the adjudicating officers, the appellate Commissioners as well as the Tribunal. But equally significant is the need to protect the interest of the Revenue which the adoption of electronic technology would also achieve. We are not unmindful of the fact that an application for stay may be kept pending for an indefinitely long period of time at the behest of an unscrupulous assessee and a willing administrative or quasi-judicial authority. This would be obviated by incorporating the requirement of disseminating and uploading the proceedings of judicial and quasi-judicial authorities under the Central Excise Act 1944 as well as the Customs Act 1962 in an electronic form. This would ensure that a measure of administrative control can be retained with a view to safeguarding the position of the Revenue as well as in ensuring fairness to the assessees. We hope and trust that this suggestion of the Court will receive serious and urgent consideration by the Union Ministry of Finance.

In the lead Writ Petition, the hearing of the application for stay has been adjourned for administrative reasons not bearing upon the conduct of the assessee and the application is now listed on 5 February 2013. In the circumstances, we see no reason or justification for the initiation of recovery proceedings despite the pendency of the stay application before the CESTAT. We would request the CESTAT to take up the stay application for early disposal -and preferably within a period of eight weeks of the date on which an authenticated copy of this order is produced before it. We direct that in the meantime no coercive steps for the recovery of the demand shall  be initiated.

HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION

WRIT PETITION NO.878 OF 2013

Larsen & Toubro Limited & Anr Vs.The Union of India and others    . .

WITH WRIT PETITION NO.380 OF 201

Uhde India Private Limited Vs.The Union of India and others

WITH WRIT PETITION NO.420 OF 2013

Tata Teleservices (Maharashtra) Ltd. Vs. The Union of India and others

WITH WRIT PETITION NO.696 OF 2013

M/s. Tata Motors Limited Vs. The Union of India and others

WITH WRIT PETITION NO.698 OF 2013

M/s. Bhatia Shipping Pvt. Limited Vs. The Union of India and others           . .

WITH WRIT PETITION NO.810 OF 2013

M/s. Tata Steel Limited Vs. Union of India and others

WITH WRIT PETITION NO.811 OF 2013

M/s. Tata Steel Limited Vs. The Union of India and others     ..

WITH WRIT PETITION NO.812 OF 2013

M/s. Tata Steel Limited Vs.The Union of India and others

WITH WRIT PETITION NO.813 OF 2013

Lift Systems (India) Pvt. Limited Vs. The Union of India and others

WITH WRIT PETITION NO.814 OF 2013

Lift Systems (India) Pvt. Limited Vs. The Union of India and others

1 February 2013.

ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :

Rule, by consent made returnable forthwith. The learned counsel appearing on behalf of the Respondents waive service on behalf of the respective Respondents. By consent, the Petitions are taken up for hearing and final disposal.

2. In this batch of Petitions under Article 226 of the Constitution there is a challenge to a circular dated 1 January 2013 issued by the Central Board of Excise and Customs. The circular issues directions to Chief Commissioners of Central Excise and Customs in regard to the procedure to be adopted for the recovery of outstanding demands in situations where an appeal is filed against the order of the adjudicating authority before the Commissioner (Appeals) or thereafter before the CESTAT, the High Court or the Supreme Court. The assessees are aggrieved by the stipulation which has now been brought into force, the effect of which is that though an application for stay of the recovery of the demand has been filed before the appellate forum, recoveries would be proceeded with on the expiry of a stipulated period, and in certain cases immediately. According to the Petitioners when the stay application remains to be disposed of due to the inability of the appellate authority to ake up the application for hearing and for disposal, and without any default on the part of the assessee, it would be arbitrary to penalize the assessee by enforcing the recovery despite the pendency of the application for stay. For convenience of reference, the facts of the lead petition in the group are being enunciated.

3. The Petitioners, Larsen and Toubro Limited are engaged in providing services of commission agents in India and Nepal for all kinds of earth moving equipment and other machines including accessories and spares manufactured by L & T Komatsu Limited. Two notices to show cause were issued to the Petitioners on 24 March 2005 and 24 October 2005 for the non-payment of service tax dues. The Petitioners filed their replies. By an order dated 10 October 2011 the Commissioner of Central Excise, Thane-I confirmed a demand on account of service tax for the period between April 2003 and March 2005, holding that ihe service provided by the Petitioners fell under the category of clearing and forwarding agent services with effect from 1 July 2003. An application for rectification was rejected. An appeal has been filed before the CESTAT together with an application for stay on 10 October 2011. The Mumbai Bench of the Tribunal notified the Petitioners on 5 November 2012 that the stay application would be posted for hearing on 16 November 2012. Due to the non-availability of the Bench, the stay application and appeals were not listed on that day and were adjourned. On 30 November 2012, the Assistant Registrar of CESTAT informed the Petitioners that the stay application together with the appeal stood adjourned to 5 February 2013. On 22 January 2013 the Superintendent of Service Tax, Group II, Division V, Mumbai 400 002, the Third Respondent, issued a summons directing the officers of the Petitioners to appear before him on 24 January 2013 inter alia to furnish details of the bank accounts. By a letter dated 28 January 2013 the details were furnished to the Third Respondent together with a submission that for a subsequent period between April 2005 to March 2006 on a similar issue the CESTAT had allowed the appeal filed by the Petitioners. On 28 January 2013, it was alleged that the officers of the Commissionerate of Service Tax attended the office of the Petitioners and while recording a statement there was a threat to take recourse to coercive action to recover the amount which has been confirmed by the order of adjudication, though the stay application is listed for hearing before the CESTAT on 5 February 2013.

4.                 Coercive action against the Petitioners is sought to be initiated on the basis of a circular issued by the Central Board of Excise and Customs on 1 January 2013. Now before we deal with the contents of the circular and the nature of the challenge, it would be necessary to advert to some of the earlier circulars which are now sought to be rescinded by the circular in question. On 18 November 1988 a circular was issued no i at some High Courts as well as the CEGAT had observed that it was not fair on the part of the Central Excise Department to take recourse to coercive measures for the recovery of government dues during the pendency of stay applications filed by assessees. The circular noted that the matter had been examined by the Board in consultation with the Union Law Ministry which had opined that the department was within its rights to proceed with recovery proceedings after waiting for a decision on the stay application for a reasonable period, which would depend upon the facts and circumstances of a particular case. The Board accepted the advice of the law ministry noting that the mere pendency of a stay application was not a legal bar to proceed with recovery in the absence of a specific order. By a circular dated 2 March 1990 the Board reiterated that “ it was hardly fair and just to proceed with the recovery proceedings while application for stay of the impugned order or for waiver of the condition of pre-deposit was pending before the Appellate Authorities”, this being based on the ratio of certain judgments delivered by this Court. By a subsequent circular dated 21 December 1990 the Board stated that the correct legal position is that unless an assessee obtains a stay, the Department is within its right to recover the duty confirmed in an order. But as a practical step and for administrative convenience a period of three months, it was stated, can be granted before taking coercive steps for the recovery of dues (one month for filing an appeal and stay application and two more months for obtaining orders on the stay application). The Board therefore decided that an assessee should not be granted time beyond three months before resorting to coercive measures for the recovery of dues arising out of orders passed by original adjudicating authorities as well as appellate authorities. If a stay application was rejected even before the lapse of three months, recovery proceedings were directed to be initiated immediately. By a circular dated 12 November 1992 the Board declined to revise the earlier instructions while at the same time directing that stay applications should be disposed of within a period of two months from the date of receipt. This was clarified again on 3 August 1994. By a further circular dated 2 June 1998 the Board noted that the Bombay High Court had ordered that the Commissioner (Appeals) may be directed to dispose of a stay application within a specified time limit and that during the pendency of the stay application no coercive action should be taken to realize the arrears of revenue. Keeping this in view the Board notified that it had “decided that no coercive action should be take to realise the dues till the disposal of the stay application by the Commissioner (Appeals) and the Commissioner (Appeals) must dispose of the stay application within one month of its filing”. The final circular was of 25 May 2004. By this circular the Board inter alia adverted to the provisions of the Central Excise Act 1944 and directed the field officers to refrain from taking coercive action till the period of six months of filing a stay petition before the CESTAT or till the disposal of the stay petition, whichever is earlier. This, it was however clarified, would apply to stay applications filed with first stage appeals arising out of original orders of the Commissioners and not to further appeals.

5. All the earlier circulars which have been noted above have now been rescinded by the circular dated 1 January 2013. The impugned circular provides that henceforth recovery proceedings shall be initiated against a confirmed demand in terms of an order which is contained in a tabulated chart which reads as follows :

Sl.
No
.

Appellate Authority

Situation

Directions regarding
recovery.

1

NIL

No appeal filed against a confirmatory order in original against which appeal lies with Commissioner (Appeals). Recovery to be initiated after expiry of statutory period of 60 days for filing appeal.

2

Commissioner (Appeals) Appeal filed without stay application against a confirmatory order-in- original. Recovery to be initiated after such an appeal has been filed, without waiting for the statutory 60 days period to be exhausted.

3

Commissioner (Appeals) Appeal filed with a stay application against an order-in-original. Recovery to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any specified, whichever is earlier.

4

NIL No appeal filed against an Order-in-Original issued by the Commissioner. Recovery to be initiated after expiry of statutory period of 90 days for filing appeal from the date of communication of order.

5

CESTAT Appeal filed without stay application against an Order-in- Original issued by the Commissioner. Recovery to be initiated on filing of such an appeal, without waiting for the statutory 90 days period to be exhausted.

6

CESTAT Appeal filed with a stay application against an Order-in-Originalissued by the Commissioner. Recovery to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any, whichever is earlier.

7

NIL No appeal filed against an Order-in-Appeal issued by a Commissioner (Appeals) confirming the demand for the first time. Recovery to be initiated after expiry of statutory period of 90 days for filing appeal from the date of communication of order.

8

CESTAT Appeal filed without stay application against an Order-in- Appeal confirming the demand for the first time. Recovery to be initiated on filing of such an appeal in the CESTAT, without waiting for the statutory 90 days period to be exhausted.

9

CESTAT Appeal filed with a stay application against an Order-in-Appeal confirming the demand for the first time. Recovery to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any, whichever is earlier.

10

CESTAT All cases where Commissioner (Appeals) confirms demand in the Order- in-original. Recovery to be initiated immediately on the issue of Order in Appeal.

11

High Court or Supreme Court Tribunal or High Court confirms the demand. Recovery to be initiated immediately on the issue of order by the Tribunal or the High Court, if no stay is in operation.

6. The circular relies upon a decision of the Supreme Court in Collector of Customs v. Krishna Sales (P) Limited1 in support of the principle that the mere filing of an appeal does not operate as a stay or suspension of the order Appealed against.

7. A brief reference at this stage to the relevant provisions of the Central Excise Act 1944 would be in order. Section 35 provides for an appeal to the Commissioner (Appeals) against an order passed by an officer lower in rank than a Commissioner of Central Excise. The period for the filing of an appeal is sixty days. The Commissioner (Appeals) is empowered to condone a delay of a further period of upto thirty days. Sub section (4A) of Section 35A requires the Commissioner (Appeals) , where it is possible to do so, to hear and decide every appeal within a period of six months from the date on which it is filed. Section 35B governs appeals to the Tribunal and sub section (3) requires every such appeal to be filed within a period of three months from the date on which the order sought to be appealed is communicated to the party preferring the appeal. Sub section (4) allows cross-objections to be filed within a period of forty-five days of the receipt of a notice that an appeal has been preferred. Rule 15A of the Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules 1982 allows a period of one month to file a reply to an appeal. Sub section (5) of Section 35B empowers the Appellate Tribunal to condone the delay in filing an appeal or cross-objections for sufficient cause. Under sub section (2A) of Section 35C the Tribunal is required, where it is possible to do so, to hear and decide the appeals within three years from the date on which the appeal is filed. The first proviso requires the Tribunal, where an order of stay has been passed to dispose of the appeal within 180 days from the date of such order. The second proviso stipulates that where the appeal is not disposed of within the period stipulated in the first proviso, the stay order shall on the expiry of that period stand vacated.

8. Section 35F requires, pending the appeal, a deposit with the adjudicating authority of the duty demanded or the penalty levied. Under the first proviso the Commissioner (Appeals) or the Appellate Tribunal are empowered to dispense with such deposit subject to such conditions as would safeguard the interests of the Revenue where the deposit of the duty demanded or the penalty levied would cause undue hardship to the person concerned. Under the second proviso, a time limit of thirty days has been prescribed, where it is possible to do so for the Commissioner (Appeals) to decide an application for dispensing with the deposit of duty or penalty.
9. The provisions of the Customs Act 1962 are pari materia with those of the Central Excise Act 1944 noted above in regard to the filing of appeals. Now it is in this background that it would be necessary to analyze the provisions which have been made in the impugned circular of the Central Board of Excise and Customs dated 1 January 2013. Sr. Nos.1, 2 and 3 of the table extracted earlier deal with a situation where an appeal lies to the Commissioner (Appeals). Sr. No.1 deals with a situation where no appeal has been filed against a confirmatory order in original against which an appeal lies to the Commissioner (Appeals). The circular stipulates that a recovery should be initiated after the expiry of the statutory period of sixty days for the filing of an appeal. Sr. No.2 deals with a situation where an appeal is filed without a stay application to the Commissioner (Appeals), in which event recovery has to be initiated after the appeal is filed without waiting for the expiration of the statutory period of sixty days for the filing of an appeal. The Petitioners in this batch of Petitions do not take exception either to Sr. Nos.1 or 2. In a situation where either no appeal is filed within the statutory period of sixty days or an appeal is filed  without an application for stay, there can be no exception to the initiation of recovery proceedings. Similarly, the Petitioners do not take exception to Sr. Nos.4 and 5 and 7 and 8 of the table extracted above. Sr. Nos.4 and 5 deal with a situation where either no appeal is filed before the CESTAT against an order in original issued by the Commissioner or an appeal is filed without an application for stay. Sr. Nos.7 and 8 deal with a situation where a demand is confirmed for the first time by the Commissioner (Appeals) but either no appeal is filed against the order of the Commissioner (Appeals) or an application for stay is not filed with the appeal. In those situations, the Board has directed that recovery should be initiated after the expiry of the statutory period of ninety days for the filing of an appeal, despite which no appeal has been filed or on the filing of the appeal before the CESTAT where no stay application has been filed.

10. The real dispute in the present batch of cases relates to the instructions which have been issued in Sr. Nos.3, 6, 9, 10 and 11 of the table appended to the circular dated 1 January 2013. Sr. Nos., 3, 6 and 9 all deal with situations where appeals are filed together with an application for stay. Sr. No.3 deals with an appeal to the Commissioner (Appeals), Sr. No.6 with an appeal to the CESTAT against an original order of the Commissioner and Sr. No.9 with an appeal before the CESTAT against an order of the Appellate Authority confirming a demand for the first time. The Board has now mandated that even though an application for stay has been filed with the appeal, recovery would be initiated thirty days after the filing of the appeal if no stay is granted or after the disposal of the stay petition in accordance with the conditions of stay, if any, whichever is earlier. There can be no legitimate grievance in regard to the latter part under  which recovery can be initiated after the disposal of the stay petition, in accordance with the conditions of stay. Where the assessee has been granted a stay subject to condition, but fails to comply with a condition of pre-deposit, there can be no possible reason to find fault with the Revenue in initiating recovery proceedings. However, the first part of the direction requires that recovery proceedings be initiated thirty days after the filing of the appeal, if no stay is granted. In other words, though an application for stay has been filed with the appeal and is pending disposal before the Appellate Authority, the circular mandates that recovery proceedings should be initiated. The submission is that such a stipulation would be arbitrary and violative of Article 14 of the Constitution.

11. We have already noted earlier that the Central Excise Act 1944 has introduced provisions by which a time limit has been legislated for the disposal of appeals. But the time limit is obviously not inflexible because sub section (4A) of Section 35A which governs the disposal of appeals by the Commissioner (Appeals) and sub section (2A) of Section 35C which governs the disposal of appeals by the Tribunal prescribe periods for disposal “where it is possible to do so”. As regards stay applications, the second proviso to Section 35F requires the Commissioner (Appeals) again “where it is possible to do so to decide an application for stay within thirty days from the date of its filing”. In regard to the Appellate Tribunal sub section (2A) of Section 35C was introduced by Amending Act 20 of 2002 of . Under the first proviso, it came to be stipulated that where an order of stay is made in any proceedings relating to an appeal filed under Section 35B(1), the Tribunal shall dispose of the appeal within a period of 180 days from the date of such order. The second proviso stipulated that if such an appeal is not disposed of within that period, the stay order shall on the expiry of that period stand vacated. Now the reason why the Appellate Tribunal may not be able to dispose of the appeal within a period of 180 days may have no bearing on the conduct of the assessee, but on the availability of sufficient judicial and administrative infrastructure for the disposal of appeals. Undoubtedly, in a given case the failure of a judicial body to dispose of the appeal expeditiously may be the consequence of dilatory tactics by the assessee, but that is not necessarily so. This issue was dealt with by the Supreme Court in a judgment in Commissioner of Customs and Central Excise, Ahmedabad v. Kumar Cotton Mills Pvt. Ltd.2. The Supreme Court noted that sub section (2A) of Section 35C was a provision which has been made by Parliament to curb dilatory tactics of those assesses who, having got an interim order in their favour, seek to continue their operation by delaying the disposal of the proceedings, thus, depriving the revenue not only of the benefit of the assessed value, but of a decision on points which may have an impact on other cases. At the same time, the Supreme Court emphasized that the provision cannot be interpreted to punish an assessee whose appeal has not been disposed of within the stipulated time limit for reasons beyond the control of the assessee. The Supreme Court observed as follows :

“The sub-section which was introduced in terrorem cannot be construed as punishing the assessees for matters which may be completely beyond their control. For example, many of the Tribunals are not constituted and it is not possible for such Tribunals to dispose of matters. Occasionally by reason of other administrative exigencies for which the assessee cannot be held liable, the stay applications are not disposed within the time specified. The reasoning of the Tribunal expressed in the impugned order and as expressed in the larger Bench matter, namely, IPCL v. Commissioner of Central Excise, Vadodara (2004 (169) E.L.T. 267cannot be faulted. However we should not be understood as holding that any latitude is given to the Tribunal to extend the period of stay except on good cause and only if the Tribunal 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.”

12. Following the judgment of the Supreme Court a Division Bench of this Court in Nedumparambil P. George v. Union of India3 held that where a stay has been granted by the Tribunal, but the appeal could not be disposed of within the stipulated period for a reason not related to the conduct or default of the appellant, the proviso would not be attracted. In other words, the proviso would apply when the hearing of the appeal could not be taken up within the stipulated period on account of the persistent conduct or act of the appellant. Such a situation though in a different context also came up for consideration before a Division Bench of the Delhi High Court in Mark Auto Industries Ltd. v. Union of India4. In that case also it was brought to the notice of the Division Bench by counsel appearing on behalf of the assessees and the Revenue that there was a heavy rush of appeals which rendered it humanly impossible for the Commissioner (Appeals) who had been unable to dispose of either the appeals or the applications for stay of recovery. Despite this action for recovery came to be initiated.

13. The decision of the Supreme Court and the situation which led to the decisions of the Delhi High Court and of this Court take due notice of the fact that the delay in the disposal of an appeal by an assessee or for that matter the delay in the disposal of a stay application may take place for reasons which lie outside the control of the assessee. Where the failure of the Appellate Authority to dispose of the appeal or the application for stay arises without any default on the part of the assessee, and without the assessee having resorted to any dilatory tactics, there would, in our view, be no reason or justification to penalize the assessee by recovering the demand in the meantime. Undoubtedly, where the assessee has been responsible for the delay in the disposal of the stay application, such an assessee cannot be heard to complain if the Revenue were to initiate steps for recovery. But the vice of the circular of the Board dated 1 January 2013 is that it mandates that steps for recovery must be initiated thirty days after the filing of the appeal if no stay is granted. Counsel appearing on behalf of the Revenue submits that the Board has directed that a period of thirty days should be allowed to lapse after the filing of the appeal, allowing the assessee time to move the Appellate Authority for the disposal of the stay application. The reason why the submission cannot be accepted is because, in a situation where the Commissioner (Appeals) or, as the case may be, the CESTAT are unable to decide the application for stay within a period of thirty days of the filing of the appeal, it would be completely arbitrary to take recourse to coercive proceedings for the recovery of the demand until the application for stay is disposed of. Administrative reasons including the lack of adequate infrastructure, the unavailability of the officer concerned before whom the stay application has been filed, the absence of a Bench before the CESTAT for the decision of an application for stay or the sheer volume of work are some of the causes due to which applications for stay remain pending. In such a situation, where an assessee has done everything within his control by moving an application for stay and which remains pending because of the inability of the Commissioner (Appeals) or the CESTAT to dispose of the application within thirty days, it would, to our mind, be a travesty of justice if recovery proceedings are allowed to be initiated in the meantime. The protection of the revenue has to be necessarily balanced with fairness to the assessee. That was why, even though a specific statutory provision came to be introduced by Parliament in Section 35C(2A) to the effect that an order of stay would stand vacated where the appeal before the Tribunal was not disposed of within 180 days, the Supreme Court held that this would not apply to a situation where the appeal had remained pending for reasons not attributable to the assessee.

14. Sr. No. 10 of the circular of the Board deals with an appeal to the CESTAT where the Commissioner (Appeals) has confirmed a demand in an order in original of the adjudicating authority. The circular stipulates that recovery has to be initiated immediately on the issue of the order in appeal. In a situation where the Commissioner (Appeals) has confirmed the demand made in the order of adjudication, the assessee is permitted by the provisions of Section 35F to move the Tribunal for a dispensation of the requirement of deposit. But the circular mandates that recovery shall be made immediately on the issue of an order in appeal implying thereby that recovery would be initiated without allowing the assessee, the time which is allowed by the statute for filing an appeal and for applying for a waiver of pre-deposit. Similarly, Sr. No.11 stipulates that where the Tribunal has confirmed the demand, a recovery would be initiated immediately on the issuance of the order of the Tribunal. The assessee is therefore deprived of even a reasonable period of time to move the High Court against the order of the Tribunal. In our view, the circular which is issued by the Board is in terrorem and its plain effect and consequence is to deprive the assessee of the remedy which is provided under the law of moving, as the case may be, the CESTAT, the High Court or the Supreme Court against an order of adjudication of the competent appellate forum. Initiating recovery proceedings because a stay application has not been disposed of within thirty days of the filing of an appeal would be to penalize an assessee for the inability of the judicial or, as the case may be, quasi-judicial authority to conclude the disposal of the stay application within that period. If the assessee is not responsible for the delay in the disposal of the stay application and the application remains pending for reasons not attributable to the conduct of the assessee, initiation of recovery proceedings would be arbitrary and unfair. However, if the failure to dispose of an application for stay is because of the conduct of the assessee, such as by a resort to dilatory tactics, the revenue would in such a situation be justified in commencing recovery action. Moreover, there is no justification to commence recovery immediately following an order in appeal where a period of limitation is laid down by the relevant provision of law for challenging the decision of the Appellate Authority.

15. In the affidavit in reply, it has been stated that the recovery of an outstanding demand during the pendency of an appeal has been a matter of considerable litigation leading to the circular dated 2 March 1990 and had been the subject matter of judicial decisions in several cases. The affidavit notes that in several decisions the High Courts had directed that no recovery could be made during the pendency of a stay application before an Appellate Authority. But these decisions, it has been stated, were based on the facts of the individual cases and on the instructions and circulars of the Department stating that no recovery should be made during the pendency of the appeal before the Commissioner ( Appeals) (circular dated 2 March 1990) and for a period of six months in the case of an appeal before the Tribunal (circular dated 25 May 2004). The legal position according to the Department is that there is no prohibition on proceeding with the recovery of a confirmed demand even immediately after an order has been issued, when no stay is in operation. Section 87 of the Finance Act 1994, it is submitted, does not provide for suspension of the original order when a stay application is pending before an Appellate Authority. Hence, according to the Revenue it is a matter of policy for the government to decide as to how long it should wait before a recovery of a confirmed demand should be initiated (it has now been decided by the circular dated 1 January 2013 that all past circulars should be rescinded). The Revenue has urged that under Section 35F a pre-deposit is mandatory with the filing of an appeal and an order of dispensation is by way of an exception. By the impugned  circular, the field officers have been directed to proceed with recovery when there is no order of stay. This, it has been submitted, does not impinge upon the power of the Appellate Authority to grant a stay. The difficulty in accepting the defence which is submitted in the reply is that the Appellate Authorities, whether it be the Commissioner (Appeals) or the CESTAT are empowered to waive the requirement of a pre-deposit. An assessee who moves an application for waiver and is diligent in pursuing the application cannot be blamed for the inability of the appellate forum to dispose of the stay application. The reasons such as the absence of adequate infrastructure which lead to an accumulation of a backlog or the unavailability of the appellate officer or a duly constituted Bench of the Tribunal are matters which lie beyond the volition of an assessee. If at all, these are matters over which the executive arm of the State has control. Hence, to blame an assessee who is not in default and to initiate recoveries against an assessee who has filed an appeal together with an application for stay merely because the application has remained pending on the file of the decision making authority would be to penalize the assessee for a situation over which the assessee has no control. This would be patently arbitrary and violative of Article 14 of the Constitution.

16. Counsel appearing on behalf of the Revenue submitted during the course of the hearing that the field officers of the Revenue who initiate recovery action are independent of the adjudicating or appellate forum and hence have no means of verifying the status of the applications for stay and it is hence for the assessee, when recovery action is initiated to inform the jurisdictional Commissioner of the pendency of the stay application. We do not find that this can be treated as a valid justification for penalizing an assessee whose conduct is otherwise free from blame. Modern technology has made rapid strides and in our view, it is time that the Union Ministry of Finance takes steps to ensure that proceedings before the  adjudicating authorities as well as the Appellate Authorities including the Commissioner (Appeals) and the CESTAT are recorded in the electronic form. Once an appeal is filed before the Commissioner (Appeals), the filing of the appeal must be recorded through an entry made in the electronic form. Every appellant, including the assessee must indicate, when an appeal is filed, an email ID for service of summons and intimation of dates of hearing. The Commissioner (Appeals) must schedule the hearing of stay applications and provide dates for the hearing of those applications which must be published in the electronic form on the website. The order sheets or roznamas of every case must be duly uploaded on the website to enable both the officers of the Revenue and assessees to have access to the orders that have been passed and to the scheduled dates of hearing. We would also commend to the Union Ministry of Finance the urgent need to introduce electronic software that would ensure that the orders and proceedings of the CESTAT are duly compiled, collated and published in the electronic form. A case information software has been adopted for the District judiciary including in the State of Maharashtra under the auspices of the National Informatics Center.Matters involving Revenue have large financial implications for the Union Government. The incorporation of electronic technology in the functioning of judicial and quasi-judicial authorities constituted under the Central Excise Act, 1944, the Customs Act, 1962 and cognate legislation would provide a measure of transparency and accountability in the functioning of the adjudicating officers, the appellate Commissioners as well as the Tribunal. But equally significant is the need to protect the interest of the Revenue which the adoption of electronic technology would also achieve. We are not unmindful of the fact that an application for stay may be kept pending for an indefinitely long period of time at the behest of an unscrupulous assessee and a willing administrative or quasi-judicial authority. This would be obviated by incorporating the requirement of disseminating and uploading the proceedings of judicial and quasi-judicial authorities under the Central Excise Act 1944 as well as the Customs Act 1962 in an electronic form. This would ensure that a measure of administrative control can be retained with a view to safeguarding the position of the Revenue as well as in ensuring fairness to the assessees. We hope and trust that this suggestion of the Court will receive serious and urgent consideration by the Union Ministry of Finance.

17. For these reasons, we have come to the conclusion that the provisions contained in the impugned circular dated 1 January 2013 mandating the initiation of recovery proceedings thirty days after the filing of an appeal, if no stay is granted, cannot be applied to an assessee who has filed an application for stay, which has remained pending for reasons beyond the control of the assessee. Where however, an application for stay has remained pending for more than a reasonable period, for reasons having a bearing on the default or the improper conduct of an assessee, recovery proceedings can well be initiated as explained in the earlier part of the judgment.
18.      In the lead Writ Petition, the hearing of the application for stay has been adjourned for administrative reasons not bearing upon the conduct of the assessee and the application is now listed on 5 February 2013. In the circumstances, we see no reason or justification for the initiation of recovery proceedings despite the pendency of the stay application before the CESTAT. We would request the CESTAT to take up the stay application for early disposal -and preferably within a period of eight weeks of the date on which an authenticated copy of this order is produced before it. We direct that in the meantime no coercive steps for the recovery of the demand shall be initiated.

19.     It is not in dispute, during the course of the hearing, that in none of the present batch of cases, has there been any dilatory tactic or improper conduct on the part of the Petitioner – assessees as a result of which the applications for stay have remained pending. The stay applications shall be taken up for expeditious disposal, preferably within a period of eight weeks and in the meantime, no coercive steps for the recovery of the demand shall be pursued.

We accordingly dispose of the Petitions in terms of the directions as aforesaid.

There shall be no order as to costs.


One Response to “CBEC Circular on recovery during pendency of appeal is arbitrary, unjustified & unlawful – Bombay HC”

  1. HARI BABU says:

    The judgement is by Bombay High Court, but not of Delhi HC.

    In the subject line, Delhi HC is mentioned.

    (K. V. Hari Babu)
    09322904665

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