CA Kaushik P. Jagad

Section 2(b) of Contempt of Court Act defines “Civil Contempt”. According to it “Civil Contempt means willful disobedience to any judgment, decree, direction, order, writ or other process of court or willful breach of an undertaking given to a court”.

In this article, I am trying to analyses whether this section 2(b) of Contempt of Court Act is applicable to taxation matters (Direct and Indirect Taxes). There are so many cases, where Adjudicating Authority did not follow the decision given by various jurisdictional Tribunals, High Courts and even Supreme Court or did not follow the binding precedents as decided by the above various courts.

E.I. Dupont India (P) Ltd. V. Union of India [2014] (Gujarat)

In this case, the petitioner, M/s. EI. Dupont India Pvt. Ltd. has applied for refund of Cenvat Credit on inputs used in the manufacture of their product which were cleared under Rule 5 of the Cenvat Credit Rules on supply of the goods to 100% EOU. As per Rule 5 of Cenvat Credit Rules A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette”. But the adjudicating authority was of the opinion that since the claimant has not physically exported the goods but merely supplied the goods to 100% EOU, the provision of rule 5 of the Rules are not applicable and therefore they are not entitled for refund of CENVAT Credit under rule 5 and therefore, the claims were liable to be rejected under rule 5 of the Rules.

The claimant preferred to challenge the said show cause notice before the Hon’ble Gujarat High Court by way of Special Civil Application.

 The claimant relied upon the decision of Gujarat High Court decision in case of CCE & E V. NBM Industries by which it has been held by this court that on inputs used in manufacturing of goods cleared by DTA units to 100% EOU, refund of CENVAT credit is available and it could not be denied on the ground that it was the case of deemed export and refund would be granted only in case of physical export. Despite the above binding direct decision of this court, the Assistant Commissioner, Central Excise and Customs Division, Vapi, by impugned order has rejected the refund claims of the claimant on the ground inter alia that the decision of this court in NBM Industries is in the case of another assessee and not in the case of claimant and each one must fight its own battle and must succeed or fail in such proceedings and also on the grounds that the decision of the Madras High court in the case of BAPL Industries Ltd. V. Union of India 2007 is against the assessee.

Being aggrieved and dissatisfied with the impugned orders passed by the Adjudicating Authority, the claimant has preferred the present special civil application under Article 226 of the Constitution of India.

During the various hearing, the claimant’s counsel had put up various decisions and the same have been considered by the Hon’ble High Court, among which

(a) Kamlakshi Finance Corporation Ltd., the Supreme Court has held and observed

we are of the opinion that the approach adopted by the Adjudicating Authority was wholly impermissible in law. At the outset, we may record that we are conscious that such order is appealable in terms of statutory appeals provided under Central Excise Act, 1944. However, we find that the Adjudicating Authority committed serious error in disregarding binding precedent and that there are absolutely no disputed facts. We would, therefore, not insist that the petitioners once again follow the same gamut of taking the appeal route. Even if the department is of the opinion that the issue is not free from doubt, it is not open for the Adjudicating Authority to ignore the binding precedent. We may notice that under Central Excise Act, 1944 and the Customs Act, the Department has the right to appeal even against the order in original passed by the Adjudicating Authority. This is in contrast to the provisions contained in the Income Tax Act, 1961 where against an order passed by the Assessing Officer, the Department has no right to appeal. Only remedy available to the Revenue is by way of revision against the order of the Assessing Officer that too only if it is found that such order is erroneous an prejudicial to the interest of the Revenue. Such rigours, however, are not applicable in so far as the Department’s right to appeal against the order of the Adjudicating Authority is concerned under the Central Excise Act, 1944.

Moreover, the claimant has also relied upon the decision of Hon’ble Bombay High Court in case of Legrand (India) Pvt. Ltd. V. Union of India 2007, where the Hon’ble High Court has held as under:

a) It is immaterial that in a previous litigation the particular petitioner before the Court was or was not a party, but if a law on a particular point has been laid down by the High Court, it must be followed by all authorities and tribunals in the state;

b) The law laid down by the High Court must be followed by all authorities and subordinate tribunals when it has been declared by the highest Court in the State and they cannot ignore it either in initiating proceedings or deciding on the rights involved in such proceeding;

c) If in spite of the earlier exposition of law by the High Court having been pointed out and attention being pointedly drawn to that legal position, in utter disregard of that position, proceedings are initiated, it must be held to be a willful disregard of the law laid down by the High Court and would amount to Civil Contempt as defined in S. 2(b) of the Contempt of Courts Act, 1971.

Considering the above decisions and various decisions, the Hon’ble Gujarat High Court has held that in spite of the earlier exposition of law by the Hon’ble High Court having been pointed out and attention being pointedly drawn to that legal position, in utter disregard of that position, the proceedings are initiated, it must be held to be a willful disregard of law laid down by the High court and would amount to civil contempt as defined in section 2(b) of the Contempt of Courts Act, 1971. The learned senior standing counsel appearing on behalf of the revenue that there was no other intention on the part of respondent in not following the decision of this Court in the case of NBM Industries (supra) except to protect the interest of revenue is concerned, as such under the guise of protecting the interest of revenue, the lower authority cannot be permitted to ignore the binding decision of the higher appellate authorities/courts. Everybody is bound by law. To maintain the rule of law and judicial discipline, the lower authority is bound by the decision of the higher appellate authorities/courts. However, considering the facts that there is no other mala fide alleged and that the respondent is reported to be recently joined the department in the year 2011 and the unconditional apology tendered; we close the proceedings so far as the proceedings under the Contempt of Courts Act are concerned.

As observed hereinabove despite clear and unequivocal message by the pronouncement of the decisions by the Hon’ble Supreme Court as well as this court, the message has not reached to the concerned authorities, we direct respondent No. 2 – Central Board of Excise and Customs, New Delhi to issue a detailed Circular to all the adjudicating authorities considering the observations made by this Court in the present judgment and order as well as the law laid down by the Hon’ble Supreme Court in various decisions referred to in the present judgment and order, within a period of 30 days from the date of receipt of the present order so that such eventuality may not happen again and again.

Though High Court had directed CBEC to issue a detailed circular within 30 days from receipt of present judgment dated 25.10.2013, no such circular appears to have been issued (as noted by CBEC website). Does it amount to another contempt ?

Kushi Enterprise V. Union of India [2014] (Rajashthan)

Where departmental authorities had acted as per circular and deliberately ignored judgment of High Court holding such circular to be non est, such officers were liable for contempt action.

Fashion Suitings (P) Ltd. V. Superintendent of Central Excise & Service Tax, Range-I, Bhilwara [2014] (Rajasthan)

During pendency of assessee’s stay application before Tribunal, Department initiated recovery proceedings in pursuance of Circular dated 01-01-2013 despite fact that such pendency was not due to any fault of assessee. Asseessee argued that despite judgment in Manglam Cement Ltd. V. Superintendent of Central Excise 2013 holding such Circulate dated 01-01-2013 to be non est, department had initiated recovery proceedings. Since High Court had already held in Manglam Cement Ltd that Circular dated 01-01-2013 was non est insofar relating to situation where stay applications remain pending in appellate for a, it was strange that department had chosen to issue notice on basis of same Circular, said recovery proceedings were a show of total disrespect to and defiance of order of High Court and gave rise to serious questions on approach and intentions of department. Hence recovery proceedings were stayed and a contempt notice was issued to Superintendent with direction to register suo motu contempt petition against him in personal name.

(Author is associated with K.P. Jagad and Associates and can be reached via email on ca.kpjagad@gmail.com)

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0 responses to “Applicability of Contempt of Court Act in Taxation Matters”

  1. Srinivas says:

    Content is very good. Good analysis Sir. However, I’d like to add on to what you mentioned that department has not issued any circular despite direction of the court. Pls have a look at the circular which you can find in the below link:
    https://taxguru.in/excise-duty/instructions-follow-judicial-discipline-adjudication-proceedings.html

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