Case Law Details
HIGH COURT OF GUJARAT
Bhavya Apparels (P.) Ltd.
Versus
Union of India
SPECIAL CIVIL APPLICATION NO. 9284 OF 2011
DECEMBER 1, 2011
ORDER
Akil Kureshi, J.
Heard learned counsel for the parties for final disposal of the petition.
2. The petitioners have approached this Court challenging order dated 28-4-2011 as at Annexure-H to the petition in following factual background.
3. The petitioner is a company engaged in manufacturing of textile goods and is 100% Export Oriented Unit. For certain irregularities committed by the petitioners, the departmental authorities carried out verification. Show-cause notice was issued and adjudication proceedings were initiated. Adjudicating Authority passed his order-in-original on 22-7-2003 demanding customs duty of Rs. 16.97 crore (rounded off) with matching amount of penalty. Independent penalties on Directors were also imposed. Against the order of adjudicating authority, the petitioners preferred appeal before the Tribunal. Along with the appeal, the petitioners prayed for waiving of pre-deposit. Tribunal passed an order on 14-1-2004 and granted stay and waived rest of the amount by way of pre-deposit on condition that the petitioners deposit sum of Rs. 3 crore. The Directors were however, required to deposit Rs. 20 lakh and Rs. 10 lakh respectively.
4. The petitioners challenged the said order of the Tribunal by filing Special Civil Application No. 5523/2004 before this Court. In the said petition on behalf of the petitioners, it was suggested that since the order of the Tribunal grants conditional stay in favour of the petitioners and since the petitioners do not want any interim stay as such, they would approach the Tribunal for hearing the appeals on merits. The Court disposed of the petition by order dated 3-5-2004 observing that as and when such application is moved, Tribunal shall consider the same in accordance with law.
5. The petitioners thereupon approached the Tribunal making stand clear that the petitioners are not interested in stay pending appeal but that the entire requirement of pre-deposit be waived. Tribunal however, by an order dated 14-6-2004 refused any such modification.
6. The petitioners therefore, once again approached this Court by filing Special Civil Application No. 9569/2004. Such petition however, came to be dismissed by order dated Bhavya Apparels (P.) Ltd. v. Union of India 2005 (185) ELT 344 (Guj.), dated 14-10-2004.
7. The petitioner carried the order of this Court before the Supreme Court. Supreme Court by judgment in case of Bhavya Apparels (P.) Ltd. v. Union of India 2007 (216) ELT 347, remanded the proceedings back to the Tribunal for reconsideration of the entire issue. Observations made in the said order which are relevant for our purpose are as under :
“9. A right of appeal is not a fundamental right. It is a statutory right. As a right of appeal is a statutory right, it may also be hedged by conditions. It is, however, trite that conditions imposed may not be such which may for all intent and purport take away a vested right of appeal. [See Dilip S. Dahamikar v. Kotak Mahindra Co. Ltd. 2007 (5) SCALE 452]
10. We, however, having regard to the facts and circumstances of this case are of the opinion that the larger question, viz., interpretation of Section 129E to the Act need not be gone into.
Section 129E 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.
The learned Additional Solicitor General very fairly submits that a part of the goods is in custody of the respondents. If that be so, in our opinion, it was obligatory on the part of the Tribunal to take that factor into consideration in making the order of pre-deposit. furthermore, while exercising its jurisdiction, the Tribunal was also required to apply its mind in regard to the question of undue hardship on the part of the appellants upon considering existence of a prima facie case. Merit of the case ordinarily should not otherwise be gone into unless the question on the face of it appears to be concluded.
11. The Tribunal while imposing the condition of pre-deposit was required to apply its mind in regard to the existence or otherwise of the conditions laid down in the statute.
12. In Vijay Prahish D. Mehta (supra), applicability or interpretation of Section 129E of the Act came up for consideration before this Court wherein it was held :
“9. Right to appeal is neither an absolute right nor an ingredient of natural justice the principles of which must be followed in all judicial and quasi-judicial adjudications. The right to appeal is a statutory right and it can be circumscribed by the conditions in the grant.
11. These observations cannot be applied to the facts of this case.
Here we are concerned with the right given under section 129A of the Act as controlled by section 129E of the Act, and that right is with a condition and thus a conditional right. The petitioner in this case has no absolute right of stay. He could obtain stay of realisation of tax levied or penalty imposed in an appeal subject to the limitations of Section 129E. The proviso gives a discretion to the authority to dispense with the obligation to deposit in case of “undue hardships”. That discretion must be exercised on relevant materials, honestly, bona fide and objectively. Once that position is established it cannot be contended that there was any improper exercise of the jurisdiction by the Appellate Authority. In this case it is manifest that the order of the Tribunal was passed honestly, bona fide and having regard to the plea of ‘undue hardship’ as canvassed by the appellant. There was no error of jurisdiction or misdirection.
13. It is not the law that adjudication by itself following the rules of natural justice would be violative of any right-constitutional or statutory, without any right of appeal, as such, if the statute gives a right to appeal upon certain conditions, it is upon fulfilment of those conditions that the right becomes vested and exercisable to the appellant. The proviso to section 129E of the Act gives a discretion to the Tribunal in cases of undue hardships to condone the obligation to deposit or to reduce. It is a discretion vested in an obligation to act judicially and properly.”
13. Mr. Sree Kumar, however, submits that inter alia having regard to the decision of the Madhya Pradesh High Court in Kishori Pujari Granite (P.) Ltd. v. Union of India [2005 (184) ELT 225] and the decision of the Kerala High Court in Ashoka Rubber Products v. Collector of C.Ex. [1989 (43) ELT 605], the matter requires reconsideration. As at present advised, we are not inclined to do so.
14. We are satisfied that in a case of this nature, where a part of the goods which is the subject matter of the proceedings under the Act is in possession of the Revenue, proviso appended to section 129E of the Act should have been invoked.
15. Justification for enacting such a provision has been considered by a Constitution Bench of this Court in Mardia Chemicals Ltd. v. Union of India [(2004) 4 SCC 311] wherein it was held :
“56. The contention of the petitioners is that in the first place such an oppressive provision should not have been made at all. It works as a deterrent or as a disabling provision impeding access to a forum which is meant for redressal of the grievance of a borrower. It is submitted where the possession of the secured assets has already been taken over or the management of the secured assets of the borrower including the right to transfer the same, in that event it would not at all be necessary to burden the borrower doubly with deposit of 75% of the demand amount. In a situation where the possession of the secured assets have already been taken over or its management, it is highly unreasonable further to ask for 75% of the amount claimed before entertaining the grievance of the borrower.
57. Secondly, it is submitted that, it would not be possible for a borrower to raise funds to make deposit of the huge amount of 75% of the demand, once he is deprived of the possession/management of the property namely, the secured assets. Therefore, the condition of deposit is a condition of impossibility which renders the remedy made available before the DRT as nugatop and illusory. The learned Attorney General refutes the aforesaid contention. It is further submitted that such a condition of pre-deposit has been held to be valid by this Court earlier and a reference has been made to SCC at p. 202 in Anant Mills Co. Ltd. v. State of Gujarat to submit that such a provision is made to regulate the exercise of the right of an appeal conferred upon a person. The purpose is that right of appeal may not be abused by any recalcitrant party and there may not be any difficulty in enforcing the order appealed against if ultimately it is dismissed and there may be speedy recovery of the amount of tax due to the corporation.
64. The condition of pre-deposit in the present case is bad rendering the remedy illusory on the grounds that (i) it is imposed while approaching the adjudicating authority of the first instance, not in appeal, (ii) there is no determination of the amount due as yet (iii) the secured assets or its management with transferable interest is already taken over and under control of the secured creditor (iv) no special reason for double security in respect of an amount yet to be determined and settled (v) 75% of the amount claimed by no means would be a meagre amount (vi) it will leave the borrower in a position where it would not be possible for him to raise any funds to make deposit of 75% of the undetermined demand. Such conditions are not alone onerous and oppressive but also unreasonable and arbitrary. Therefore, in our view, sub-section (2) of section 17 of the Act is unreasonable, arbitrary and violative of Article 14 of the Constitution.”
16. The Constitution Bench, therefore, was of the opinion that such a condition would be onerous and, thus, arbitrary if a suitor is required to deposit such an amount at the initial stage and not at the appellate stage.
18. In view of our findings aforementioned, the matter, in our opinion, requires reconsideration at the hands of the Tribunal. The Tribunal failed to take into consideration the limitation of its jurisdiction under section 129E which emanates from the custody of the goods and as a part of the goods is in the custody of the Revenue and furthermore in view of the fact that the High Court instead of considering the question as to whether direction to deposit the amount would cause undue hardship or not has gone into the merit of the matter, the interest of justice would be sub served if the impugned judgments are set aside and the matter is remitted to the Tribunal for consideration of the matter afresh. We direct accordingly. We would request the Tribunal to consider the desirability of disposing of the matter as early as possible.
8. When armed with this order of the Supreme Court petitioner approached the Tribunal, Tribunal once again rejected the request for waiver of pre-deposit by impugned order dated 28-4-2011. Tribunal was influenced by the fact that before the Apex Court, it was conveyed that goods are in custody of the Revenue which was not true. Tribunal therefore, held a belief that the petitioners had made a misleading statement before the Apex Court. Tribunal therefore, dismissed the prayer for waiver of pre-deposit making following observations :
“9. On the above basis, proceedings were initiated against them which resulted in passing of the impugned order by the Commissioner.
10. On going through the order of the Commissioner, we find that he has relied upon the fact of shortage of imported fabrics at the time of visit of the officers, report from Mumbai Customs indicating that the garments claimed to have been exported by unit in fulfilment of its export obligations, could not have manufactured out of duty free raw material imported by them or indigenous fabrics without any duty payment procured from the 100% EOU; statements of the Directors were recorded at various points of time were inculpatory; that the statements of the buyers of the fabrics in question corroborated the statements of the buyers. He also observed that the appellants could not explain the shortages detected at the time of search and as to what happened to the duty free procured imported material. He also observed that the appellants could not explain the difference in the quality of the fabrics procured by them and said to have been used in the manufacture of exported goods. As such, he confirmed the demand of duty and imposed penalty. However, he released 114 boxes of ready-made garments which were put under seizure on the date of visit by the officers.
11. Ld. Advocate appearing for the appellants has not been able to successfully contest the allegations and findings arrived at by the Commissioner in his impugned order. He has also not been able to show us that some seized goods are in the custody of the Revenue. In fact, the same cannot be inasmuch as the demand of the duty stand confirmed in respect of imported goods already cleared by the said appellant. We find that there is ample evidence on record to reflect upon the clandestine activity of the appellant so as to hold against them at this prima facie stage and to put the appellant to some condition of pre-deposit.
12. The appellants have also submitted that pre-deposit of any amount would cause undue financial hardship to them. For the above purpose, the ld. Advocate draws our attention to the fact that during the pendency of the writ petition before Hon’ble High Court as well as Hon’ble Supreme Court, recovery proceedings were initiated and Revenue has attached the immovable property of the appellant worth factory premises of Rs. 6 lakh and residential premises of Rs. 12 lakh. Ld. Advocate has also drawn our attention to the balance sheet produced on record indicating the poor financial condition of the appellant.
13. However, as contended by learned SDR, we observe that in the cases of clandestine activities, the financial condition as reflected in statutory documents cannot be considered to be a correct financial condition of the assessee. Admittedly, it stand deposed by the Director during the course of investigation that the value of the duty free imported fabrics sold by them in the open market is Rs. 9.27 crore, apart from the sale of the duty free procured material from other 100% EOUs. There is no account of above consideration received by the appellant from their illegal activities.
14. It may be observed here that the duty amount is to the extent of Rs. 17 crore. Revenue’s interest is also required to be protected.
15. Having held against them from the prima facie merits of the case, we direct the appellant M/s. Bhavya Apparels Pvt. Ltd to deposit an amount of Rs. 1.70 crore (Rupees One Crore. Seventy Lakh only) which is 10% of the duty confirmed against them, subject to which the pre-deposit of balance amount of duty and penalty imposed upon the appellant shall stand waived and its recovery stayed during the pendency of the appeal. The said pre-deposit is required to be made within twelve weeks from the date of passing of the order.”
9. Before us, counsel for the petitioners submitted that conveying to the Apex Court that goods are still in custody of the Revenue was a pure error. In fact both the sides had made such a suggestion. There was no intention on part of the petitioners to mislead the Court. In any case, Revenue has not approached the Apex Court for any modification of this order. Counsel further submitted that Tribunal erred in clearly ignoring the petitioners financial condition and total inability to weigh the burden of pre-deposit of Rs. 1.7 crore. For our perusal, at our request, counsel placed on record balance sheet of the company of the recent past. Counsel for the petitioners reiterated the stand that the petitioners do not press for stay against recovery.
10. On the other hand, counsel for the Department vehemently contended that the Tribunal has applied its mind and insisted on pre-deposit of only of fraction of the amount of duty and penalty imposed by the adjudicating authority. He submitted that the Tribunal has also examined prima facie case and found that there is no case made out for waiving entire pre-deposit condition.
11. Having thus heard learned counsel for the parties and having perused the documents on record, at the outset, we may clarify that the statement that goods of the petitioners are still lying with the Revenue, was a joint statement. Though such statement was later on found to be inaccurate, it cannot be stated that the petitioners deliberately mislead the Supreme Court and obtained the order in their favour. In any case, if the Revenue was of the opinion that on account of such misrepresentation of facts before the Supreme Court, a wrong order was obtained, it was open for the Revenue to approach for modification of such an order. Even otherwise Supreme Court’s order is based not solely on single factor of petitioners’ goods lying with the Revenue Authority. Such as can be seen from the noted portion of the order, is based on several other factors. In that view of the matter, we are of the opinion that Tribunal ought to have out of due deference to the decision of the Apex Court, looked the issue little more closely. In the present case we are confronted with a situation where huge duty demand and penalty is imposed against the petitioners by the adjudicating authorities. First appeal against such an order though filed by the petitioner stands terminated today on account of failure to meet with pre-deposit requirement. It is the case of the petitioners that financial condition of the company would simply not enable the company to deposit sum as large as Rs. 1.7 crore. If such condition is insisted upon strictly, appeal of the petitioners would be dismissed without hearing.
12. We have perused the balance sheet of the company placed on record. Year after year company continued to incur huge loss. Balance sheet suggests that there is no manufacturing or other activity being undertaken by the company and with each successive year, accumulated loss swell. In fact net profit of the company is in negative since long. All these would demonstrate that the petitioners have no means of fulfilling the pre-deposit condition. If no respite is granted to the petitioners, their first appeal before the Tribunal would be rendered infructuous. In special facts of this case and also looking to the stand of the petitioners that they are not seeking any stay against the duty and penalty demands, but requesting for the appeal being heard on merits without any pre-deposit, we are inclined to waive entire pre-deposit requirement. Order of the Tribunal 28-4-2011 is therefore, modified in above terms. Petitioners be heard on merits. It is clarified that in the meantime during the pendency of the appeal, there shall be no stay against duty and penalty demand and it would be open for the authorities to recover the same in accordance with law.
13. Petition is disposed of accordingly.
