Brief Facts of the Case
This Appeal by the assessee challenges the order passed on 12th June, 2014, by which the Customs, Excise and Service Tax Appellate Tribunal (West) Zonal Customs Branch at Mumbai dealt with an application seeking dispensation of the condition of pre-deposit and stay of recovery pending disposal of the Appeal. The assessee filed an Appeal aggrieved and dissatisfied with the order passed by the Commissioner of Central Excise Mumbai-III Commissionerate (Adjudication order). The Adjudicating Authority confirmed a duty demand of Rs.6,59,36,795/- against the appellant assessee along with interest thereon being the ineligible cenvat credit availed by the appellate assessee during April/May 2007. A penalty of Rs.50, 00,000/- had also been imposed under Rule 15 of the Cenvat Credit Rules, 2004.
The substantial questions of law is whether in the facts and circumstances of the present case and in law was the Tribunal justified in passing a detailed order at the stage of considering a stay application filed by the assessee and virtually concluding the issue.
Contentions of the Assessee
The assessee contended that the Tribunal has seriously erred in holding that the Appellant has no prima facie or arguable case. In the process of finding out whether there is any such case, the Tribunal has rendered elaborate findings and concluded the questions and issues in the pending Appeal. The attempt of the Tribunal in finding out a prima facie case or an arguable point should not result in the point or the issue being concluded. It is only a cursory reference to the submissions and the relevant material at the interlocutory stage which should result in the Tribunal either concluding that the Appellant raises no arguable or prima facie case or has such a case. In the event, the Appeal is found to be completely without merit and raising points and issues concluded by earlier adjudication, right up to the highest Court, or raises such issues which on the face of it would not be legally tenable, then alone the conditions, as are being imposed in the present Appeal can be imposed. Else, a balance will have to be struck by the Tribunal so that the right of the parties like the Appellant is not rendered illusory or totally meaningless. By imposition of the condition of deposit of entire duty amount at the interlocutory stage itself, so also by rendering elaborate findings and conclusions, the right of Appeal is completely lost to the appellant. The binding and sweeping conclusions which have been recorded will now stare in the face of the assessee even at the final hearing of the Appeal. In such circumstances, the Tribunal’s order is totally illegal and erroneous. The discretion has not been exercised judiciously and in a sound manner, but with some predetermined notions particularly about the conduct of the appellant assessee. Therefore, the Appeal be allowed and this Court must intervene even at this interlocutory stage to balance the right and equity.
Contentions of the Revenue
The Revenue contended that the Tribunal has found as to how the assessee is delaying the matter. If the assessee is tried to avail of the cenvat credit on the goods, by erroneously terming them as an inputs, that credit was not available at all. Once it was found to be wrongfully availed of and the demand of the Revenue has been confirmed, then, the Tribunal was justified in insisting on deposit of the entire sum. In the circumstances, this Appeal does not raise any substantial questions of law. It deserves to be dismissed.
Held by Hon’ble High Court, Bombay
The Hon’ble High Court referred to the decision of the Hon’ble Supreme Court in the case of United Commercial Bank Vs. Bank of India & Ors1. The Hon’ble Supreme Court while considering as to whether an injunction can be granted to restrain encashment of Bank guarantee by resorting to the powers conferred in a trial court/civil court under order 39 of the Code of Civil Procedure held that the test is whether there was a bonafide contention between the parties or a serious question to be tried. That one of the party or applicant establishes that it had a prima facie case means there was a bonafide contention between the parties or a serious question to be tried. Then, comes the other question which the Supreme Court dealt with and applicable at an interlocutory stage, namely, even if there was a serious question to be considered, the High Court had to consider the balance of convenience.
The Hon’ble High Court stated that in the present case, the Tribunal was aware of this settled test namely whether there is a prima facie point or arguable case and whether the appellant assessee or party before the Tribunal had established that there was a financial hardship. However, the Tribunal lost sight of the fact that the tests, as are evolved by the Hon’ble Supreme Court, cannot be taken to such ridiculous extreme or viewed with such rigor that would make it impossible for anybody to obtain an interim stay or a waiver, partial or full, in his favour of the condition of pre-deposit.
The Hon’ble Court further referred to the judgement of the Hon’ble Supreme Court in the case of Kihota Hollohons Vs. Zachilhu3, at page 455 Para 51, the purpose of interlocutory orders is to preserve in status-quo the rights of the parties, so that, the proceedings do not become infructuous by any unilateral overt acts by one side or the other during its pendency.
If we apply these tests to the facts and circumstances of the present case what we note is that the Tribunal had before it an Appeal of the assessee challenging the order of the commissioner who is manufacturer of tyre. It also manufactured the dipped nylon tyre cord fabrics during 16th March, 1995 to 2nd June, 1998. The dipped nylon tyre cord fabrics were subject to Additional Duty of Excise (in lieu of sales tax) under the Additional Duty of Excise (Goods for Special Importance) Act, 1957 (hereinafter referred to as “AED (GSI)”, for short). This duty liability was not discharged, but disputed by the appellant assessee. The issue of classification of the goods was raised and which took the matter right up to the Hon’ble Supreme Court of India. The Revenue succeeded before the Hon’ble Supreme Court. In the meanwhile, 23 show cause notices were issued to the assessee for recovery of AED (GSI) on dipped nylon tyre cord fabrics and vide order dated 28th February, 2006, the duty demand was confirmed.
The appellant assessee paid this duty demand of AED (GSI), but took credit of the same in their cenvat credit account under AD (GSI). They utilized the credit of AD (GSI) towards payment of Central Excise Duty (basic excise duty) on tyres cleared in April 2007. Prior to 1st April, 2000, the credit of AD (GSI), all inputs could have been utilized only for payment of AD (GSI) on the finished products. However, with effect from 1st March, 2003, the Cenvat Credit Rules were amended, so as to provide for utilization of AD (GSI), towards payment of basic and special excise duty on finished products. By Section 88 of the Finance Act, 2004, the cenvat credit rates were retrospectively amended so as to restrict the utilization of AD (GSI) credit only when such duty was paid on or after 1st April, 2000. Further, by Section 124 of the Finance Act, 2005, the law was amended providing for cenvat credit of AD (GSI) leviable and paid prior to 1st April, 2000, which had been utilized for payment of basic and special excise duty which was not permissible in view of the retrospective amendment made in the Finance Act, 2004. Since in the present case the duty payment towards AD (GSI) pertained to the period 16th March, 1995 to 7th June, 1998, the Revenue took the view that the assessee is not eligible to pay and utilize the credit for payment of excise duties other than AD(GSI). Accordingly, a show cause notice dated 29th July, 2007, was issued for recovery of the wrongly utilized credit. That was confirmed by the order of the Commissioner dated 1st November, 2013. It is the correctness of that order which is put in issue in the Appeal before the Tribunal.
One of the arguments, inter-alia, was that the assessee’s reliance on the decision of the High Court of Punjab and Haryana in the case of Goodyear India Limited Vs.CCE4 was misplaced. The decision in Goodyear (supra) was challenged by the Revenue in the Hon’ble Supreme Court by filing a Special Leave Petition 6312 of 2008. Though the High Court of Punjab and Haryana decision’s in the case of Goodyear (Supra) was not interfered with and the Revenue’s Special Leave Petition was dismissed, the question of law was kept open. Thus, there is no finality attached to this judgment of Punjab and Haryana High Court and it will not bind the Revenue.
Further reliance is placed on a decision of this Court in the case of N.B. Sanjana, Assistant Collector of Central Excise Bombay and Ors. Vs. The Elphinstone Spinning and Weaving Mills Co. Ltd. The Hon’ble High Court noted that the Tribunal was required to labour this much and at this prima facie stage only because it was not in agreement with the assessee’s advocate that there being a decision of the High Court of Punjab and Haryana in favour of the assessee and in the field, there is an arguable case in assessee’s favour. Therefore, this is a fit case for complete waiver of the condition of pre-deposit. In that regard, the Tribunal found that it could justifiably place reliance on some of its larger bench decisions. The Tribunal should have indicated as to how and in what manner these decisions including that of its larger bench have a bearing on the controversy and how they would assist it in construing and interpreting the explanation which it finds below sub-rule (6) of Rule 3 of the Cenvat Credit Rules, 2002.
When there is a attempt by the assessee and to demonstrate as to how a arguable case exists and in that process the assessee places reliance on a decision of a High Court and having a bearing of the issue, then, the attempt to not only distinguishes but disregard it cannot be sustained particularly when the Appeal is yet to be heard finally. In that regard, the Tribunal’s following observations are ex-facie contrary to the settled canons and principles of law.
The Hon’ble court further stated that the Tribunal’s understanding of the principle of per incuriam or stare decisis leaves a lot to be desired. This understanding is completely and totally inaccurate and erroneous. A decision can be said to be per incuriam only when it is rendered disregarding a statutory provision or a binding precedent. Such is not a case which is found. If the Tribunal was of the view that the High Court of Punjab and Haryana’s decision was appealed against by the Revenue to the Hon’ble Supreme Court, but though the decision was not interfered with, that Judgment will not bind it because the question of law is kept open by the Hon’ble Supreme Court, then, that is plainly and simply not per incuriam. If its larger Bench decision or in the decision in the case of Good Year India Limited (Supra), does not take into consideration the meaning ascribed to the expression “Paid”, by the Hon’ble Supreme Court of India in some other case, then, as well, there decisions are not per incuriam. A decision can be said to be per incuiram only in the above circumstances. As to what this term means has been amply clarified by the Hon’ble Supreme Court in a decision of its constitution Bench in the case of Central Board of Dawoodi Bohra Community and Anr. Vs. State of Maharashtra & Anr6.
Therefore, this is not a principle which could have been prima facie invoked and to deal with the arguments of the assessee. Further, the said argument could not have been also dealt with on the principle applied by the Tribunal, that an assessee cannot take advantage of violation of a provision of law. It would apply after it is held that the assessee had indeed taken such advantage.
The Hon’ble High Court found that the Tribunal in reaching the conclusion that the Appellant has not made out any prima facie case extensively dealt with the arguments as if it is called upon to decide the Appeal finally. That it was not called upon by the parties to do so nor was it expected of the Tribunal at the interlocutory or interim stage. All these observations and the entire attempt, is unsustainable in law. If, the provisions of the Act, Cenvat Credit Rules, and the principles laid down by the Hon’ble Supreme Court and this Court were pressed into service, by the Tribunal at an interlocutory stage, then, definitely there was something arguable and in favour of the assessee.
The Hon’ble Court further stated that a very unreasonable and arbitrary condition of pre-deposit of the entire duty demand have been imposed on the Appellant. That has completely taken away the right of the Appeal guaranteed to the assessee. If that right is to be meaningful or purposeful and must be preserved and saved unless there are compelling circumstances, then, imposition of such conditions would vitiate the exercise of the discretionary power by the Tribunal. It lost sight of the fact that the power to grant a stay or waiver of the condition of pre-deposit is discretionary. The discretion must be exercised judiciously and not arbitrarily or capriciously. The Tribunal should not act as per its whims and fancies, but apply settled principles of law even at the interlocutory stage. The Tribunal has completely lost sight of all this, which is evident from the impugned order. It cannot be sustained.
In view of the above, the appeal is allowed.