Case Law Details

Case Name : Commissioner of Central Excise, Delhi Vs Brew Force Machine Pvt. Ltd. (Delhi High Court)
Appeal Number : [AIT-2015-111-HC]
Date of Judgement/Order : 31/07/2015
Related Assessment Year :
Courts : All High Courts (4251) Delhi High Court (1296)
CA Bimal Jain

We are sharing with you an important judgement of the Hon’ble High Court of Delhi in the case of Commissioner of Central Excise, Delhi Vs. Brew Force Machine Pvt. Ltd. [AIT-2015-111-HC] on the following issue:

Issue:

Whether the CESTAT is empowered to grant or extend Stay of recovery of demand beyond 365 days from the date when the Stay Order was initially passed, notwithstanding that the delay in disposal of the appeal was not attributable to an assessee?

Facts & Background:

In the case of CIT Vs. Maruti Suzuki (India) Ltd. [2014 (362) ITR 215] (“Maruti Case”), the Division Bench of the Hon’ble High Court of Delhi while dealing with Section 254(2A) of the Income Tax Act, 1961 (“the IT Act”) as amended by the Finance Act, 2008, held that the Income Tax Appellate Tribunal does not have power and jurisdiction to extend an interim Stay Order beyond 365 days, even if the assessee was not at fault.

Third proviso to Section 254(2A) of the IT Act was substituted by the Finance Act, 2008 w.e.f. October 1, 2008 to provide as under:

“Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, which shall not, in any case, exceed three hundred and sixty-five days, the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assessee.”

Later in the case of Commissioner of Central Excise, Delhi Vs. Haldiram India Pvt. Ltd. decided on May 5, 2015 [CEAC 18/2015] (“Haldiram Case”), a Division Bench of the Hon’ble High Court of Delhi reversed the decision of a Larger Bench of the Tribunal in the case of Haldiram India Pvt. Ltd. Vs. Commissioner of Central Excise, Delhi [2014 (309) E.L.T. (Tri.-LB)],and applied the decision of the Maruti Case while interpreting Section 35C(2A) of the Central Excise Act, 1944 (“the Excise Act”), holding that an identically phrased provision in the IT Act was interpreted in Maruti Case to hold that the Income Tax Appellate Tribunal did not have power and jurisdiction to extend an interim stay order beyond 365 days, even if the assessee was not at fault.

Third proviso to Section 35C(2A) of the Excise Act reads as under:

“Provided also that where such appeal is not disposed of within the period specified in the first proviso, the Appellate Tribunal may, on an application made in this behalf by a respondent and on being satisfied that the delay in disposing of the appeal is not attributable to such respondent, extend the period of stay to such further period, as it thinks fit, not exceeding one hundred and eighty-five days, and in case the appeal is not so disposed of within the total period of three hundred and sixty-five days from the date of order referred to in the first proviso, the stay order shall, on the expiry of the said period, stand vacated.”

However, a Division Bench of the Hon’ble High Court of Delhi in the case of Commissioner of Central Excise, Delhi Vs. Brew Force Machine Pvt. Ltd. [CEAC 27/2015], prima facie, felt that the observations in Haldiram Case may not be correct and appropriate as Section 35C(2A) of the Excise Act is not identically worded and parimateria to the third proviso to Section 254(2A) of the IT Act, as substituted by Finance Act, 2008. Hence, the matter was referred to the Full Bench of the Hon’ble High Court.

Held:

The Full Bench of the Hon’ble High Court of Delhi upheld the decision of the Division Bench and held as under:

  • The difference in the language of the third proviso under Section 254(2A) of the IT Act and Section 35C(2A) of the Excise Act is apparent and striking;
  • The words “even if the delay in disposing of the appeal is not attributable to the assessee” are missing and not incorporated in the Excise Act. Thus, the bar and prohibition created by enactment of the Finance Act, 2008 to the third proviso to Section 254(2A) of the IT Act, would not be applicable to appeals preferred under Section 35C(2A) of the Excise Act;
  • The ratio and decision in the case of Maruti Case, therefore, would not be applicable to CESTAT while dealing with an application for Stay or their power and jurisdiction to grant Stay beyond 365 days, when the assessee is not responsible, under Section 35C(2A) of the Excise Act;
  • Division Bench of this Court in the case of Pepsi Foods Pvt. Ltd. Vs. Assistant Commissioner of Income Tax [W.P.(C) 1334/2015] has struck down the amendments inserted/ substituted by the Finance Act, 2008 as being violative of Article 14 of the Constitution of India.

Thus, the Larger Bench of the Hon’ble High Court of Delhi overruled the decision of the Division Bench in Haldiram Case to upheld power of CESTAT to grant/ extend Stay of recovery of demand beyond 365 days from passing of Stay Order, where delay in disposal of appeal not attributable to assessee.

Important to note changes made in Section 35C(2A) of the Excise Act vide the Finance (No.2) Act, 2014 w.e.f. August 6, 2014

Effective from August 6, 2014, Section 35F of the Excise Act [as applicable for Service Tax vide Section 83 of the Finance Act, 1994 and for Customs vide Section 129E of the Customs Act, 1962] is substituted to provide for mandatory pre-deposit in the following manner:

a) 7.5% of the duty in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute for filing of appeal before the Commissioner(Appeals) or the Tribunal at the first stage; and

b) 10% of the duty in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute for filing second stage appeal before the Tribunal.

The amount of pre-deposit payable is subject to a ceiling of Rs. 10 Crore.

The proposed amendment does away with the requirement of filing Stay applications for waiver of pre-deposit, thereby, the controversy regarding extension of Stay beyond 365 days from the initial grant of Stay in terms of Section 35C(2A) of the Excise Act also loses its significance. However, all pending appeals/ Stay application would be governed by the statutory provisions prevailing at the time of filing such Stay applications/appeals.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons),  Email: bimaljain@hotmail.com)

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