It must be understood that right to appeal is not an absolute right nor essential ingredient of process of natural justice. Supreme Court held in Vijay Prakash v. CC [1989(39) ELT 178(SC)],
“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 of the grant.”
The provision of appeal is contained in Section 35 (appeal to Appellate Commissioner) and Section 35B (appeal to Appellate Tribunal) of the Act. There is no requirement of any pre deposit of disputed duty/penalty amount in these Sections. Requirement of pre deposit is there in Section 35F of the Act, which reads as,
“SECTION 35F.?Deposit, pending appeal, of duty demanded or penalty levied. — Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of Central Excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied :
Provided that where in any particular case, the [Commissioner (Appeals)] or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the [Commissioner (Appeals)] or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue.
There is nothing in the Section which says that right to appeal granted under Section 35 or 35B is subject to the provision of Section 35F. On the contrary, the Section says- “Pre deposit, pending appeal, before adjudicating authority…………..”. Thus the Section imposes a duty on the appellant, pending appeal, to deposit the disputed amount to the adjudicating authority. The term “pending appeal” is important here to show that, even without the pre deposit, the appeal is pending. Further the deposit is not made to the appellate authority, but to adjudicating authority. The role of appellate authority is limited in this Section to dispense the amount of pre deposit or passing such orders so as to safeguarding interest of revenue.
Reading the Sections together, following proposition emerges:
A. Right to appeal is granted vide Section 35B of the Act.
B. Section 35B of the Act is not subject to Section 35F of the Act, i.e. right to appeal is there, even when no pre deposit is made.
C. Section 35F imposes a liability on the appellant to deposit disputed amount before adjudicating authority.
D. If no application under Section 35F, for dispension of pre-deposit, is filed before appellate authority, appellate authority has no role to play.
E. If some application for dispension of pre deposit is filed, the appellate authority shall decide the application as per law.
F. If pre deposit is not stayed, or partial pre deposit is not made, the adjudicating authority can initiate the action for recovery of pre deposit.
I. Whether the adjudicating authority recovers the amount or not, or order passed under Section 35F is obeyed or not, appeal under Section 35B is pending and alive.
Before we proceed further, we need to understand the nature of appeal in taxation matters. It is settled position of law that appeal under taxation statute is nothing but extension of original assessment proceeding. Thus when an appeal is filed, it means that assessment proceeding is not over. As the assessment proceeding is not over, the assessee is not required to pay any duty or penalty. Therefore, Section 35F requires mere pre deposit of duty/penalty amount and not payment of duty/penalty amount. It is settled that payment under Section 35F or any payment pending appellate proceeding, with or without order of appellate authority is not a “payment of duty”. In fact, there cannot be a liability to pay duty, when assessment proceedings are pending before appellate authority.
Off course during assessment proceeding, it is required to safeguard the interest of revenue, and hence provision of pre deposit is made under Section 35F of the Act. It is to be noted that pre deposit is not required to be made before appellate authority, but before adjudicating authority.
Merely because power has been given to appellate authorities to dispense with pre deposit under Section 35F, cannot be interpreted as amounting to curtailment of power to decide appeal by appellate authority. It is seen that once appeal is filed under Section 35B of the Act, it can be disposed off only through an order passed under Section 35C of the Act, and there is no mention of dismissal of appeal for failure to pre deposit the amount.
The argument was made in various cases, and various High Courts have accepted this position of law. In BD Steel v. UOI [1998 (103) ELT 218 (Bom DB)], Division Bench of the Bombay High Court held,
“It is, therefore, clear that the impugned order came to be passed without hearing the petitioner. Dismissal of its appeal simplicitor for non-compliance of the condition for grant of stay, we feel, has no relation with dismissal of appeal in default. The Tribunal ought to have decided the appeal on merits. Since there is failure of principles of natural justice the impugned order is liable to be set aside and the matter requires to be remanded to the appellate authority for disposal in accordance with law.”
Madhya Pradesh High Court examined the matter on legality and held in Kishori Pujari v. UOI [2005 (184) ELT 225 (MP)],
“Having considered the rival submission and on appreciation of the legal principles that emerges on a reading of the judgments referred to hereinabove, it is clear that when the petitioner had a statutory right of filing appeal before the Tribunal and in exercise thereof appeal was filed, petitioner had a right of hearing and the petition has to be heard and decided on merit until and unless the Tribunal found that the appellant was not appearing and arguing the matter deliberately dismissal of appeal mechanically by order simpliciter by direction is not justified. Even if the petitioner does not comply with the direction for deposit of the amount the only consequence thereof would have been rejection of the prayer made for interim relief on stay and to direct for recovery of amount in accordance with law. Dismissing the appeal merely on the ground that direction of pre-deposit having been fulfilled is not proper. That apart, the direction for pre-deposit has to be considered in the back drop of the financial hardship if any of the appellant.”
Recently the Calcutta High Court approved the position in case of Promising Exports Limited v. UOI [2009 (243) ELT 3 (Cal)].
In Vijay Prakash Mehata v. CC [1989 (39) ELT 178 (SC)], Hon’ble Supreme Court held that that right to appeal is conditional on fulfillment of conditions of Section 129E of Customs Act (parallel provision Section 35F of the Central Excise Act). Supreme Court held,
“The aforesaid Section provides a conditional right of appeal in respect of an appeal against the duty demanded or penalty levied. Although the Section does not expressly provide for rejection of the appeal for non-deposit of duty or penalty, yet it makes it obligatory on the appellant to deposit the duty or penalty, pending the appeal, failing which the Appellate Tribunal is fully competent to reject the appeal. See, in this connection, the observations of this Court in respect of Section 129 prior to substitution of Chapter XV by the Finance Act, 1980 in Navin Chandra Chhotelal v. Central Board of Excise & Customs & Ors. 1981 E.L.T. 679 (S.C.) = (1971 3 SCR 357). The proviso, however, gives power to the Appellate Authority to dispense with such deposit unconditionally or subject to such conditions in cases of undue hardships. It is a matter of judicial discretion of the Appellate Authority.”
It is humbly submitted that the Supreme Court is saying that appeal is conditional, however not giving any reason as to why it is conditional. No reason has been given as to why the Sections is being interpreted in this manner. Thus the judgment is per inquirium and not binding.
In para 10 of the judgment the Supreme Court says,
“Counsel referred us to the decision of this Court in Collector of Customs & Excise, Cochin & Ors. v. A.S. Bava [(1968 1 SCR 82) = 1978 E.L.T. (J 333)]. There this Court found that Section 35 of the Central Excises and Salt Act, 1944 (Excise Act) gave a right to appeal. Under Section 12 of the Act, the Central Government was authorised to apply to appeals under the Excise Act the provisions of the Sea Customs Act, 1878 dealing with the procedure relating to appeals. In exercise of that power, the provisions of Section 129 of the Act were made applicable to appeals under the Excise Act. The Section required an appellant to deposit, pending the appeal, the duty or penalty imposed, and empowered the Appellate Authority, in his discretion, to dispense with such deposit pending the appeal in any particular case. The respondent therein filed an appeal against the duty imposed on him under the Excise Act and prayed for dispensation of the deposit. The Collector, who was the appellate authority, rejected the prayer and when no deposit was made within the time fixed, dismissed the appeal. The respondent filed a petition in the High Court which was allowed, and the Collector was directed to hear the appeal on merits. This court held that Section 35 of the Excise Act gave a right of appeal and Section 129 of the Act whittled down that substantive right and, as such, Section 129 could not be regarded as procedure relating to appeals” within Section 12 of the Excise Act.
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 realization 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”. The discretion must be exercised on relevant materials, honestly, bonafide 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, bonafide and having regard to the plea of ‘undue hardship’ as canvassed by the appellant. There was no error of jurisdiction or misdirection.”
This author has failed to understand the observation of the Supreme Court in the present case.
In fact in the whole judgment, the pleading that Section 35B and 35F of Central Excise Act are independent of each other has not been examined or decided. For this pleading, the case is per inquirium and not binding and judgment of MP High Court hold the field. In fact, Section 35F has nothing to do with appeal, it is another liability which has been imposed on the appellant (like numerous others liabilities imposed on assessee). Just to mitigate the effect of that liability, appellate forum has been empowered. Just for this reason, the functions of appellate forum cannot be made subject to the fact that whether the assessee is fulfilling his liability or not, and the assessment of tax work be stopped, merely because assessee is not fulfilling his liability. Merely because assessee is not fulfilling his liability under 35F cannot be a reason for tax authorities to stop their assessment work. If the assessee is not fulfilling his liability of payment of pre deposit, solution lies in recovery of government due as per law, and not in stopping assessment of tax work, which an appellate proceeding is.
In view of this it is respectfully submitted that the judgment of Supreme Court in Vijay Prakash needs to be reviewed.
Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on firstname.lastname@example.org , Web: www.rajeshkumar.co.in