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Case Law Details

Case Name : Satya Nand Jha vs. Union of India and Others (Supreme Court)
Appeal Number : Petition(s) for Special Leave to Appeal (C) No(s). 31297/2016 WITH SLP(C) No.31643/2016
Date of Judgement/Order : 07/11/2016
Related Assessment Year :

In the case of Satya Nand Jha vs Union of India Honourable Supreme Court Upheld the Judgment of Jharkhand High Court and upheld the constitutional validity of Section 35F of the Central Excise Act, 1944.

Earlier High Court has held as under:-

A statute relating to  taxation cannot be struck down merely because the right to prefer  an appeal is made conditional, otherwise, the whole revenue will be  in litigation and the budgetary provision will be upset. Moreover, if the amount is compelled to be deposited by few percentage only and if appeals preferred by the appellant-assessee are dismissed, nothing would have been left out to be recovered from the revenue, whereas, if the appeals of the appellant-assessee are allowed, the amount deposited, can be easily recovered from the Union of India, with interest, more particularly looking to Section 106 of the Finance (No.2)Act, 2014, by virtue of which Section 35FF is being inserted. Thus, insertion of Section 35FF makes the provision of  Section 35F more balanced because the amount so deposited by  the assessee-appellant, will be refunded with interest in case the  appeal is allowed in favour of the assessee-appellant and the rate  of interest will vary from 5% to maximum of 36% per annum  depending upon the notification published by the Central  Government. Thus, all care has been taken by the Finance (no.2) Act, 2014, to make provision of Section 35 F in favour of the assessee-tax payers. From every angle the tax payers are being protected. Most part of the tax assessed and adjudicated upon by  the first authority has already been waived from the amount to be  deposited and only 7.5% or 10% of the duty demanded or penalty  levied is to be deposited and that too with a cap of maximum  amount of Rs.10 crores, whereas, previously under the old provision of Section 35F, as a matter of rule, 100% duty demanded or penalty levied was to be deposited. In case of undue hardship the appellate authority or the Tribunal waived few percentage of duty demanded or penalty levied to be deposited.

Thus, substituted Section 35F, is not at all confiscatory in nature. On the contrary it is more than reasonable and leaning  more towards the assessee rather than the revenue.

Counsel appearing for the petitioners has heavily placed reliance upon the decision rendered by Hon’ble the Supreme Court in the case of Hoosein Kasam Dada(India) Ltd. vs. State of M.P., but, as stated hereinabove, looking to the 2nd Proviso to Section 35F, which is a “different intention” of the legislation, it takes away the effect of Section 6 of the General Clauses Act, 1897. Moreover, 2nd proviso to Section 35F of the Act, 1944 makes the present case different, factually, from Hoosein Kasam Dada’s We are in full agreement with the ratio desidendi propounded by the Hon’ble Karnataka High Court, as stated hereinabove, in the case reported in (2016) 89 VST 235 (Karnataka) in paras 2, 23 & 25, which are the distinguishing features of substituted provision of Section 35F. Hence, the ratio propounded in the case of Hoosein Kasam Dada’s case is not applicable in the facts of the present case. In the Hoosein Kasam Dada’s case the entire amount was to be  deposited and, therefore, Hon’ble the Supreme Court has made certain observations, whereas as per substituted Section 35F of the  Act, 1944 only 7.5% or 10%, as the case may be, of the duty  demanded or penalty levied, is to be deposited, meaning thereby,  the Statute itself waives 92.5% or 90% of the duty demanded or the  penalty levied.

It has been held by the Allahabad High Court in the case of Ganesh Yadav vs. Union of India and Ors, reported in (2015) 39 STR 177 (Allahabad) at paras 9 & 19 to 22 as under:-

“9. Parliament while amending the provisions of section  35F of the Act has required the payment of 7.5 per cent of the duty in case the duty and penalty are in dispute or the penalty where such penalty is in dispute. In the case of an appeal to the Tribunal against an order passed by the Commissioner (Appeals), the requirement of deposit is 10% of the duty or as the case may be, the duty or penalty or of the penalty where the penalty is in dispute. The first proviso restricts the amount to be deposited to a maximum of Rs.10 crores. Prior to the amendment, the Commissioner (Appeals) or the Appellate Tribunal were permitted to dispense with such deposit in a case of undue hardship subject to such conditions as may be imposed so as to safeguard the interest of revenue. Stay applications and the issue of whether a case of undue hardship was made out, gave rise to endless litigation. There would be orders of remand in the litigative proceedings. All this was liable to result in a situation where the disposal of stay applications  would consume the adjudicatory time and resources of the  Tribunal or, as the case may be, of the Commissioner (Appeals). Parliament has stepped in by providing a  requirement of a deposit of 7.5% in the case of a First Appellate remedy before the Commissioner (Appeals) or to  the Tribunal. The requirement cannot be regarded or held as  being arbitrary or as violative of Article 14. Above all, as the  Supreme court held in Shyam Kishore (supra),  the High Court under Article 226 of the Constitution is vested with the jurisdiction in an appropriate case to dispense with the requirement of pre-deposit and the power of the Court under Article 226 is not taken away. This was also held by the  Supreme court in P. Laxmi Devi (supra) in which the  Supreme Court observed that recourse to the writ jurisdiction  would not be ousted in an appropriate case. Whether the writ jurisdiction under Article 226 should be exercised, having due regard to the discipline which has been laid down under Section 35F of the Act, is a separate matter altogether but it is important to note that the power under Section 226 has not been, as it cannot be, abridged.


19. Parliament while substituting the provisions of Section 35F of the Central Excise Act, 1944 by Finance Act (No. 2) of 2014, has laid down that the Tribunal or the Commissioner (Appeals)”shall not entertain any appeal” unless the  appellant has deposited the duty or, as the case may be, a  penalty to the stipulated extent. These words in Section 35F of the Act would indicate that on and after the enforcement of the provision of Section 35F of the Act, as amended, an  appellant has to deposit the duty and penalty as stipulated  and unless the appellant were to do so, the Tribunal shall not entertain any appeal. This provision would, therefore,  indicate that it would apply to all appeals which would be  filed on and from the date of the enforcement of Section 35F of the Act.

20. The intendment of Section 35F of the Act is further clarified by the second proviso which stipulates that the provisions of the section shall not apply to stay applications  and appeals which were pending before any appellate  authority prior to the commencement of Finance (No. 2) Act The second proviso is a clear indicator that Parliament has exempted the requirement of complying with the pre-deposit as mandated by Section 35F (1) of the Act as  amended only in the case of those stay applications and appeals which were pending before any appellate authority prior to the commencement of Finance (No. 2) Act 2014.  Consequently, both by virtue of the opening words of Section  35F(1) of the Act as well as by the second proviso to the  provision, it is clear that appeals which are filed on and after the enforcement of the amended provision on 6 August 2014  sshall be governed by the requirement of pre-deposit as stipulated therein. The only category to which the provision will not apply that would be those where the appeals or, as the case may be, stay applications were pending before the appellate authority prior to the commencement of Finance (No. 2) Act 2014.

21. Our attention has been drawn to a judgment of the learned Single Judge of the Kerala High Court in Muthoot Finance Ltd. v. Union of India, 2015-TIOL-632-HC-KERALAST. The Kerala High Court has referred to an interim order passed by the Andhra Pradesh High Court in K Rama Mohanarao v. Union of India, 2015-TIOL-511-HC-APCX. The Kerala High Court while adverting to the interim order referred to the settled law that the institution of a suit carries with it an implication that all rights of appeal then in force are preserved to the parties. With great respect,the judgment of the learned Single Judge of the Kerala High Court has not considered the express language which has been used in the amended provisions of Section 35F(1) of the Act. The order of the Andhra Pradesh High Court which was relied upon in the judgment of the Kerala High Court is only an interim order.

22. For these reasons, we hold that the petitioner would not be justified in urging that the amended provisions of Section 35F(1) of the Act would not apply merely on the ground that the notice to show-cause was issued prior to the enforcement of Finance (No. 2) Act, 2014. We find no merit in the constitutional challenge. The petition shall accordingly stand dismissed for the aforesaid reasons.”

(Emphasis supplied)

In view of the aforesaid decision, endless litigations, arising  out of waiver applications, have been brought to an end and looking to the very meager percentage of the amount to be deposited, Section 35F- as amened cannot be said to be violative of Article 14 of the Constitution of India much less of Article 19(1)(g) of the Constitution of India.

Thus, even if the show-cause notice has been issued prior  to 6th August, 2014 or even if the Order-in-Original is passed prior  to 6th August, 2014 or even if, the company and few of its Directors have preferred appeals prior to 6th August, 2014, but, if the left out Director prefers appeal on or after 6th August, 2014, looking to the  second proviso to substituted Section 35F, the newly substituted  Section 35F shall be applicable, to his appeal and such an  appellant, shall have to deposit 7.5% or 10% of the duty demanded  or penalty levied, as the case may be. The fact as to whether it will  be beneficial to the assessee or not, does not merit any consideration as  individual benefit is not to be appreciated at all. Even if anybody has preferred appeal prior to 6th August, 2014 and his waiver application has been dismissed by the appellate authority which is confirmed up to the Hon’ble Supreme Court and he was compelled to deposit 100% of the duty demanded, then  also, if the left out Director or anyone has preferred appeal on or  after 6th August, 2014, he will have to deposit only 7.5% or 10% of the duty demanded or penalty levied.

Merely because in one case the assessee is getting benefit and in the other he is not, the substituted Section 35F cannot be termed as unconstitutional. Whenever, any cut off date is  prescribed, there are bound to be few persons who will fall on the  wrong side of the cut off date. This fact neither makes the  classification void nor the provision unconstitutional.

The Circular issued by the respondents dated 16th September, 2014 (Annexure-3 in W.P.(T) no. 4858 of 2015) as well as Circular issued by the respondent dated 14th October, 2014 (Annexure-4 in W.P.(T) no. 4858 of 2015) to be read with Circular issued by the respondent-State dated 5th January, 2015 are also absolutely constitutional in nature, because, by virtue of these Circulars there is a clarity about the cut off date in question i.e. 6th August, 2014 onwards.

As a cumulative effect of the aforesaid facts, reasons, and judicial pronouncements, we see no reason to entertain these writ petitions as Section 35F as substituted by Section 105 of the Finance (no.2) Act, 2014 is constitutionally valid and is neither violative of Article 14 nor of Article 19 (1) (g) or of any other provision of the Constitution of India. The defects memo pointed out by the appellate Tribunal is absolutely true and correct.

The prayer for hearing of the stay application preferred by these petitioners cannot be allowed because by virtue of substituted Section 35F, now there is no concept at all in existence  to prefer an application for waiver of the deposit, because statute  has already waived 92.5% or 90% of the duty demanded or penalty levied which is to be deposited with a maximum cap of Rs.10  crores.

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