Rajasthan HC – Circular authorizing recovery during pendency of stay application void if Assessee is not at fault

HIGH COURT OF RAJASTHAN

Mangalam Cement Ltd.

versus

Superintendent, Central Excise Kota

D.B. CIVIL WRIT PETITION Nos. 1624, 1847, 1891, 1899,
1900 to 1903, 2118 & 2138 of 2013

MARCH  1, 2013

ORDER

Amitava Roy, Chief Justice

The impugnment, common in the instant batch of proceedings, is mounted against the Circular No.967/01/2013-CX dated 1.1.2013 communicated by letter F.No.208/36/2012-CX.6 dated 1st January, 2013 of the Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs, New Delhi thereby directing initiation of recovery proceedings against the confirmed demands in the manner corresponding to the contingencies as detailed therein. As consequent to this circular demands have been raised by the concerned revenue authorities, the petitioners being aggrieved thereby, seek redress.

2. We have heard Mr. Rishabh Khandelwal, Mr. Sanjay Jhanwar, Mr. Sameer Jain, Mr. R.L Agarwal and Mr. P.K. Kasliwal, learned counsel appearing for the petitioners and Mr. Anil Mehta and Mr. Ajay Shukhla, learned counsel appearing for the respondents.

3. Considering the subject matter of assailment and the analogy of the grounds thereof, dilation on the individual facts is considered inessential and skeletal narration of the factual background from the pleadings of lead case- D.B. Civil Writ Petition No.1891/13 would suffice. The petitioner-Mangalam Cement Limited has pleaded that it is engaged in the business of production/manufacture and sale of cement and is registered manufacturer of excisable goods. A show cause notice being C.No.V (25)3/18/Demand/2011/4152 dated 13.6.2011 was issued by the departmental authorities on the basis of scrutiny of monthly ER Returns filed by the petitioner for the months from June, 2010 to December, 2010 alleging that it had availed the cenvat credit of service tax paid on different services received by it in relation to maintenance and repair works of its residential colony, which did not appear to be eligible input services as per rule 2(1) of the Cenvat Credit Rules, 2004 (for short, hereafter referred to as “the Rules of 2004”). Penalty together with interest was proposed under the relevant provisions of the Rules of 2004.

4. The petitioner filed its reply to the show cause notice, whereafter, the learned Assistant Commissioner, Central Excise Division, Kota vide Order-in- Original No.06(CE-Demand) 2012 dated 14.2.2012 affirmed the demand alongwith interest and penalty. Being aggrieved, the petitioner has preferred an appeal under section 35 of The Central Excise Act, 1944 (for short, hereafter referred to as “the Act”) before the Commissioner (Appeals), Jaipur-I against the resultant demand alongwith interest and penalty of Rs. 1,86,989/-. Alongwith the appeal, the petitioner has also filed a separate application for staying the recovery of the cenvat credit disallowed, interest and penalty till the disposal thereof. According to it, not only the appeal is pending, its prayer for stay of realization of the cenvat credit alongwith interest and penalty has not yet been considered and disposed of on merits. The framework of facts in bare essential, to reiterate, being substantially the same in all the petitions, the individual facts are being avoided for the sake of brevity. Admittedly, the petitioners’ appeals alongwith the applications for stay of demands raised by the revenue authorities are presently sub-judice before the statutory forums prescribed by the Act.

5. Before adverting to the rival submissions, apt it would be at the threshold, to notice the salient features of the impugned circular dated 1.1.2013. As would be evident therefrom, it is addressed to the concerned authorities of the Central Excise and Customs to initiate recovery proceedings against the confirmed demands in the eventualities as enumerated therein. It records as well the rescission of seven circulars hitherto existing on the issue of recovery of confirmed demands. The situations and the points of time for initiation of the processes of such recovery as mandated by the impugned circular are tabled hereinbelow for ready reference: –

6. The motivating premise as the said Circular would disclose to launch this drive for recovery of confirmed demands is that the orders pertaining thereto remain in operation till stayed and that mere filing of appeals against the same does not tantamount to automatic stay of realization thereof.

7. The learned counsels appearing for the petitioners have urged that having regard to the scheme of Chapter-VIA of the Act dealing with appeals before the various statutory forums and the time limit for disposal thereof and more particularly, the power coupled with discretion in these authorities, amongst others to dispense with the deposit of the amount demanded or the penalty levied subject to the conditions, as may be deemed fit, as well as the time frame for deciding on such a request, the directions for recovery as contained in the impugned circular, are wholly repugnant to the letter and spirit of these provisions and are thus, illegal and null and void. Referring to Section 37(2)(ib) of the Act, it has been asserted that no direction for recovery by executive fiat, as proposed to be done, is permissible and on that ground alone, the impugned circular is liable to be adjudged inoperative and invalid. In absence of Rules framed by the Central Government as contemplated in Section 37(2)(ib) of the Act, the proposed mode of recovery is wholly incompetent and unauthorized, they urged. While contending that neither Section 37B of the Act nor Rule 31 of the Central Excise Rules, 2002 (for short, hereafter referred to as “the Rules”) envisages instructions akin to those contained in the impugned circular, the learned counsels maintained that in any view of the matter, the action proposed is illegal, unfair and arbitrary and is only a pretentious move to represent a zealous endeavour to realize the pending demands with the impending closure of the current financial year. According to the learned counsel, as the petitioners have filed their appeals with the application for stay within time in the exercise of their statutory right under the Act and are by no means responsible for the delay in the disposal thereof, the directions for recovery as mandated by the impugned circular with time frames prescribed for different contingencies, are not only patently unfair, unjust and unreasonable, but also de hors the ground realities contributing to the delay of appeals and stay applications for which they, in any view of the matter, are not liable, in course of the arguments, attention of this Court was also drawn to the fact that the office of the Commissioner (Appeals), Jaipur-I is lying vacant and that the new incumbent has not joined. They contended that if the impugned circular is allowed to stand, it would amount to permitting the authorities to take advantage of their own wrong for no fault of the petitioners. Reliance has been placed on the decisions of the Hon’ble Apex Court in Orient Paper Mills Ltd. v. Union of India 1978(2) ELT (J. 345) and CCE v. Kumar Cotton Mills (P.) Ltd. 2005 (180) E.L.T. 434 (SC)), of this Court in K.T. Building Materials (P.) Ltd. v. CCE 1997 (94) E.L.T. 59 (Raj.)) and of the Bombay High Court dated 1.2.2013 in batch of writ petitions lead case being Larsen & Toubro Ltd. v. Union of India [2013] 30 taxmann.com 363 (Bom.).

8. In reply, Mr. Anil Mehta and Mr. Ajay Shukhla have argued that the power for realization of the confirmed demand is clearly traceable to sections 11 and 11A of the Act and mere pendency of appeal against the same is not indicative of stay thereof and thus, the impugned circular is not assailable. Contending that the previous circulars on the issue have been rescinded and that direction for recovery vis-a-vis the contingencies mentioned in the impugned circular is valid, the learned counsel argued that with the withdrawal of the earlier circulars, it was permissible to initiate the proposed processes for realization of the confirmed demand and even section 37B of the Act confers such power. Without prejudice to these, the learned counse l argued in the alternative that the impugned circular does not in any way inhibit the appellate forums from disposing of appeals. The learned counsel emphasized on the caveat sounded by the Hon’ble Apex Court against the routine grant of interdiction against recovery of demands raised by the Revenue. To reinforce his contentions, reliance has been placed on the decisions of the Hon’ble Apex Court in Collector of Customs. v. Krishna Sales (P.) Ltd. AIR 1994 SC 1239 and United Bank of India v. Satyawati Tondon [2010] 8 SCC 110.

9. We have evaluated the rival arguments. To start with, a plain perusal of the circular dated 1.1.2013 would unequivocally demonstrate that it is in the form of administrative instructions issued by the Central Board of Excise and Customs, New Delhi for short, hereafter referred to as “the Board”) obligating the concerned authorities to initiate recovery proceedings against the confirmed demands in the eventualities narrated therein fixing periods therefor. Broadly, three situations have been contemplated (1) where no appeal has been filed against a confirmatory order in original; (2) where an appeal has been filed without stay application against a confirmatory order in original; and (3) where an appeal has been filed with a stay application against such order. In the first contingency, in terms of this circular, the process of recovery is to be initiated after the expiry of statutory period of 60 days’ for filing appeal and in the second, after the institution of the appeal. In the third eventuality, the process of recovery has been mandated to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions, as specified. Noticeably, it is by this category of cases where appeals have been filed alongwith the stay applications, which have remained undisposed and/or unattended, that the assessees (petitioners) are really distressed and aggrieved. They contend, to reiterate, that apart from the circular being invalid for want of statutory sanction, it is palpably arbitrary, unfair and unjust as thereby the assessees, who have approached the higher forums envisaged by the Act for redress against the confirmatory orders of demand, are sought to be penalized thereby for no fault of theirs.

10. Chapter-VIA of the Act deals with appeals. Section 35 provides for appeal to Commissioner (Appeals) against any decision or order passed by a Central Excise Officer lower in rank than a Commissioner of Central Excise within 60 days’ from the date of the communication of such decision or order. The first proviso to sub-section (1) vests the Commissioner (Appeals) with the power to permit presentation of appeal within a further period of 30 days, if he is satisfied that the appellant was prevented by sufficient cause for doing so within the aforestated period of 60 days. Section 35A guarantees an opportunity to the appellant to be heard in the appeal, if he so desires and sub-section (4A) stipulates that the Commissioner (Appeals) would hear and decide every appeal, where it is possible to do so, within a period of six months from the date on which it is filed. The appeals to the Appellate Tribunal i.e. Customs, Excise and Service Tax Appellate Tribunal (for short, hereafter referred to as “the Tribunal/CESTAT”) under section 35B lie from the decision or order of the Commissioner of Central Excise as an adjudicating authority, Commissioner (Appeals) under section 35A and also from the orders of the Board in the eventualities as enumerated therein. Though sub-section (3) prescribes a ceiling of three months for the appeal to be presented reckonable from the date on which the order sought to be appealed is communicated to the Commissioner of Central Excise or, as the case may be, the other party (assessee), the Tribunal is vested with the power under sub-section (5) to admit the appeal and or permit the filing of a memorandum of cross-objection after the expiry of the relevant period referred to in sub-section (3) or sub-section (4), if it is satisfied that there was sufficient cause for not presenting it within that period, in terms of sub-section (2A) of Section 35C, the Tribunal, where it is possible to do so, is obligated to hear and decide every appeal within a period of three years from the date on which such appeal is filed. Proviso thereto provides that where order of stay is made in any proceedings relating to an appeal filed under sub-section (1) of Section 35B, the Tribunal would have to dispose of the appeal within a period of 180 days’ from the date of such order failing which the stay order on the expiry of that period would stand vacated. Section 35F prescribes for the deposit of the duty demanded or penalty levied pending appeals in the contingencies as contemplated therein. The first proviso, however, authorizes the Commissioner (Appeals) and the Tribunal to dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of the revenue, if he/it is of the opinion that such deposit of duty demanded or penalty levied would cause undue hardship to the assessee. The second proviso, however, enjoins that when an application is filed before the Commissioner (Appeals) for dispensing with the deposit of duty demanded or penalty levied, he, where it is possible to do so, decide such application within 30 days’ from the date of its filing.

11. The scheme that emerges from the outline of the above provisions launched under Chapter VIA of the Act, thus, not only confers a statutory right on the assessee and concerned revenue authorities, as the case may be, to prefer an appeal before the different fora within the time prescribed, which is extendable to the extent as legislatively intended, but also equips the Commissioner (Appeals) and Tribunal to dispense with the deposit of the duty demanded or penalty levied pending disposal of such appeal on merits. Second proviso to section 35F of the Act, however, obligates the Commissioner (Appeals) to decide such application within 30 days from the date of its filing.

12. It is thus apparent that once appeals are filed and more importantly along therewith applications for dispensing with the deposit of duty demanded or penalty levied are submitted, it is incumbent on the appellate forums Commissioner (Appeals) or Tribunal, as the case may be, to entertain the same as expeditiously as possible and pass orders thereon. Such a course, as is apparent from the legislatively designed scheme of Chapter VIA of the Act, is a statutory mandate and unless in a given fact situation, the assessee, in particular, is liable for the delay in this regard, he ought not to be penalized either for the failure of the Commissioner (Appeals) or the Tribunal, as the case may be, to entertain and dispose of either the appeal or the interim request for dispensing with the deposit of duty demanded or penalty levied.

13. Though reference has been made to section 37(2)(ib) of the Act on behalf of the respondents to salvage the impugned circular, the same being apparently not in exercise of the powers conferred by the Rules, it assuredly has no sanction thereof. A plain perusal of Section 37B of the Act does not even seemingly permit issuance of the impugned circular for the purpose conveyed by it. Rule 31 of the Rules also does not validate the impugned circular as the same only confers powers on the Board or the Chief Commissioner or the Commissioner to issue written instructions providing for any incidental or supplemental matters consistent with the provisions of the Act and the Rules. In the teeth of the framework of the Act outlined under Chapter VIA of the Act, the impugned circular is conspicuously dissentient thereto qua the eventualities where appeals with applications for interim relief by way of dispensation of deposit of duty demanded or penalty levied are filed but pending without any decision whatsoever sans any default on the part of the assessee and for that matter, the appellants. Any view to the contrary would be repugnant to the statutory comprehensions and the underlying intendment of the Act providing the statutory remedies against the orders demanding duty and penalty as contemplated therein. The right of appeal being statutory in nature, the incidental provision for exemption, in deserving cases, by way of interim relief, from making the otherwise mandatory deposit of duty demanded or penalty levied, can by no means be trivialized or annihilated by any administrative ukase. Such a conferment can permissibly be circumscribed only by and to the extent ordained by the statute. The extinction of such a statutorily conferred right by any administrative fiat without the sanction of the enactment endowing the same is impermissible. The remedy by way of appeal and interim absolution from the requirement of deposit of duty demanded or penalty levied being a legislative prescript, denial thereof by the ipse dixit of an authority even statutory de hors legal ratification would be unsustainable. In absence of any enabling power thererfor, express or implicit, by no means, can such an authority sans any valid empowerment vide instructions of administrative nature supplant statutory provisions of obverse over tones and thus, render the same otiose.

14. The authorities cited at the Bar to attest that mere filing of an appeal does not operate as a stay or suspension of the order appealed against, is too fundamental to dilate upon. The caveat expressed in Satyawati Tondon case (supra) also does not call for any elaboration. Though the High Courts have been cautioned to be extremely careful and circumspect in exercising their discretion to grant stay in matters involving recovery of taxes, cess, fees etc. by causing hindrances to discharge constitutional and legal obligations by the State or its agencies or instrumentalities, no absolute bar has been cast and instead it has been observed by their Lordships that such interim interventions can be made on a consideration of all relevant parameters and in public interest.

15. In Kumar Cotton Mills (P.) Ltd. case (supra), the Hon’ble Apex Court with reference to Section 35C(2A) of the Act has observed that sub-section (2A) introduced in terrorem cannot be construed as punishing the assessees for matters which may be considered beyond their control and while observing this, their Lordships noticed that occasionally by reason of administrative exigencies including non-constitution of the Appellate Tribunal, the disposal of matters pending before them get delayed and stay applications also are not finalized within the time specified.

16. This Court in K.T. Building Materials (P.) Ltd. case (supra) was seized with a fact situation where the petitioner had filed an appeal before the Commissioner of Appeals under the Act with an application for dispensing with the condition of pre-deposit of the amount of liability found due against it and its grievances was that neither the application for exemption was being disposed of nor the appeal was being fixed for hearing and to compound the situation, coercive measures were taken to recover the amount due. While directing the disposal of the appeal and application for exemption within the time frame of two months, a Coordinate Bench of this Court observed thus:-

“4. It is really unfortunate that the respondents are creating such a condition in which the applications under Section 35F of the Act are being kept pending decision for a considerable period and during the intervening period recoveries are being effected by coercive process. Whenever an assessee files an appeal alongwith an application for exemption from condition of pre-deposit he legitimately expects that such an application shall be disposed of first and then only the recoveries are effected. It is, therefore, necessary for the respondents to devise a fair procedure so that grievance of such assessee is redressed and no amounts are recovered by coercive process before the application for exemption from the condition of pre deposit is disposed of.”

17. This proposition, as quoted above, would proclaim not only the recognized legitimate expectation of petitioner-assessee that its appeal be disposed of first and then only the recovery would be effected, it emphasizes that to ensure fairness in procedure, no amount ought to be recovered before the application for exemption is disposed of.

18. Noticeably, the assertive plea made on behalf of the petitioners that the office of the Commissioner (Appeals) Jaipur-I is lying vacant for which there is no possibility in near future that the appeals and interim applications would be heard and disposed of, has not been refuted. Having regard to the statutory obligations cast for timely disposal of the appeals and the interim applications, we are constrained to conclude that the contemplated recovery of the demands in this factual scenario even otherwise, if approved, would be grossly unfair, unjust and unreasonable and would amount to allowing the respondents- authorities to take advantage of their own lapses and failings. The petitioners-assessees, whose appeals alongwith interim applications are pending without any decision for no fault of theirs, can by no means be left exposed to the megrim of the departmental authorities lest the statutory guarantee engrafted in Chapter VIA of the Act is rendered illusory. The plea that the power of issuing earlier circulars on the same issue with some protective features vis a vis the assessees now recalled envisages permissibility to withdraw the same lacks persuasion. In absence of any legal endorsement of the impugned circular dated 1.1.2013, it, in our comprehension, flies in the face of the provisions contained in Chapter VIA of the Act testifying a contrary legislative enjoinment and thus, cannot be sustained vis-a-vis the contingencies where the appeals with stay and interim applications for dispensing with the deposit of duty demanded or penalty levied are pending without being attended to or in which no final orders have been passed. We find ourselves in respectful agreement with the view expressed by the High Court of Judicature at Bombay in the batch of writ petitions disposed of on 1.2.2013 lead case being Writ Petition No.878/2013 Larsen & Toubro Ltd. case (supra).

19. In the wake of the above, we hold that the impugned circular dated 1.1.2013 obligating the concerned authorities to initiate recovery proceedings on the expiry of period as mentioned therein so far as it relates to the situations where appeals with stay applications have been filed, but no stay had been granted and the stay applications had been kept pending for reasons not attributable in any manner whatsoever to the petitioners/assessees and resultantly, no interim relief had been granted, is non est. Consequently, no coercive steps for the recovery of the demands vis-a-vis such petitioners would be initiated. Instead, the respondents would ensure that such appeals and interim applications are heard as contemplated by the Act at the earliest and preferably within a period of three weeks herefrom. The petitioners would unfailingly cooperate with the forums to meet the time frame fixed, it is made clear that this Court has not offered its comment on the merits of the appeals and/or interim applications filed and that the concerned forums would take appropriate decisions thereon without in any manner influenced by this determination.

20. The petitions are thus allowed to the extent as indicated hereinabove. No costs. A copy of this order be placed in all the files.

NF