640 KNOWLEDGE RESOURCE [Vol. 49 First of all let us go through this amended Section 35F of Central Excise Act, It reads as under: Section 35F. T

Transcription

1 Amended Section 35F of C. Ex. Act, some judicial interpretations and some circulars for clarification A Study Sagar Mal Pareek* The issue of mandatory deposit of certain per cent of amount of dispute at the time of filing appeals before CCE(Appeals) and CESTAT was brought in the Statute Book effective from in allthethreeactsofindirecttaxlawthatiscentral ExciseAct,1944, Customs Act, 1962 and the Finance Act, 1994 for the first time. It was brought, in place of the earlier provisions where the appellant was supposed to appeal after making full payment or after getting relief there from the Appellate authority by making a separate application and proving before it the problem as a genuine case and the undue hardship. While its implementation certain issues crept in. Therefore it is being brought before the learned readers of this magazine to understand the same properly and apply their mind further to assist their clients after resolving the issues still involved there in. As we know that with effect from 06/08/2014, the concept of pre-deposit at the time of filing Appeal against the order of Commissioner Central Excise or any Officer under him, before CESTAT or Commissioner (Appeals), respectively, is brought in statute book, in place of earlier provision of filing separate stay petition showing the prima facie case/undue hardship etc., and consideration by appellate authorities of these representations and passing speaking orders asking to pay certain percentage of the amount demanded as pre-deposit or otherwise. These provisions are applicable under the Customs Act, 1962 as per Section 129E and also under Finance Act, 1994 by virtue of Section 83. * B.Com., FCA, Chartered Accountant. Partner, Sarda & Pareek Chartered Accountants, Gujarat, smpfca@gmail.com Chartered Accountant Practice Journal May,

2 640 KNOWLEDGE RESOURCE [Vol. 49 First of all let us go through this amended Section 35F of Central Excise Act, It reads as under: Section 35F. The Tribunal or the Commissioner (Appeals), as the case may be shall not entertain any appeal: (i) under sub-section (1) of Section 35, unless the appellant has deposited seven and a half per cent of the duty, in case where duty and penalty are in dispute, or penalty where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Principal Commissioner of Central Excise or Commissioner of Central Excise; (ii) against the decision or order referred in clause (a) of sub-section (1)of Section 35B, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against; (iii) against the decision or order referred to in clause (b) of Sub-section (1) of Section 35B, unless the appellant has deposited ten per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of an order or appealed against: Provided that the amount required to be deposited under this section shall not exceed rupees ten crores: Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance No.2) Act, Explanation- For the purpose s of this section duty demanded shall include,- (i) amount determined under Section 11D; (ii) amount of erroneous Cenvat credit taken ; (iii) amount payable under rule 6 of Cenvat Credit Rules, 2001, or Cenvat Credit Rules, 2002 or CCR, Its implication is that if an appeal is to be filed before CCE (Appeals) against the order of any CEO below the post of Principal Commissioner or Commissioner, the above (i) will be applicable. If the appeals is to be filed before CESTAT against the order of Principal Commissioner or Commissioner the clause (ii) above will be applicable and, clause (iii) shall be applicable when the appeals is to be filed before CESTAT against the order of CCE (Appeals). Thus this section now makes it compulsory to pay 7.5% or 10% of the disputed amount etc. and it is stated in the beginning of the section itself that the Tribunal or CCE(Appeals), as the case may be, shall not entertain any appeal, unless the amounts prescribed therein are deposited. Proviso thereafter also clarifies that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance Act, (That is6 th August,2014).Thefirstprovisoprovidesforthemaximumlimitofsuchpayment that is Rs. 10 crores. 28 Chartered Accountant Practice Journal May, 2016

3 AMENDED SECTION 35F OF C. EX. ACT, SOME JUDICIAL INTERPRETATIONS AND SOME CIRCULARS FOR CLARIFICATION A STUDY 2016] 641 Thus only exception is what clearly spelled out in these words meaning that if an stay application or an appeals is pending before any of these two appellate authorities as on 6 th August, 2014, on such cases this amended Section shall not apply. Normally whenever some new provisions are brought in statute book, the question of their effective date and interpretation arises. Here also there are different interpretations made by various High Courts of our country, in a very short period of hardly one year of the enactment of these provisions, regarding the cases on which this amended Section would be applicable. The purpose of this article to understand the various versions of interpretations made by different High Courts of our country so far this amended section is considered, and also the circulars issued by CBEC and the CESTAT for clarifying some disputed issues. 1. The very first case was discussed and decided by Hon ble High Court of A.P. on 19/02/2015 in the case K. Rama Mohana Rao & Co. v. UOI MANU/AP/ 0298/2015. The Court held that requirement of mandatory pre-deposit of 7.5% or 10% prima facie is inapplicable where proceeding initiated prior to 06/08/2014 though appeal filed on or after 06/08/2014. Assessee can approach appellate authority for waiver of pre-deposit. 2. Next case was discussed and decided by the CESTAT Delhi, on 26/02/2015, quoted as,natambitinfosource&e-servicespvt.ltd. v.cc,ce&st.noida MANU/ CE/0198/2015. In this case it was held that, CESTAT can not entertain any appeal filed on or after 06/08/2014 without mandatory pre-deposit as per proviso of Section 35F ibid as amended with effect from 06/08/ On 02/03/2015 the Kerala High Court in the case Muthoot Finance Ltd. v. UOI MANU/KE/0254/2015 had held that, mandatory pre-deposit is not required to be made where the lis in question has commenced prior to 06/08/ On 30/03/2015, the Kerala High Court, in the case, Jeevan Telecasting Corporation Ltd. v. CCE, C & S.T. Cochin MANU/KE/0663/2015, held again that no mandatory pre-deposit is required to be made where the lis has commenced prior to 6 th August, (In this case the demand and penalty was confirmed against the petitioners before 06/08/2014.) 5. On 4 th May, 2015 the Hon ble Gujarat High Court in the case Premier Polyspin (P) Ltd. v. UOI MANU/GJ/0403/2015 had held that: Appeal was filed after the amendment was made in Section 35F ibid therefore the amended provisions would apply and appeal of appellant before CESTAT would not be maintainable in absence of deposit of 7.5% of confirmed demand even if the argument of petitioner is accepted, he is required to pre-deposit 100% of excise duty levied as he has not filed any waiver application before Tribunal. Tribunal order holding the appeal was not maintainable, was upheld. 6. On 19 th May, 2015 the Rajasthan High Court in the case Arjun Industries Ltd. v. CC, Jaipur MANU/RH/1055/2015 had held as under: Division Bench of Rajasthan High Court in the case of Paramount Security (W.P No of 2014), already held that the amendment to Section 35F ibid effective from 06/08/2014 can not be restricted to the appeals filed on or after 06/08/2014 otherwise it would be violative of Article 14 of Constitution of Chartered Accountant Practice Journal May,

4 642 KNOWLEDGE RESOURCE [Vol. 49 India. Tribunal order directing payment of 50% stayed, subject to pre-deposit of 10% as provided under the amended Section 35 of Central Excise Act, 1944 as apply to service tax vide Section 83 of Finance Act, On 29 th May, 2015, the Hon ble Allahabad High Court, in the case Ganesh Yadav v. UOI MANU/UP/0690/2015 had held that mandatory pre-deposit under amended section 35F of Central Excise Act, 1944 and Section 129E of Customs Act, 1962 are applicable only to appeals filed on or after 06/08/ 2014 even if show cause notice was issued prior to 06/08/2014. Second proviso to this section clearly indicates that requirement of mandatory pre-deposit shall not apply to stay applications and appeals which were pending prior to 06/08/2014. In this case Kerala High Court order of Muthoot Finance and A.P High Court decision in K. Ramarao (supra) has been distinguished. However in the case the Hon ble Allahabad High Court quoting a Supreme Court order in the case Govt. of A.P. v. P. Laxmi Devi MANU/SC/1017/2008 has also commented that, the High Courts can dispense with the requirement of pre-deposit under the new Section 35F of Central Excise Act, 1944 as substituted by the Finance(No.2) Act, 2014 since powers of the High Courts under Section 226 of Constitution of India are not ousted. Other issue 10% Or 2.5% in the case of second appeal: One other issue which is not discussed above is regarding a situation, where an appeal is filed together with a payment of seven and half percent as required. The order is issued against the appellant by the appellate authority. The Assessee files the further appeal against that order to the CESTAT, the question that would arise is whether he will be required to pay ten per cent of the disputed amount or only two and a half per cent that is the difference between the amount of ten per cent now payable and the amount of seven percent already paid. CBEC Circular No.984/08/2014 CX., Dated , in its para 2.1 has clarified on this issue as under: 2.1 Doubts have been expressed with regard to the amount to be deposited in terms of the amended provisions while filing appeal against the order of Commissioner(Appeals) before the CESTAT. Sub-section (iii) of Section 35F of the Central Excise Act, 1944 and Section 129E of the Customs Act, 1962 stipulate payment of 10 % of the duty or penalty payable in pursuance of the decision or order being appealed against that is the order of Commissioner(Appeal). It is, therefore clarified that in the event of appeal against the order of CCE(Appeals) before the Tribunal,10 % is to be paid on the mount of duty demanded or penalty imposed by the CCE(Appeals)... Thus the clarification resolved the doubt, as above raised. But the problem is that language in the relevant section should be clear enough to avoid such issues. CESTAT Circular dated 14/10/2014, further clarifying on certain judicial views: CESTAT Circular F.No.15/CESTAT/General/ , dated 14/10/2014 in its para (2 ) have also clarified as under: 2. The above said provisions came into force with effect from 06/08/2014. However, some of the Appellants, consultants Counsels while presenting appeals are expressing reluctance in compliance with the condition of mandatory deposit 30 Chartered Accountant Practice Journal May, 2016

5 2016] TAX AUDIT U/S 44AB OF THE IT ACT, 1961: SOME KEY ISSUES 643 stipulated under the Act as amended. Some of them have contend that as the show cause notice was issued and demand confirmed earlier to 06/08/2014, the amended provisions are not applicable to their case. Few of them have relied upon judgments of various Judicial Forums to claim exemption from the mandatory deposit while filing appeal. It is pertinent to mention that no such exemption has been contemplated either the amended provision of the Act statutes, or even in the clarificatory circular issued by the CBEC on the subject. Thus it appears that the clarification by CESTAT in this Circular goes against the judicial view expressed in some of the above discussed orders of High Courts. Thus we find that there are various interpretations made by different High courts and the questions like applicability of Article 14 and initiation of lis prior to this effective date (that is issue of show cause notice or adjudication orders prior to 06/08/2014) have crept in under discussion. But problem is that if different High Courts having different jurisdictions take such views it becomes difficult for assesses of different areas to follow them and certainly there is differentiation as discussed in Constitution of India, which must be avoided as each cost either, the Hon ble Apex Court of the land taking up such matters for suo-moto consideration or the CBEC clarifying the matter by consulting their legal heads, in the shape of necessary amendment in law where ever required. The clarification by CETAT is also important in its place, but the Judicial interpretation has got its own superior value. Regarding procedural guidance and other such issues as per the circulars issued, on the same topic, one more article will follow.