The era of appeals have changed from 06.08.2014 when mandatory pre-deposit was introduced via Section 35F of CEA,1944 .Similar provisions exist for customs and service tax as well .
In order to understand the implication of such a change, Section 35F is produced herein below and it is broken in parts for better understanding ;
SECTION 35F. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. — 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 or 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];
1. It talks about mandatory pre-deposit in First Appeal
2. Quantum of 7.5% of the duty or penalty has to be deposited as mandatory predeposit
3. First stage appeal may arise out of an order passed by an officer below the rank of Principal Commissioner or Commissioner of Central Excise
4. Order passed by such officers as stated in para 3 shall be appealable to Commissioner(appeals) as First Appeal under Section 35 of the act.
(ii) against the decision or order referred to 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;
1. It talks about mandatory pre-deposit in First Appeal
2. Quantum of 7.5% of the duty or penalty has to be deposited as mandatory pre-deposit
3. Orders or Decisions passed by Commissioner shall be appealable to Tribunal as First Appeal under clause (a) of sub-section (1) of section 35B. The said clause is produced herein below
“Section 35B(1)(a) a decision or order passed by the [Principal Commissioner of Central Excise or Commissioner of Central Excise] as an adjudicating authority;”
(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 the decision or order appealed against :
1. It talks about mandatory pre-deposit in Second Appeal
2. Quantum of 10% of the duty or penalty has to be deposited as mandatory pre-deposit
3. Orders passed by Commissioner(Appeals) shall be appealable to Tribunal as Second Appeal under clause (b) of sub-section (1) of section 35B. The said clause is produced herein below
“Section 35B(1)(b)an order passed by the Commissioner (Appeals) under section 35A;”
Provided that the amount required to be deposited under this section shall not exceed rupees ten crores :
1.A ceiling limit of 10 Crores has been fixed irrespective clauses of mandatory pre deposit of 7.5% or 10% of duty or penalty , as applicable
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, 2014.
Explanation. — For the purposes 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 the Cenvat Credit Rules, 2001 or the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.]
1. All stay applications and appeals pending before 06.08.2014 i.e enactment of the Finance (No.2) Act,2014
2. Duty will include amount determined under Section 11D,amount of erroneous cenvat credit and amount payable under Rule 6 of the CCR,2001 or the CCR,2002 or the CCR,2004.
In light of the aforesaid , the moot question which still remains as the bone of the contention is being dealt below .
Whether Section 35F mandates the fresh deposit of 10% of duty or penalty during Second Appeal in addition to 7.5% deposited in First Appeal ?
Here, I must point out what have had been clarified by CBEC and Budget note as below :
a. CBEC Circular No. 984/08/2014-CX dated 16.09.2014 talks for Quantum of pre-deposit in terms of Section 35F of Central Excise Act, 1944 and Section 129E of the Customs Act, 1962 at para 2 as below :
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 i.e. the order of Commissioner (Appeals). It is, therefore, clarified that in the event of appeal against the order of Commissioner (Appeals) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals). This need not be the same as the amount of duty demanded or penalty imposed in the Order-in-Original in the said case .
2.2 In a case, where penalty alone is in dispute and penalties have been imposed under different provisions of the Act, the pre-deposit would be calculated based on the aggregate of all penalties imposed in the order against which appeal is proposed to be filed.
2.3 In case of any short payment or non-payment of the amount stipulated under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962, the appeal filed is liable for rejection.
b. Further, the budgetary notes issued by the Ministry of Finance vide D.O.F. No. 334/15/2014-TRU dated 10 July 2014 read as below-
“13. Section 35F is being substituted with a new section to prescribe a mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing appeal with the Commissioner (Appeals) or the Tribunal at the first stage and another 10% of the duty demanded or penalty imposed or both for filing second stage appeal before the Tribunal .”
Before, I take up the issue , I must reproduce the aforesaid underlined portion again for better understanding and analysis as below :
“This need not be the same as the amount of duty demanded or penalty imposed in the Order-in-Original in the said case. “
( CBEC Circular 984/08/2014-CX dated 16.09.2014)
“and another 10% of the duty demanded or penalty imposed or both for filing second stage appeal before the Tribunal.”
( 334/15/2014-TRU dated 10 July 2014 )
First- Ordinary and Natural Meaning to be Adhered to In the First Instance
The best possible way is to see,read, understand and draw the plain as well as literal meaning of the Section 35F itself . One should not try to add any artificial word to it .
On a plain reading of entire body of Section 35F , the following can be seen and understood
a. There are three clauses in Section 35F .
b. There is no word existing between clause (ii) and clause (iii) like
over and above”,
as the case may be “
in addition to “
Need Not be Same ,
even such words are not existing in entire Section 35F to reflect a meaning other than what is coming out on plain reading itself .
c. It is pertinent to understand that had there been an intention of the legislation to fasten an additional burden of pre deposit of 10% in second appeal in addition to and after depositing 7.5% in First appeal , then words like “another”, “and “,”additional” ,”again” ,” further “,”over and above”, “as the case may be “ or “in addition to “would have existed between clause (ii) and clause (iii) of Section 35F of the act .
In absence of any such words , any interpretation other than what is expressed by plain word will tantamount to an absurd meaning which can be done only by adding or inserting an artificial word to the statute and the same is not provided to be practiced in law .Therefore, it can be understood by applying the doctrine of literal interpretation that an additional 10% need not be deposited in addition to 7.5% .
Rather, 2.5% has to be deposited in excess , to already deposited 7.5%, to make it 10% and to comply with the requirement of clause (iii) of Section 35F for the purpose of filing an appeal before the Honourable Tribunal.
I must rely upon some of the leading ratio as has been laid down by Honourable Apex court on interpretation of tax statutes as below :
i) M/s. Oswal Agro Mills Ltd. etc. etc. v. Collector of Central Excise & Others, 1993 (66) E.L.T. 37 (SC) = AIR 1993 SC 2288,
it was held that there is neither scope for any intendment nor equity in a taxing statute, that in a fiscal statute neither anything can be inserted nor anything can be deleted, while construing the same, that the taxing statute should be interpreted and construed as per the words which the legislature has chosen to employ in the Act and that in a taxing statute there is no room for assumption or presumption. In this regard the Supreme Court also observed as follows :
“Where the words of the statute are plain and clear, there is no room for applying any of the principles of interpretation which are merely presumption in cases of ambiguity in the statute. The Court would interpret them as they stand. The object and purpose has to be gathered from such words themselves. Words should not be regarded as being surplus nor be rendered otiose. Strictly, speaking there is no place in such cases for interpretation or construction except where the words of statute admit of two meanings. The safer and more correct course to deal with a question of construction of statute is to take the words themselves and arrive, if possible, at their meaning, without, in the first place, reference to cases or theories of construction.”
ii) In Commissioner of Wealth-tax, Gujarat-III, Ahmedabad v. Ellis Bridge Gymkhana, AIR 1998 S.C. 120, the Supreme Court laid down the following principles :
(1) A fiscal statute must be construed strictly;
(2) The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section;
(3) No one can be taxed by implication; and
(4) If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all.
iii) In Bharti Telecom Ltd. v. Commissioner of Customs, 2001 (134) E.L.T. 327 (S.C.) = AIR 2002 S.C. 74, the Supreme Court held that in a taxing statute there is no room for any intendment and regard must be had to the clear meaning of the words used therein and the matter should be governed only by its language.
iv) In Parle Biscuits (P) Ltd v State Of Bihar ,2005 (192) E.L.T. 23 (S.C.), it was held that
21. It is well-established that in a taxing statute there is no room for any intendment and regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption, it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different, but that is not the case here. In this connection we may refer to the observations of Lord Watson in Salomon v. Salomon & Co. (1897 A.C. 22, 38) :
“Intention of the legislature is a common but very slippery phrase, which, popularly understood may signify anything from intention embodies in positive enactment to speculative opinion as to what the legislature probably would have meant, although there has been an omission to enact it. In a Court of Law or Equity, what the Legislature intended to be done or not to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary implication.”
22. application of this principle that a statutory It is an notification may not be extended so as to meet a casus omissus. As appears in the judgment of the Privy Council in Crawford v. Spooner, 6 Mco. P.C.C. 8 :
“………we cannot aid the legislature’s defective phrasing of the Act, we cannot add, and mend, and, by construction, make up deficiencies which are left there.”
23. position was illuminatingly highlighted by a The above Constitution Bench of this Court in Harsraj Gobardhandas v. H.H. Dave [1969 (2) SCR 253].
Hence, it can be safely concluded that plain meaning of Section 35F has to be understood and adopted otherwise it will lead to drawing of a meaning which is not otherwise intended by plain words assigned to the body of Section 35F of the act .
Second –Adjustment of amount paid during investigation
It must be also noted that it is a well clarified aspect and , infact a settled law , that any amount paid during the investigation has to be considered as an amount paid and accordingly has to be adjusted towards liability and pre-deposit as well .
I am further inclined to refer para 3 of CBEC Circular No. 984/08/2014-CX dated 16.09.2014
3. Payment made during investigation:
3.1 Payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10%, subject to the limit of Rs 10 crores, can be considered to be deposit made towards fulfillment of stipulation under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962. Any shortfall from the amount stipulated under these sections shall have to be paid before filing of appeal before the appellate authority. As a corollary, amounts paid over and above the amounts stipulated under Section 35 F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962, shall not be treated as deposit under the said sections.
3.2 Since the amount paid during investigation/audit takes the colour of deposit under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962 only when the appeal is filed, the date of filing of appeal shall be deemed to be the date of deposit made in terms of the said sections.
3.3 In case of any short-payment or non-payment of the amount stipulated under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962, the appeal filed by the appellant is liable for rejection.
If this is an undisputed fact , then purpose of clause (iii) of Section 35F has to be met by way of an adjustment of 7.5% which has been paid during the first appeal and subsequent payment of the rest of 2.5% to make it a total of 10% for getting the appeal entertained at second appeal stage i.e before Honourable Tribunal.
Finally ,i also reproduce the relevant circular of Honourable CESTAT so that the adjustment of amount paid during investigation can be also understood in better perspective .
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST BLOCK NO.II, R K PURAM, NEW DELHI
Dated: August 28, 2014
Sub: Registration of appeals received on or after 06.08.2014 subsequent to amendment in the Customs Act, 1962, the Central Excise Act 1944 and the Finance Act, 1994- instructions- regd.
As there is confusion of adjustment of Cenvat Credit against mandatory penalty, clarifications have been sought from Competent authority. In absence of any classificatory Circular on the issue, all the DRs/ARs/TOs are directed that the appeals received on or after 06.08.2014 may be registered in following cases:
(i) If the mandatory deposit of duty or penalty, as the case may be, has been made in Cash and evidence thereof is produced at the time of filing appeal.
(ii) If mandatory deposit of duty confirmed is made from CENVAT account and evidence thereof is produced.
(iii) If the appellants have made deposit of the duty assessed subsequently, during investigation and if the same is more than the mandatory deposit as stipulated in the captioned amendments.
Whether further clarification is required the same will be issued after getting a clarification from the competent authority.
(A Mohan Kumar)
By Anand Mishra, Founder Advocate, AMLEGALS
(This article is published in E.L.T dated 11th May 2015 vol 319 : Part 2 on pages no. A 90 to A 96 )
( The author is a leading indirect tax advocate handling cases in CESTAT & High Courts of India. He can be contacted on firstname.lastname@example.org and for more please refer www.amlegals.com . )