An endless era of interpretations & litigations started with the substitution of new Section 35F of CEA,1944 w.e.f 06.08.2014.
Intention of New Section 35F
The intention of such a change was aired by Finance Minister during F.Y Budget 2014 as below :
“252. To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal.”
Hence, the intention was to save precious time of Appellate Authorities by doing away the hearing on stay applications.
New Section 35F w.e.f 06.08.2014
The Section 35F is being reproduced herein below for a 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];
(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;
(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:
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, 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.]
On perusal of the same , it can be further understood that certain restrictions, exceptions & mandatory requirements are existing in the body of Section 35F itself .
- Restriction on Appellate Authorities & Court
They cannot entertain an appeal unless a deposit is made in terms of sub section (i) , (ii) & (iii) of Section 35F
- Restriction on Amount to Be Deposited
The first proviso puts a maximum cap on the amount of mandatory pre-deposit i.e Rs 10 Crores.
- Exception On Applicability of New Section 35F
The second proviso carves out an exception that any appeal or stay application which is pending with Tribunals and Appellate Authorities before 06.08.2014 will not attract the new Section 35F
- Mandatory Requirement
Any person desirous of filing an appeal ,against an order or a decision , has to deposit the stipulated amount of 7.5% or 10% of duty or penalty amount , as the case may , then only their appeal will be entertained .
Dispute under new Section 35F Vs Question of Lis
Now the moot questions which arose are as below :
” Whether new Section 35F is ultra vires ?”
” Whether new Section 35F by virtue of its construction has any retrospective applicability or lis wil prevail ?”
In order to understand this question, it is equally important to refer orders of different High Courts on new Section 35F of CEA,1944, as below :
- High Court of Andhra Pradesh
Whereas, In M/s Rama Mohanrao & Co -2015-TIOL-511-HC-AP-CX, the Honourable High Court of Andhra Pradesh passed an interim order and held that
We are of the prima facie view that on the date of initiation of proceedings the right to appeal also accrues on that date, as appeal is in continuation of the original proceedings. In other words, on the date of initiation of lis the aforesaid amendment was not in force. However, during the pendency of this matter the aforesaid amendment is made.
- High Court of Andhra Pradesh
In M/s Muthoot Finance Ltd -2015-TIOL-511-HC-AP-CX, the Honourable High Court of Andhra Pradesh while relying upon the aforesaid interim order passed by High Court of Andhra Pradesh held that
“…..the petitioner, in whose case also the lis commenced in 2012, would not be required to deposit the amount of 7.5%, as required pursuant to the 2014 amendment, and in that respect, he would have an efficacious alternate remedy before the Tribunal where he can file an appeal, together with an application for waiver of pre-deposit and stay of recovery of the amounts confirmed against him by Ext.P8 order. At the time of filing the appeal, he will not be required to make any payment as a pre-condition for the hearing of the waiver application by the Tribunal”
- High Court of Kerala
In M/s A M Motors -2015-TIOL-1069-HC-Kerala-ST, the Honourable High Court of Kerala while relying upon an interim order passed by High Court of Andhra Pradesh held that
“….In that view of the matter, I find that the petitioner, in whose case also the lis commenced in 2013, would not be required to deposit the amount of 7.5%, as required pursuant to the 2014 amendment, and in that respect, he would have an efficacious alternate remedy before the Tribunal where he can file an appeal, together with an application for waiver of pre-deposit and stay of recovery of the amounts confirmed against him by Ext.P1 order. ……..”.
On referring above, it can be seen that right of appeal with commencement of Lis was emphasised in all such orders.
Whereas, the Honourable High Court of Allahabad in the matter of Ganesh Yadav – [2015] 59 taxmann.com 447 (Allahabad) had dealt with the following issues:
Constitutional Validity :
The Honourable Court proceeded with analysis of various precedents as to whether the right of appeal can be conditional or otherwise :
“4. We would deal with the challenge to constitutional validity in the first instance. As a first principle of law, a right of appeal is a statutory right and it is open to the legislature which confers a remedy of an appeal to condition the appeal subject to compliance with conditions. A fiscal legislation can stipulate a requirement of pre-deposit as a condition precedent to an appeal to be entertained. The restraint on the power of the legislature to do so, is that the condition which is prescribed should not be so onerous so as to restrict or abrogate the right of appeal altogether. A condition which is unduly onerous will render the right of appeal illusory and would hence run the risk of being held to be arbitrary and of being violative of the fundamental right conferred by Article 14 of Constitution.
Unquote – it is pertinent to mention here that under erstwhile section 35F as well, there was also a condition of pre-deposit but Tribunal had power to waive such a pre-deposit. Otherwise, legislation has provided a right of appeal, previously also, with the condition of pre-deposit in terms of a stay order.
But, in new Section 35F, quantum of mandatory pre-deposit has been stipulated without any provision of waiver of pre -deposit.
- In Anant Mills Co. Ltd. v. State of Gujarat [1975] 2 SCC 175 the Supreme Court held that the right of appeal is a creature of the statute and it is for the legislature to determine whether that right should be given unconditionally to an aggrieved individual or should be allowed subject to condition. In Vijay Prakash D. Mehta v. Collector of Customs 1988 taxmann.com 619 (SC), the Supreme Court held that the right of appeal is neither an absolute right nor an ingredient of natural justice, the principles of which must be followed in all judicial or quasi-judicial adjudications. The Supreme Court observed that the right of appeal is a statutory right and can be circumscribed by the condition in the grant. This decision was followed in Gujarat Agro Industries Co. Ltd. v. Muncipal Copn. of the City of Ahmedabad [1993] 4 SCC 468.
Unquote – The Honourable Apex Court has consistently held that the right of appeal is a statutory right and can be circumscribed by the condition in the grant and legislation can put a pre-condition for entertaining an appeal.
Then the Court proceeded to discuss on new Section 35F as to how it is justified and cannot be declared as Ultra Vires. For simplicity, the para 9 is broken in 4 parts, as below
- Parliament while amending the provisions of Section 35F of the Act has required the payment of 7.5 percent 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 the revenue.Stay applications and the issue of whether a case of undue hardship was made out, gave rise to endless litigation. ………………….
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 of a deposit of 10% is in the case of an appeal to the Tribunal against an order of the Commissioner (Appeals). This 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.
Unquote – Accordingly, the court declined to declare new Section 35F as ultra vires.
Then, it proceeded to decide as to whether Lis wil prevail as has been held by various High Courts of India.
A very important aspect which has to be understood that the Honourable Court has dealt with almost all case laws including Hoosein Kasam Dada ( India) Ltd V State of Madhya Pradesh-AIR 1953 SC 221, which were also relied upon by other High Courts, while delivering this decision.
For brevity, only very prominent lines of certain paras are reproduced herein below;
On Applicability of new Section 35F on Appeals prior to 06.08.2014 irrespective of Lis
The Honourable High Court had specifically dealt with second proviso of new Section 35F which was neither dealt nor discussed in orders of other High Court.
The court proceeded as below:
- That leads the Court to the next aspect of the matter as to whether the requirement of pre-deposit would apply in a situation such as the present. The notice to show cause was issued on 19 September 2013. The case of the petitioner is that the amendment to Section 35F of the Act was brought into force with effect from 6 August 2014 and cannot retrospectively abridge or curtail the right of appeal which vested in the petitioner upon the issuance of a notice to show cause on 19 September 2013.
While considering the merits of this submission, the basic principle of law which was laid down in the Constitution Bench judgement of the Supreme Court in Garikapatti Veeraya v. N. Subbiah Choudhary AIR 1957 SC 540 would merit reference. Chief Justice Sudhi Ranjan Das speaking for the majority, after considering the law on the subject from the decision of the Colonial Sugar Refining Co. Ltd. v. Irving [1905] AC 369 (AC) upto Sawaldas Madhavdas v. Arti Cotton Mills Ltd. AIR 1955 Bom. 332 deduced the following principles of law:
| “(i) | xxx ( not taken for brevity ) | |
| (ii) | Xxxx ( not taken for brevity) | |
| (iii) | Xxxxx ( not taken for brevity ) | |
| (iv) | The right of appeal is a vested right and such a right to enter the superior court accrues to the litigant and exists as on and from the date the lis commences and although it may be actually exercised when the adverse judgment is pronounced such right is to be governed by the law prevailing at the date of the institution of the suit or proceeding and not by the law that prevails at the date of its decision or at the date of the filing of the appeal. | |
| (v) | This vested right of appeal can be taken away only by a subsequent enactment, if it so provides expressly or by necessary intendment and not otherwise.” (Emphasis Supplied) |
- This principle was also laid down in an earlier decision in Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh AIR 1953 SC 221, where it was held as follows:
“. . . . . . The true implication of the above observation as of the decisions in the other cases referred to above is that the pre-existing right of appeal is not destroyed by the amendment if the amendment is not made retrospective by express words or necessary intendment. The fact that the pre-existing right of appeal continues to exist must, in its turn, necessarily imply that the old law which created that right of appeal must also exist to support the continuation of that right. As the old law continues to exist for the purpose of supporting the pre- existing right of appeal that old law must govern the exercise and enforcement of that right of appeal and there can then be no question of the amended provision preventing the exercise of that right.”(Emphasis Supplied)
Unquote – It proceeded with various precedents of Honourable Apex Court to conclude that Lis will not be applicable. It further dealt with same decisions which were also before other High courts.
- The aforesaid conclusion was reached on the basis of the enunciation of law laid down in the Constitution Bench judgment of the Supreme Court in Garikapatti Veeraya (supra) and in the Hough v. Windus [1889] 12 QBD 224 by laying down as under:
“17. Now the question for enquiry is whether there is anything in Act 104 of 1976 demonstrating that the right to file appeal which accrued on the date of filing of the execution application was taken away. True it is as said in Hough v. Windus (supra), the statutes should be interpreted if possible, so as to respect vested rights. It is also correct at the same time that the golden rule of construction is that, in the absence of anything in the enactment to show that law should have retrospective operation, an Act should be construed so as to apply prospectively. These propositions are, however, subject to the control by the legislature. The legislature can enact a law taking away the vested right of appeal by making a provision to that effect or by expressing an intention to the contrary.
- xxxxx
- As already pointed out above, the legislature has authority to abridge a right to appeal at its discretion. The legislature may take away the right of appeal.” (Emphasis Supplied)
- Thus, the principle of law which emerges is that the right of appeal is a vested right and the right to enter a superior Court or Tribunal accrues to a litigant as on and from the date on which the lis commences although it may actually be exercised when the adverse judgment is pronounced. Such a right is governed by the law which prevails on the date of institution of the suit or proceeding and not by the law that prevails at the date of the decision or on the date of the filing of an appeal. Moreover, the vested right of an appeal can be taken away only by a subsequent enactment, if it so provides expressly or by necessary intendment and not otherwise.
Unquote – Second Proviso in new Section 35F clearly specifies and carves out an exception that it will be applicable to all appeals from 06.08.2014 i.e. the day of enactment of Finance Act 2014 .Whereas, it shall not be applicable to all appeals and stay applications pending in appellate authorities and Tribunals when new act is substituted. Therefore, it has specifically expressed the intention of the legislation and not merely by an implication.
- 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.
- 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 2014. 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 shall 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.
Unquote – With the aforesaid discussions and reasoning, all the decisions of Honourable Kerala High Court and Andhra Pradesh Courts were also differed
Differed With Other High Court’s Oder
- 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 [WP(C) No. 6173 of 2014, dated 2-3-2015]. The Kerala High Court has referred to an interim order passed by the Andhra Pradesh High Court in K Rama Mohanarao & Co. v. Union of India [W.P. No. 3393 of 2015, dated 19-2-2015]. 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.
- 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.
Conclusion
On going through the same, the order of Honourable High Court of Allahabad seems to be a very reasonable and a detailed order. It has dealt with all the issues including second proviso of new Section 35F and Lis under the light of catena of precedents laid down by Honourable Apex Court under different enactments.
Further, It must be also known that Section 62(5) of Punjab VAT Act, 2005 also requires pre-deposit of 25% of additional demand before hearing any appeal. The issue is also under challenge, in the matter of Dishnet Wireless Ltd v. The Commercial Tax Officer and Amrit Banaspati Limited v. State of Punjab, before Honourable Apex Court. Though, initially stay was granted, on 31.10.2014, by the Apex court but later on it has been vacated with a direction of no coercive recovery.
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by Anand Mishra, Advocate, Founder AMLEGALS
( The author is a leading advocate and handling cases in Tribunals & High Courts of India . He can be contacted on anand@amlegals.com. For more please refer www.amlegals.com )
Note – This article was published on Taxmann’s Corporate Professionals Today – Vol 34 September 2015 edition at page 58 to 64
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