As per Section 35F of Central Excise Act, 1944 if the assessee is aggrieved by decision of the Commissioner (Appeals) or by the Commissioner, he can file an appeal against such order before the Hon’ble CESTAT. Right to appeal is not absolute right, such right is preceded by a condition that the person desires to entertain/hear appeal against an order has to pre deposit the duty demanded along with the penalty imposed.
There is an exception to the above Provision of Section 35F(1), assessee can file the application before Hon’ble Tribunal for waiver of pre-deposit of duty and penalty. To get the waiver of pre-deposit of duties demanded he has to satisfy the appellate authority that if he is asked to pay it is “undue hardship” for him. Appellate Authority has discretion and may grant the waiver if it is of same opinion that it causes “undue hardship” for the assessee if he asked to pay.
The use of the words ‘opinion’ and ‘discretion’ introduce an element of subjective satisfaction which could either be on the basis of his enquiries instituted through departmental channels or on grounds furnished by the Applicants. The discretion must be exercised on relevant materials, honestly, bona fide, objectively and reasonable manner. “Opinion” means something more than mere retaining of gossip or of hearsay, it means judgment of belief, that is a belief or a conviction resulting from what one thinks on a particular question. Therefore Section 35F of the Central Excises does not curtail the right of appeal as it is not necessary that in each case duty or penalty is to be deposited before entertaining an appeal.
As per Section 83 of Finance Act, 1994 Section 35F of Central Excise Act, 1944 is made applicable for service tax also. Section 129 E of Customs Act, 1962 contains the same provision for pre deposit of customs duty to avail the right of appeal. Therefore this discussion is not only relevant for Excise but also for service tax and Customs laws. The aim of this article is to emphasize what are all the points to be kept in mind while drafting application for waiver of pre-deposit.
The Statutory provision says the condition to get the waiver of pre-deposit of taxes is the applicant has to prove that if he is ask him to pay it causes undue hardship for him.
Even though statutory provision says only “undue hardship” there are several issues which are examined by the Tribunals to grant the waiver of pre-deposit of taxes which are listed below:
a. Undue hardship
b. Prima facie of case
c. Financial hardship
d. Balance of convenience
e. Irreparable loss of injury
f. Interest of Revenue/Public interest
Apart from the above the following aspects will also help to get the waiver of the pre-deposit. In another way the following arguments will help for the Applicant to make the balance of convenience of the case in favor of the Applicant.
a. Arguable case
b. Period of limitation
c. Violation of principles of limitation
d. Adjudication order is non speaking one
e. Revenue neutral
e. Binding precedents of courts
f. Non application of mind by lower authority
The word “undue hardship” is combination of both “prima facie of the case” and “financial hardship” faced by the applicant. The Tribunal has to satisfy before granting the waiver of pre deposit whether the Applicant has made out a prima facie case and whether the requirement of pre-deposit would cause undue financial hardship. Both these elements have a material bearing on the decision of the Appellate Tribunal on whether a waiver of pre-deposit should be granted or not. “Undue hardship” is nothing but grave financial difficulties in complying with the mandatory requirement of a deposit as a condition precedent for hearing the appeal.
Language used in Section 35F of the Central Excise Act, 1944, is not merely hardship, it is undue hardship. For a ‘hardship’ to become ‘undue’ it must be shown that the particular burden which is required to be observed or performed is out of proportion to the nature of the requirement itself and the benefit which the applicant would derive from compliance with it. Undue hardship interpreted to be not only exclusively related to economic hardship but also a case where appellant has strong prima facie case. Word ‘undue’ adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.
Consideration of the undue hardship involves the fact of the state of economy and the need for Applicant to have sufficient liquidity to proceed with the business on industrial activity or service activity. Any burden by way of deposit of resources required to keep the business running may have effect on productivity as also on employment. The economy therefore is another indicator which Tribunal could consider while applying the test of undue hardship.
The question of undue hardship has to be considered in relation to the facts of each case and no uniform formula can be applied. A mere assertion about undue hardship would not be sufficient. Applicant has to produce material evidence to say that the condition of pre-deposit would cause undue hardship to the Appellant.
Prima facie of case
In every case if the Applicant wants any discretionary relief in his favor he has first to show prima facie of his case, substance in his claim. On this being done he then has to further show undue hardship to him. The existence of a prima facie case on merits, constitutes an important and relevant factor in the consideration of the question of undue hardship. This is so because it causes undue hardship to any assessee to be called upon to make payment of amounts which are not legally due.
Prima facie of case does not necessarily mean that one must have a gilt edged case which is bound to succeed. Prima facie of case always has to be considered a case which is arguable and fit for trial and consideration or covered by binding precedent.
If an Applicant is able to establish before the Commissioner (Appeals) or before the Tribunal, as the case may be, that he has got a strong prima facie case, in such event the same itself independent of other factors would come within the relevant consideration for determining whether the order of pre-deposit will cause undue hardship or not. This is because of the reason that an assessee will suffer undue hardship if he has to pay an amount which is not legally due. It is not necessary for the appellant to show, in addition to, that the appellant has suffered financial hardship. This view was taken in the case of Hooghly Mills Company Limited Vs Union of India 1999 (108) E.L.T 637.If a strong prima facie case is made out, the requirement of pre-deposit would have to be waived irrespective of financial capacity of Applicant.
Onus lies on the Applicant to produce documentary material before the Tribunal to establish that he is facing financial crisis. It is the general plea of the Applicant that unless the pre-deposit is waived, it would cause undue hardship to the applicants. The issue of financial hardship depends on the facts of each case. The party raising the issue of financial hardship has to plead and substantiate the same with necessary material. It is always better for the applicant to enclose a detailed affidavit in support of plea of financial hardship. Applicant can use the following documents to substantiate their claim financial hardship.
a. Balance sheet
b. Profit and loss account indicating losses
c. Evidences showing the existences of current liabilities
d. Audit Report
e. Annual Report
f. income-tax returns
g. Certificates showing the current balances of cash and Bank
h. Demand notices from the other tax departments if any
i. Statement of volume of turnover
Apart from the above declaration as a sick unit by Board for Industrial and Financial Reconstruction (BIFR) and appointment of official liquidator for the company (If the company is in liquidation.) and insolvency petition may be used to substantiate that the Applicant is facing the financial crisis and the Tribunal may consider the above evidences to decide the financial position of the Applicant.
If there is no sufficient documentary evidence produced by the Applicant to indicate the correct financial position it is difficult for the Tribunal to ascertain the financial position. Sometimes financial position of applicant although reasonably sound yet to deposit entire duty amount would cause undue hardship if prima facie merits of case arguable in that situation Applicant can get the partial waiver of the pre-deposit.
It is always better the plea of financial hardships should be indicated in the text of the stay application otherwise the plea of the financial hardship on the day of hearing may not be that much effective. It is always better documents should reflect the financial status of the applicant as on the date of hearing.
In some cases in support of the plea of financial hardship, the applicant may produce the balance sheet but Tribunal may not accept it. In my opinion, in a case of clandestine removal, the balance sheet may not be accepted as a true index of one’s financial position. The same view was taken in the case of Pooja Apparels Vs Commissioner Of C. Ex., Vapi 2008 (229) E.L.T 91.It is not that if the case is clandestine removal Applicant will not get waiver of the pre-deposit, applicant will get provided if he is able to substantiate financial position through other means.
In one interesting case on verification of the balance sheet that the company has investment in the form of quoted and unquoted shares amounting to more than Rs. 17.6 lakhs. It was held that “it cannot be accepted that the financial position of the company is such that no pre-deposit can be made. Public money cannot be used for investment in shares.”Arya Fibres P. Ltd Vs Commissioner Of Central Excise, Daman 2009 (237) E.L.T 558
Balance of convenience
Balance of the convenience may be considered in favor of the Applicant and grant waiver of the pre-deposit if
a. Case against Applicant has no legs to stand or
b. Issue involved stands decided by Apex Court, High Courts, or Tribunal in their favor
c. Circular of the department be in favor of the Appellant.
Irreparable loss of injury
Applicant has to prove that it will cause irreparable loss to him if he is asked to pay pre-deposit since case against assessee has no legs to stand or issue involved stands decided by Apex Court, High Courts or Tribunal in their favor. In such situation, pre-deposit before hearing of appeal causes irreparable loss to the Applicant therefore stay can be granted.
In simple terms Applicant has to prove Prima facie of case and balance of convenience favor of him and it causes irreparable loss to him if he asked to make deposit of amount for which he is not liable and however no loss to Department if stay granted.
Interest of Revenue/Public interest
The pre-deposit of duty is the rule. Dispensing with such deposit is an exception. Even if there are materials to show that the deposit of duty demanded or penalty levied would cause undue hardship to the Applicant, the Appellate Authority may not waive the pre-deposit condition without taking notice of the interests of the revenue and without imposing such conditions which would protect the interests of the revenue.
Once the Appellate Tribunal comes to a finding that the Applicant has successfully made out a case of “undue hardship”, it is only then that the Tribunal had to take care of the interest of the revenue by imposing appropriate conditions, so as to ensure that in case of failure of the appeal the adjudicated amount is not lost for good and thereby the interest of the revenue is put to danger.
There are two situations in any appeal one is prima facie or another is arguable case. In the former case the appellate authority should dispense with the pre-deposit altogether, in the latter case the Tribunal would have to safeguard the interest of the revenue.
Tribunal generally imposes the following conditions to safeguard the interest of the revenue:
a. Furnishing bank guarantee covering the duty or penalty amount
b. Executing a general bond
c. Bond with solvent surety
d. Furnishing security
Apart from the above grounds there are the instances where the Appellate Authority granted the full waiver of pre deposit of duties if the Tribunal satisfies the case is arguable one. In certain instances the Applicant has a strong prima facie case and which has to be determined after hearing the parties. If the Applicant does not get any chance to place their case before the Tribunal and only on the ground of the pre-deposit, the appeal is dismissed; in that case, the Applicant will suffer irreparable loss and prejudice and hence stay may be granted.
Conflict in judicial decisions makes out arguable case in favor of Applicant and in the fallowing judicial pronouncements stay has been granted since the case is arguable one.
· Hindusthan Laminators Pvt. Ltd Vs C.C.E., Calcutta-I 2002 (141) E.L.T 614 (Cal)
· Kushhal Fertilizers (P) Ltd. Vs Collector Of Central Excise, Meerut 1995 (77) E.L.T 888
Period of limitation
In some instances the Applicant may not be having the good case on merits. In such instances if the Applicant is able to prove that entire or substantial part of the demand is barred by the limitation the Tribunal may waive the pre-deposit of the duties and penalty. In the following judicial pronouncements Tribunal waived the requirement of pre-deposit of the duties.
· Bharat Enterprises Vs Commissioner Of Customs, Kandla 2012 (282) E.L.T 226 (Tri-Ahmd).
· Commissioner Of Central Excise, Mumbai-III Vs Crompton Greaves Ltd. 2012 (281) E.L.T 628 (Tri-Mumbai)
Violation of principles of natural justice
In certain cases department will not serve the relied upon documents to the show cause notice to the Applicant along with the show cause notice or opportunity of personal hearing has not been granted or meritorious submissions given by the Applicant has not dealt by the authority in proper way while passing the adjudication order. In that situation Applicant can plead the violation of the principles of natural justice during the stay hearing it will help for the waiver of the pre deposit of the duties. In the following judicial pronouncements Appellate Authority has granted the waiver of the pre-deposit of the duties since lower authority violated the principles of natural justice.
· Deepak D. Gupta Vs Collector Of Central Excise, Meerut 1994 (72) E.L.T 332 (Tribunal)
· Life Line Injects Ltd. Vs Collector Of Central Excise, New Delhi 1994 (73) E.L.T 734
Adjudication order is nonspeaking one
It is often for the Adjudicating Authority to pass the order without assigning the proper reasons for the findings or conclusions. The ground of ‘adjudication order is nonspeaking’ in stay application will also help in getting the waiver of the pre-deposit. In the following judicial pronouncements Tribunal has granted the waiver of the pre-deposit of the duties on the ground that adjudication order is nonspeaking order.
· Titanium Equip. & Anode Mfg. Co. Ltd Vs Commr. Of Cus. & C. Ex., Indore2012 (149) E.L.T 278 (Tri-Chennai)
· Jupiter Tobacco Industries Pvt. Ltd. Vs Commr. Of C. Ex., Guntur 1999 (114) E.L.T 667
There are the instances where the Appellate Authority waived pre-deposit of the duties if the issue involved is revenue neutral.
· Hindustan Coca Cola Beverages Pvt. Ltd. Vs Commr. Of C. Ex., Thane-I 2009 (242) E.L.T 0045
· Uni Products India Ltd Vs Commissioner Of C. Ex., Delhi-III 2007 (211) E.L.T 339 (Tri-Del)
Binding precedents of courts
If there is any binding precedents which were already decided by the Appellate forums on the same issue it is advisable to mention that judgments in the application for the stay itself. In the following cases stay has been granted since the issue is already decided in another case.
· J.N. Chemical (Pvt.) Ltd. Vs CEGAT 1991 (53) E.L.T 543 (Cal)
· United Telecom Ltd. Vs Commissioner Of Cus., Bangalore 2010 (259) E.L.T 322 (Kar)
Non application of mind
In some cases Adjudicating Authority passes the order without application of mind. In such cases it is always advisable to plead such ground in application for the stay itself. In the following cases stay has been granted on the ground that lower authority has not applied their mind while passing the order.
· Al Saif International Vs Union Of India 2010 (260) E.L.T 27 (Cal)
· Elgi Tyre & Tread Limited Vs Asstt. Collector Of Central Excise 1992 (58) E.L.T 413 (Mad)
I observed during the course of my Tribunal hearings, there are Applicants who are filing the application for waiver of the pre-deposit of the duties before the Tribunals without pleading any of the above specific grounds except for praying waiver of pre deposit of duties. Although there is no express provision for rejection of the appeal for non-deposit of duty or penalty, yet it makes it obligatory on the appellant to deposit the duty or penalty pending the appeal, failing which the appellate authority is fully competent to reject the appeal. Hence it is very important for us to file application for the stay with sufficient due care, covering all the possible grounds and with sufficient documentary evidence for every pleading to prove that pre-deposit of the duties are not warranted.
Tags :Service Tax