Allowed

M/S. Sunpak, v. the Commissioner of Central

Madras HC12 Mar 2013WP(MD)/3359/2013

Case brief

AI extract

What is this about?

M/s. Sunpak challenged an order directing a pre-deposit of Rs.70 lakhs. The Bench held that under Section 35F, unlike Section 4-M, a hearing is required before imposing conditions for waiver of deposit. The order was set aside as it ignored the petitioner's need to substantiate undue hardship claims.

What did the court decide?

Allowed the Writ Petition and set aside the order; directed the first respondent to give the petitioner an opportunity to represent their case.

M/S. Sunpak, Vs the Commissioner of Central — Banking and Recovery | Madras HC (2013)

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BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED 12.03.2013

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CORAM

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THE HONOURABLE MR.JUSTICE R.S.RAMANATHAN

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W.P(MD)No.3359 of 2013 and M.P(MD)Nos.1 and 2 of 2013

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M/s. Sunpak, represented by its Partner Mr.S.V.Ravi, No.809, Sankaranpatti Road, Rajapalayam. ..Petitioner

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The Commissioner of Central Excise (Appeals),

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Central Revenue Building, Lal Bahadur Shastri Marg, Madurai - 625 002.

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The Additional Commissioner of Central Excise, Central Revenue Building, Tractor Road, NGO-A Colony, Tirunelveli - 627 007. ..Respondents

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Prayer: Writ Petition filed under Article 226 of the Constitution of India, praying this Court to issue a Writ of Certiorari calling for the records of the first respondent culminating in the impugned order in appeal MO1/2013 dated 15.02.2013 in File No.A.No.384/2012(TVL) and to quash the same.

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For Petitioner :M/s.S.Murugappan For Respondents :Mr.B.VijayKarthikeyan Sr.C.G.S.C

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ORDER

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The Petitioner filed an appeal before the first respondent challenging the order in Original No.10/ADC/CE/2012, dated 21.09.2012 by which the Petitioner was directed to pay the duty of Rs.71,53,289/- and penalty of Rs.70 lakhs as per the provisions of the central Excise Act. The Petitioner has also filed an application for waiver of pre-deposit and for stay of the order of the second respondent and that application in File No.A.No.384/2012(TVL) in appeal No.M01/2013 was disposed of by the first respondent by directing the petitioner to make pre-deposit of Rs.70 lakhs within https://hcservices.ecourts.gov.in/hcservices/ three weeks from the date of communication of the order for waiver of pre-deposit and for stay of the recovery of the balance amount and that order is under challenge in this Writ Petition.

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It is submitted by the learned counsel for the Petitioner that the first respondent posted the application for waiver of pre-deposit and stay of the order of the second respondent on 04.02.2013 and the owner of the Petitioner as well as the father-in-law of one of the partners died on 31.01.2013 and the ceremonies were to be held on 14.02.2013 and therefore, it was not possible for them to attend the hearing on 14.02.2013 and therefore sent a letter, dated 11.02.2013 for providing another opportunity and without giving any opportunity to the Petitioner, the first respondent passed the impugned order directing the Petitioner to deposit a sum of Rs.70 lakhs for waiver of pre-deposit and stay of the impugned proceedings and therefore, the order is liable to be set aside and the Petitioner may be given an opportunity to represent their case for waiver of pre-deposit.

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It is further submitted by the learned counsel for the Petitioner that as per Section 35(1A) of the Central Excise Act, the Commissioner(Appeals) may if sufficient cause is shown at any stage of the hearing of the appeal grant time to the parties of any of them and adjourned the hearing of the appeal for the reasons to be recorded in writing and no such adjournment shall be given more than three times to a party and in this case, the case was adjourned to 14.02.2013 and the Petitioner sought for adjournment stating the reasons and without giving them one more adjournment, the order was passed and therefore, it was against Section 35(1A) of the Central Excise Act.

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On the other hand, the learned Senior Central Government Standing Counsel for the respondents submitted that the case is governed by the provisions of Section 35F of the Central Excise Act which is similar to the provisions of Section 4M of the Imports and Exports(Control) Act, 1947 and while interpreting Section 4-M of the Imports and Exports(Control) Act, 1947, the Honourable Supreme Court held that there is no need for the authority to give a personal hearing while passing an order for waiver of pre-deposit and if the authority passed such order after considering the merits of the case, the same cannot be challenged on the ground of violation of principles of natural justice and therefore, the order cannot be set aside.

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Mr.B.Vijay Karthikeyan, learned Senior Central Government Standing Counsel appearing for the respondents further submitted that as per the judgement reported in 1996(83) ELT 486(SC) in the case of Union of India .vs. Jesus Sales Corporation , that there is no necessity to give an opportunity while passing the order for waiver of pre-deposit and stay. When the authority after going through, the appeal memorandum and also the order of the second respondent, comes to a prima facie conclusion and pass orders, the same cannot be challenged on the ground that no opportunity was given to the petitioner. He therefore, submitted that the first respondent has considered the merits of the case and also considering the prima facie case in favour of the Revenue and considering the totality of https://hcservices.ecourts.gov.in/hcservices/ the facts and circumstances, directed the Petitioner to deposit a sum of Rs.70 lakhs in favour of pre-deposit and therefore, the order

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of the first respondent cannot be challenged in view of the judgement of the Honourable Supreme Court referred to above.

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To appreciate the contention of the learned Senior Counsel appearing for the Petitioner and learned Senior Standing Counsel for the respondents we will have to see the provisions of Section 4(M) of Imports and Exports(Control) Act, 1947 and Section 35F of the Central Excise Act and also Section 35(1A) of the central Excise Act. Section 4-M of the Imports and Exports(Control)Act, 1947 reads as follows:

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"(1) Any person aggrieved by any decision or order made under this Act may prefer an appeal.

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(a) where the decision or order has been made by the Chief Controller, to the Central Government;

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(b) where the decision or order has been made by any officer below the rank of the Additional Chief Controller, to the Chief Controller or where he so directs, to the Additional Chief Controller, within a period or forty five days from the date on which the order is served on such person;

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Provided that the Appellate authority may, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal within the aforesaid period of forty five days, allow such appeal to be preferred within a further period of forty five days;

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Provided further that in the case of an appeal against an order imposing a penalty, no such appeal shall be entertained unless the amount of the penalty has been depposited by the appellant;

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Provided also that, where the Appellate authority is of opinion that the deposit to be made with cause undue hardship to the appellant, it may, as its discretion, dispense with such deposit either unconditionally or subject to such conditions as it may impose.

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(2) The Appellate authority may, after giving to the appellant a reasonable opportunity of being hear, if he so desires, and after making such further inquiries, if any, as it may consider necessary pass such orders as it thinks fit, confirming, modifying or reversing the decision or order appealed against, or may send back the case, with such directions as it may think fit, for a fresh adjudication or decision as the case may be, after taking additional evidence, if necessary;

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https://hcservices.ecourts.gov.in/hcservices/

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Provided that an order enhancing or imposing a penalty or confiscating goods or materials of a greater value shall not be made under this section unless the appellant has had an opportunity of making a representation, and if he so desires, of being heard in his defence.

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While considering Section 4-M(1) and the proviso 1 and 2 of Section 4-M(1) of the Act, the Honourable Supreme Court held as follows:

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5.The High Court has primarily considered the question as to whether denying an opportunity to the appellant to be heard before his prayer to dispense with the deposit of the penalty is rejected, violates and contravenes the principles of natural justice. In that connection, several judgments of this Court have been referred to. It need not be pointed out that under different situations and conditions the requirement of compliance of the principle of natural justice vary. The courts cannot insist that under all circumstances and under different statutory provisions personal hearings have to be afforded to the persons concerned. If this principle of affording personal hearing is extended whenever statutory authorities are vested with the power to exercise discretion in connection with statutory appeals, it shall lead to chaotic conditions. Many statutory appeals and applications are disposed of by the competent authorities who have been vested with powers to dispose of the same. Such authorities which shall be deemed to be quasijudicial authorities are expected to apply their judicial mind over the grievances made by the appellants or applicants concerned, but it cannot be held that before dismissing such appeals or applications in all events the quasi-judicial authorities must hear the appellants or the applicants, as the case may be. When principles of natural justice require an opportunity to be heard before an adverse order is passed on any appeal or application, it does not in all circumstances mean a personal hearing. The requirement is complied with by affording an opportunity to the person concerned to present his case before such quasi-judicial authority who is expected to apply his judicial mind to the issues involved. Of course, if in his own discretion if he requires the appellant or the applicant to be heard because of special facts and

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https://hcservices.ecourts.gov.in/hcservices/ circumstances of the case, then certainly it is always open to such authority to decide the appeal or the application only after affording a personal

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hearing. But any order passed after taking into consideration the points raised in the appeal or the application shall not be held to be invalid merely on the ground that no personal hearing had been afforded. This is all the more important in the context of taxation and revenue matters. When an authority has determined a tax liability or has imposed a penalty, then the requirement that before the appeal is heard such tax or penalty should be deposited cannot be held to be unreasonable as already pointed out above. In the case of Shyam Kishore v. Municipal Corpn. of Delhi¹ it has been held by this Court that such requirement cannot be held to be harsh or violative of Article 14 of the Constitution so as to declare the requirement of pre-deposit itself as unconstitutional. In this background, it can be said that normal rule is that before filing the appeal or before the appeal is heard, the person concerned should deposit the amount which he has been directed to deposit as a tax or penalty. The non-deposit of such amount itself is an exception which has been incorporated in different statutes including the one with which we are concerned. Second proviso to sub-section (1) of Section 4-M says in clear and unambiguous words that an appeal against an order imposing a penalty shall not be entertained unless the amount of the penalty has been deposited by the appellant. Thereafter the third proviso vests a discretion in such appellate authority to dispense with such deposit unconditionally or subject to such conditions as it may impose in its discretion taking into consideration the undue hardship which it is likely to cause to the appellant. As such it can be said that the statutory requirement is that before an appeal is entertained, the amount of penalty has to be deposited by the appellant; an order dispensing with such deposit shall amount to an exception to the said requirement of deposit. In this background, it is difficult to hold that if the appellate authority has rejected the prayer of the appellant to dispense with the deposit unconditionally or has dispensed with such deposit subject to some conditions without hearing the appellant, on perusal of the petition filed on behalf of the appellant for the said purpose, the order itself is vitiated and is liable to be quashed being violative of the principles of natural justice.

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https://hcservices.ecourts.gov.in/hcservices/

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6.It shall not be out of place to mention that subsection (2) of Section 4-M provides specifically that

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appellant shall be given reasonable opportunity of being heard if he so desires before final order is passed on his appeal. That requirement according to us cannot be read impliedly as an implicit condition in the third proviso to sub-section (1) of Section 4- M. But it need not be impressed that when the appellate authority has been vested with the discretion to dispense with such deposit unconditionally or on conditions, then it has to apply its mind on that question like a quasi-judicial authority taking into consideration all the facts and circumstances of the case including the undue hardship which has been pointed out on behalf of the appellant. In that proviso the two expressions ‘opinion’ and ‘discretion’ both have been used. In view of the settled position that whenever a statutory authority has to form an opinion on a question, it does not mean that it has to be formed in a subjective or casual manner. That opinion must be formed objectively on relevant considerations. Same is the position in respect of the exercise of discretion. The framers of the Act require such appellate authority to exercise its discretion in a reasonable and rational manner taking into consideration the relevant facts and circumstances of a particular appeal while considering the question as to whether the deposit of the amount of the penalty be dispensed with unconditionally or subject to the conditions.

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As per second proviso to Section 4-M(1), an appeal shall not be entertained unless the amount of penalty has been deposited by the appellant. As per third proviso of Section 4-M(1) of the Imports and Exports(Control)Act, 1947, where the appellate authority is of the opinion that the deposit to be made will cause undue hardship to the appellant, it may, at its discretion, dispense with such deposit either unconditionally or subject to such conditions as it may impose. While interpreting third proviso to Section 4-M(1) of the said Act, the Honourable Supreme Court has held in para 6 of the Judgement that:

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"whenever a statutory authority has to form an opinion on a question, it does not mean that it has to be formed in a subjective or casual manner. That opinion must be formed objectively on relevant considerations. Same is the position in respect of the exercise of discretion in a reasonable and rational manner taking into consideration the relevant facts and circumstances of a particular appeal while considering the relevant facts and circumstances of a particular appeal while considering the question as to whether the https://hcservices.ecourts.gov.in/hcservices/ deposit of the amount of the penalty be dispensed with unconditionally or subject to the conditions".

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But if we consider the provisions of Section 35-F of the Central Excise Act, 1944, the first proviso to Section 35- F is similar to the second proviso to Section 4-M(1) of the Imports and Exports(Control)Act, 1947. But there is an another proviso to Section 35-F of the 'Act' which enable the filing of an application before the Commissioner(Appeals) for dispensing with the deposit of duty demanded or penalty levied under the first proviso, the Commissioner(Appeals) shall, where it is possible to do so, decide such application within thirty days from the date of its filing. The second proviso to Section 35-F is not available under Section 4-M(1) of the Imports and Exports(Control)Act, 1947. In the absence of Provision like second proviso to Section 35-F of the Central Excise Act, 1944, in the Section 4-M(1) of the Imports and Exports(Control)Act,1947, the Honourable Supreme Court has held that the order cannot be challenged on the ground of violation of principles of natural justice. According to me, when the Petitioner is entitled to file an application for dispensation of pre-deposit, the authority who is deciding the same has to give an opportunity to the Petitioner to substantiate his case for waiver of pre-deposit and stay of the order which is the subjectmatter of the appeal and therefore, it cannot be stated that there is no need to give an opportunity to the Petitioner while passing an order dispensing with the pre-deposit by imposing certain conditions. To put it otherwise, under Section 4-M(1) of the Imports and Exports (Control) Act,1947, there was no provision similar to second proviso of Section 35-F of the Central Excise Act, 1944 and therefore in that context, the Honourable Supreme Court has held that having regard to the third proviso to Section 4-M(1) of the Imports and Exports (Control)Act, 1947, when the authority is of the opinion that the deposit to be made will cause undue hardship to the appellant, it may at this stage dispense with such deposit as it may impose. There is no need to give an opportunity to the Petitioner while passing an order. The authority has to subjectively decide whether exemption has to be given to the Petitioner, considering the facts of the case. On the other hand, the Central Excise Act, 1944 has the provision for an application to be filed for dispensing with the deposit of the duty demanded or penalty levied under the first proviso and therefore, when the petitioner is entitled to file an application for dispensation of pre-deposit, he must be given an opportunity to substantiate his case and without giving an opportunity the order should not have been passed and therefore the contention of the learned Senior Central Government Standing Counsel for the respondents that there is no necessity to give an opportunity to the Petitioner while passing an order granting waiver of pre-deposit by imposing conditions cannot be accepted.

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The order of the first respondent cannot also be sustained for another reason. As per Section 4-M(1) third proviso of the Imports and Exports (Control) Act, 1947, the waiver of pre-deposit can be made, if the authority is of the opinion that such deposit would cause undue hardship to the applicant. Similarly under Section 35-F first proviso of the central Excise Act, 1944, if the Tribunal is of https://hcservices.ecourts.gov.in/hcservices/ the opinion that the deposit of the duty demanded or penalty levied would cause undue hardship to such person, the Tribunal may dispense

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with such deposit subject to such conditions as he or it may deem it fit to impose so as to safeguard the interests of revenue. Therefore, while passing an order dispensing with the deposits on certain conditions, the Tribunal has to consider the undue hardship that may be caused to such person, while directing the person to deposit the entire amount as a condition precedent for filing the appeal. The Honourable Supreme Court has also held in the aforesaid judgment that the opinion must be formed subjectively on relevant considerations and such opinion cannot be subjective one. Therefore, while passing an order dispensing with the deposit subject to certain conditions, the authority is expected to consider the undue hardship caused to the Petitioner and in this case, nowhere in the order, the authority has considered the undue hardship that may be caused to the Petitioner if he is directed to deposit the entire amount and the first respondent has only considered the merits of the case and formed an opinion that the revenue has got prima facie case in their favour and directed the Petitioner to deposit the pre-deposit of Rs.70 lakhs. Hence, in the absence of any material to show that the authority was conscious of the fact that by directing the Petitioner to deposit the entire amount that would cause undue hardship to the Petitioner, the authority cannot direct the petitioner to pay a lesser amount without giving any reason for arriving at such sum. Such order cannot be sustained as it is against the provisions of first proviso of Section 35-F of the Central Excise Act, 1944.

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Hence, the Writ Petition is allowed and the order of the first respondent is set aside and the first respondent is directed to give an opportunity to the Petitioner to represent his case and pass orders on merits as per the provisions of Section 35-F of the Central Excise Act. Consequently, connected Miscellaneous Petitions are closed. No costs.

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Sd/-

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Assistant Registrar(CO)

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/True Copy/

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Sub Assistant Registrar

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