Tribunal's Power to grant stay- Dillemma Continues

[Akash Deep]

1. In the wake of recent judgment dated 8.10.2013 of Hon’ble High court of Allahabad in the case of Commissioner of Customs and Central Excise v JP Transformers, 2013 (10) TMI 1194 - ALLAHABAD HIGH COURT , Revenue is again issuing recovery notices where stay has already been granted by tribunal but final disposal of the appeal is not been done within 365 days, to be counted from the day of stay order. In the aforesaid case, the main issue before the Hon’ble High Court was to determine the correct interpretation of third proviso to Sub-section (2A) of Section 35C of the Central Excise Act, 1944 (hereinafter referred to as “the Act”). The third proviso to Sub-section (2A) of Section 35C of the Act is reproduced as under:

“Provided also that where such appeal is not disposed of within the period specified in the first proviso, the Appellate Tribunal may, on an application made in this behalf by a party and on being satisfied that the delay in disposing of the appeal is not attributable to such party, extend the period of stay to such further period, as it thinks fit, not exceeding one hundred and eighty-five days, and in case the appeal is not so disposed of within the total period of three hundred and sixty-five days from the date of order referred to in the first proviso, the stay order shall, on the expiry of the said period, stand vacated”

2. Revenue argued that in view of third proviso to the Sub-section 2(A) of Section 35C of the Act waiver of pre-deposit cannot be granted for indefinite period. Hon’ble High Court hold that “entire object and purpose of insertion of sub-section 2A in Section 35C by Section 140 of the Finance Act, 2002 (20 of 2002) w.e.f. 11.5.2002 and third Proviso by Finance Act, 2013 will stand defeated, if the waiver of pre-deposit is granted indefinitely. The judgment in Kumar Cotton Mills Pvt. Ltd. (Supra) cannot be interpreted to give powers to the Tribunal to extend the order of waiver of pre-deposit indefinitely”.

The effect of the aforesaid judgment would be that revenue is free to recover the tax confirmed even though appeal is pending before Hon’ble tribunal and reason for such delay is not attributable to the assessee. In view of the judgment, the reason for such pendency is immaterial and the only criteria need to meet out by revenue to start recovery is that appeal should have been pending for disposal beyond 365 days from the date of order granting stay.

With all due respect to the judgment delivered by Hon’ble High Court, the author is of the view that said judgment has been failed to capture the law laid down by the various judicial pronouncements and thus decided the issue before it in ignorance of the settled legal principles. Firstly, Hon’ble High Court should not have given literal interpretation to third proviso of Sub-section (2A) as it is producing absurd result. Secondly, Judgment of Bombay High Court in case of Narang Overseas Pvt. Ltd. v The Income Tax Appellate Tribunal Mumbai, 2007 (7) TMI 5 - HIGH COURT, BOMBAY may have been considered which is squarely applicable to the issue in JP transformers case. Author assumes that the same was not produced for consideration of Hon’ble High Court of Allahabad.

Now the Question arises whether the interpretation given to third proviso to sub-section (2A) of Section 35C of the Act by Hon’ble High Court in case of J P Transformers (supra) is correct. The author is of the view that interpretation given by Hon’ble High Court is not correct. It is well settled that if an interpretation is given which would render a provision unconstitutional and another interpretation is possible which avoids unconstitutionality, the view which would avoid the provision being held unconstitutional should be accepted. In this situation resort to the mischief rule, which has now attended the status of classic rule of interpretation, is really helpful. The concept of mischief rule is that every legislature enacted a particular law to cure a mischief existing at that time. So, to find out the true interpretation of legislation, one should look for what mischief was sought to be cured by that legislation. The insertion of third proviso to Sub-section (2A) of 35C conferred the power to extend the period of interim relief in total up-to 365 days. Parliament clearly intended that such appeals should be disposed of at the earliest. If that be the object, the mischief which was sought to be avoided was the non-disposal of the appeal during the period the interim relief. The object was not to defeat the vested right of appeal in an assessee whose appeal could not be disposed off not on account of any omission or failure of the tribunal or act of the revenue within the extended period of 365 days. Further, it would not be possible, on the one hand, to hold that there is a vested right of an appeal under the statute and on the other hand to hold that there is no power to continue the grant of interim relief for no fault of the assessee by divesting the incidental power of the tribunal to do justice. The right of appeal is a substantive right, and the question of fact and law are at large and are open to review by the Appellate Tribunal. Constitution bench of Supreme Court in Ranjit Singh v. State of Haryana 2012 (2) RCR (Civil) 353, examining the condition of pre-deposit in availing right of appeal under the Punjab Village Common Lands (Regulation) Act, 1961, held that “on a conspectus of the decisions, relied upon by the learned counsel on both sides, it can be concluded that while a right of appeal is a pure and simple statutory right yet once such a right has been conferred its applicability cannot be rendered illusory.”

The most reasonable interpretation of second and third proviso to Sub-section (2A) of Section 35C, by reading down the third proviso, would be; where assessee is not on fault and the delay is because of reasons not attributable to the assessee, stay can be extended by tribunal each time on presentation of application by assessee till final disposal of the Appeal. Simultaneously, with expiry of the period for which stay was granted or extended, revenue gets the right to oppose the application of extension of stay on the grounds that delay is because of the dilatory tactics of the assessee and thus revenues interest is becoming prejudiced. Such interpretation has already been declared valid by Hon’ble High Court of Punjab and Haryana, in case of M/s PML Industries Ltd. v Commissioner of Central Excise and Anr., 2013 (4) TMI 101 - PUNJAB AND HARYANA HIGH COURT in the context of second proviso to Sub-section (2A) of Section 35C.

(3)The Hon’ble High Court has not been offered with the opportunity to benefit itself with the decision of Hon’ble High Court of Bombay in case of Narang Overseas Pvt. Ltd. v the Income Tax Appellate Tribunal Mumbai, 2007 (7) TMI 5 - HIGH COURT, BOMBAY. The amendment similar to Sub-section (2A) of Section 35C of the Act, were made in Section 254 of Income Tax Act, 1961. Finance Act 2007 substituted sub-section (2A) to Section 254 of the Income Tax Act, 1961 with effect from 1.6.2007 whereby tribunal’s power to extend stay was restricted to the maximum period of 360 days from the date of the order stay granted. The second and third proviso to Section 254 (2A) which was under consideration read asunder:

“Provided further that where such appeal is not so disposed of within the said period of stay as specified in the order of stay, the Appellate Tribunal may, on an application made in this behalf by the assessee and on being satisfied that the delay in disposing of the appeal is not attributable to the assessee, extend the period of stay, or pass an order of stay for a further period or periods as it thinks fit; so, however, that the aggregate of the period originally allowed and the period or periods so extended or allowed shall not, in any case, exceed three hundred and sixty days and the Appellate Tribunal shall dispose of the appeal within the period or periods of stay so extended or allowed.

Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, the order of stay shall stand vacated after the expiry of such period or periods."

In the above case the issue before the Hon’ble high Court was whether the third proviso to Section 254(2A) of Income Tax Act, have the effect of denuding the Tribunal of its incidental power to grant interim relief. While deciding the issue Hon’ble High Court observed as under:

12. We are of the respectful view that the law as enunciated in Kumar Cotton Mills Pvt. Ltd. (supra) should also apply to the construction of the third proviso as introduced in Section 254(2A) by the Finance Act, 2007. The power to grant stay or interim relief being inherent or incidental is not defeated by the provisos to the Sub-section. The third proviso has to be read as a limitation on the power of the Tribunal to continue interim relief in case where the hearing of the Appeal has been delayed for acts attributable to the assessee. It cannot mean that a construction be given that the power to grant interim relief is denuded even if the acts attributable are not of the assessee but of the revenue or of the Tribunal itself. The power of the Tribunal, therefore, to continue interim relief is not overridden by the language of the third proviso to Section 254(2A). This would be in consonance with the view taken in Kumar Cotton Mills Pvt. Ltd. (supra). There would be power in the Tribunal to extend the period of stay on good cause being shown and on the Tribunal being satisfied that the matter could not be heard and disposed of for reasons not attributable to the assessee.

(4) In view of the above discussion author is of the view that third proviso to Sub-section (2A) of Section 35C, cannot restrict the tribunal’s power to grant stay beyond 365 days. Tribunal has the inherent power to grant stay and such stay shall be operative till the department proves that the assessee is causing delay in final disposal of the Appeal. Unless the Tribunal has the power to extend stay beyond 365 days, the assessee's interest will be in jeopardy for no fault of his. Even the order granting exemption from pre-deposit will be rendered nugatory as the assessee will be compelled to satisfy the demand during dependency of the appeal. It has been always the judicial view that no party should be prejudiced duo to action or inaction on the part of the Court.

(5) In a recent judgments of Delhi bench of CESTAT namely Salasar Steel and Power Ltd. v Commissioner of Central Excise, Raipur, 2014 (8) TMI 556 - CESTAT NEW DELHI, Hon’ble tribunal has taken the view that in view of third proviso to Sub-section (2A) of Section 35C of Central Excise Act, Tribunal has no power to extend stay beyond 365 days in total and at lapse of aforesaid period stay granted stands vacated automatically. It is to be noted that Hon’ble Tribunal has heavily relied upon the judgments in case of Commissioner of Income tax v M/s ECOM Gill Cofee Trading Pvt. Ltd., 2012 (7) TMI 562 - KARNATAKA HIGH COURT and Commissioner of Income Tax v M/s Maruti Suzuki (India) Ltd., 2014 (2) TMI 1037 - DELHI HIGH COURT decided by Hon’ble High Court of Karnataka and Hon’ble High Court of Delhi respectively. Before moving to test the applicability of aforesaid judgments to the situation considered by Hon’ble Tribunal in above mentioned case it would be better to look in to the changed language of the provision which was under consideration. It may be noted that w.e.f 1.10.2008, third proviso to Section 254 (2A) of the Income Tax Act, 1961was substituted with a view to overcome the judgment in Narang Overseas Pvt. Ltd. case. The third proviso to Section 254(2A) w.e.f 1.10.2008 read as under:

"Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, which shall not, in any case, exceed three hundred and sixty-five days, the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assessee."

W.e.f 1.10.2008, the intention of the legislature was made absolutely clear by adding words even if the delay in disposing of the appeal is not attributable to the assessee that stay granted by tribunal has to be vacated after 365 days of the order of the stay even the reasons for delay is not attributable to the assessee.

The Bombay High Court in Jethmal Faujimal Soni v Income Tax Appellate Tribunal, 2010 (4) TMI 747 - Bombay High Court, had occasion to deal with third proviso as applicable w.e.f 1.10.2008 and entertained the writ petition. In the said case constitutional validity of the third proviso inserted in Section 254(2A) of the Act by Finance Act, 2008, w.e.f. 1st October, 2008 was challenged. It was observed that the proviso enacted a stringent provision as a result of which even if the delay in disposing of the appeal was/is not attributable to the assessee, the stay stands vacated after 365 days.

In view of the amended language of third proviso to Section 254 (2A) of Income Tax Act, 1961 the interpretation given by Hon’ble Bombay High Court in Case of Narang Overseas Pvt. Ltd. (supra), did not find favour by other High Courts. Hon’ble High Court of Karnataka in case of M/s ECOM Gill Cofee Trading Pvt. Ltd., 2012 (7) TMI 562 - KARNATAKA HIGH COURT while considering third proviso of Section 254 (2A) of the income Tax Act, as applicable w.e.f 1.10.2008 held that “viewed from any angle, we are of the opinion that the Appellate Tribunal has committed a positive error in consciously extending the interim order of stay granted in the pending appeal beyond the period of 365 days, which is the outer limit stipulated in the Statutory provision.” The issue was again considered by Hon’ble High Court of Delhi in case of Commissioner of Income Tax v M/s Maruti Suzuki (India) Ltd., 2014 (2) TMI 1037 - DELHI HIGH COURT. Hon’ble High Court of Delhi took guidance from the judgment of Hon’ble High Court of Punjab and Haryana in case of M/s PML Industries Ltd. v Commissioner of Central Excise and Anr., 2013 (4) TMI 101 - PUNJAB AND HARYANA HIGH COURT Hon’ble High Curt of Delhi held that “in view of the third proviso to Section 254(2A) of the Act substituted by Finance Act, 2008 with effect from 1st October, 2008, tribunal cannot extend stay beyond the period of 365 days from the date of first order of stay”.

(6) A comparative reading of third proviso to Section 254 (2A) of Income Tax Act, 1961 and third proviso to Section 35C (2A) of the Central Excise Act, 1944 reveals that third proviso to Section 35C (2A) of Central Excise Act, 1944 does not have words like “even if the delay in disposing of the appeal is not attributable to the assessee" as existing in third proviso to Section 254 (2A) of Income tax, Act, 1961 as amended w.e.f. 1.0.2008. Being so, the judgment of in M/s ECOM Gill Cofee Trading Pvt. Ltd., 2012 (7) TMI 562 - KARNATAKA HIGH COURT and Commissioner of Income Tax v M/s Maruti Suzuki (India) Ltd., 2014 (2) TMI 1037 - DELHI HIGH COURT, which has interpreted the third proviso to Section 254 (2A) of Income Tax Act, 1961 as applicable from 1.10.2008, can not be relied upon to interpret the third proviso to Sub-section (2A) of 35C of the Central Excise Act, 1944. Being so, the Judgment in case of Narang Overseas Pvt. Ltd. v The Income Tax Appellate Tribunal Mumbai, 2007 (7) TMI 5 - HIGH COURT, BOMBAY is still a goods law for the purposes of interpreting third proviso to Sub-section (2A) of Section 35C of the Finance Act, 1994.

(7) Now we will discuss whether the tribunal has rightly relied upon on the rulings of the Karnataka and the Delhi High Courts in M/s ECOM Gill Coffee Trading Pvt. Ltd. and in M/s Maruti Suzuki (India) Ltd? The relevant extract of the judgment in case of Salasar Steel and Power Ltd. v Commissioner of Central Excise, Raipur, 2014 (8) TMI 556 - CESTAT NEW DELHI is reproduced as under:

“3. We however notice that the Karnataka and Delhi High Courts considered the position resulting from introduction of the third proviso to Section 35C(2A) of the Central Excise Act, 1944 and ruled that as the relevant provision signals the clear legislative prescription that if the appeal is not disposed of under the first proviso of the Section or within the period or periods extended under the second proviso, which shall not in any case exceed 365 days, the stay order, after expiry of that period shall stand vacated.

4. The present appeal is of the year 2008. Several older appeals preferred under the provisions of Central Excise Act, 1944 including of the year of 2005 are pending disposal. The delay in disposal of this appeal is not therefore attributable to the assessee.

5. However in the light of rulings of the Karnataka and the Delhi High Courts in M/s ECOM Gill Cofee Trading Pvt. Ltd., 2012 (7) TMI 562 - KARNATAKA HIGH COURT and in Commissioner of Income Tax v M/s Maruti Suzuki (India) Ltd., 2014 (2) TMI 1037 - DELHI HIGH COURT respectively, no extension of stay could be granted by the CESTAT in the light of the provisions of Section 35C(2A) of the Central Excise Act, 1944, even if the delay in disposal of an appeal, beyond the sunset period prescribed, is not attributable to an appellant”.

On perusal of the judgment of Hon’ble Tribunal in case of Salasar Steel and Power Ltd. v Commissioner of Central Excise, Raipur, 2014 (8) TMI 556 - CESTAT NEW DELHI first thing what catch the attention is the wrongly quoted fact that Hon’ble High Court of Bombay and Hon’ble High Court of Delhi have dealt with position resulting from introduction of third proviso in section 35C (2A) of Central Excise Act, 1944 in cases of M/s ECOM Gill Cofee Trading Pvt. Ltd., 2012 (7) TMI 562 - KARNATAKA HIGH COURT and in Commissioner of Income Tax v M/s Maruti Suzuki (India) Ltd., 2014 (2) TMI 1037 - DELHI HIGH COURT respectively. It is not so. In actual Hon’ble High courts have dealt with position arising out of substituted third proviso of Section 254 (2A) of Income Tax Act, 1961 as applicable w.e.f 1.10.2008.

It may be noted that in the case of Salasar Steel and Power Ltd. Tribunal was considering the third proviso of Sub-section (2A) of Section 35C of Central Excise Act, 1944 which is substantially different, as it does not contain any word like “even if the delay in disposing of the appeal is not attributable to the assessee" as existed in third proviso to Section 254 (2A) Income Tax Act, 1961. As the cases M/s ECOM Gill Cofee Trading Pvt. Ltd., 2012 (7) TMI 562 - KARNATAKA HIGH COURT. and Commissioner of Income Tax v M/s Maruti Suzuki (India) Ltd., 2014 (2) TMI 1037 - DELHI HIGH COURT was decided in reference to the third proviso to Section 254 (2A) as applicable w.e.f 1.10.2008 of Income Tax Act, 1961 which is substantially different in term of containing express words (i.e. “even if the delay in disposing of the appeal is not attributable to the assessee") from the proviso to section 35C (2A) of the Central Excise Act, 1944, same should not have relied upon by the Hon’ble Tribunal.

(8) Once it is established that judgment of Hon’ble High Court of Karnataka and Hon’ble High Court of Bombay in case of M/s ECOM Gill Coffee Trading Pvt. Ltd. and in M/s Maruti Suzuki (India) Ltd., respectively, is not applicable for the correct interpretation to the effect of third proviso to Sub-section (2A) of Section 35C of the Central Excise Act, 1944, we are left with judgment of Hon’ble High Court of Bombay which was decided in the context of third proviso to Sub-section (2A) of Section 254 of Income Tax Act, 1961as applicable during 1.6.2007 to 30.9.2008 which was pari materia to third proviso to Sub-section (2A) of Section 35C of the Central Excise Act, 1944 as existing today.

With all due respect it appears that the judgment in case of Commissioner of Customs and Central Excise v JP Transformers, 2013 (10) TMI 1194 - ALLAHABAD HIGH COURT has lost the opportunity to set things straight by not examining the judgment in case of Narang Overseas Pvt. Ltd. and M/s ECOM Gill Coffee Trading Pvt. Ltd. As the judgment of Hon’ble High court of Allahabad Commissioner of Customs and Central Excise v JP Transformers, 2013-TIOL-1152-HC-ALL-ST has been passed in ignorance of settled principles as elucidated under Narang Overseas Pvt. Ltd., it does not make a goods precedent. Though, the judgment of Hon’ble Allahabad High Court in JP Transformers case has already been referred to larger bench, let’s hope it will make the good use of the opportunity and find out a way to protect the interests of the assessees.

(9) It is good to see that mistake committed by the CESTAT, New Delhi in Case of Salasar Steel and Power Ltd. v Commissioner of Central Excise, Raipur, 2014 (8) TMI 556 - CESTAT NEW DELHI is sought to be rectified by placing the issue before larger bench in case of M/s R K and Sons v Commissioner of Central Excise, Rohtak 2014 (7) TMI 747 - CESTAT NEW DELHI, decided on 2.7.2014.

(10) To cure the dilemma, the legislature vide finance Act, 2014 has omitted the first, second and third proviso to sub-section 2A of section 35C of the Finance Act, 1994. Being so, with effect from 6.8.2014, section 35C(2A) shall provide that wherever it is possible to do so, the Appellate Tribunal shall, hear and decide every appeal within a period of three years from the date on which such appeal is filed. As the section 35 of the Central Excise Act, 1944 has also been amended by way of substitution vide Finance Act, 2014 w.e.f 6.8.2014 and concept of granting waiver from making pre-deposit and stay from recovery of tax has been done away, there is no need to have erstwhile first, second and third proviso to section 35C(2A).

(11) Though the dilemma of Tribunal’s power to grant stay beyond 365 days has been cleared vide Finance Act, 2014. However, the legislative changes curing such dilemma shall have prospective effect only and shall be applicable to those cases only where appeal to the tribunal has been filed after 6.8.2014. As the amendments in section 35C(2A) and section 35F has given prospective operation, issue is still live with respect to the cases pending before Tribunal. In other words, situation has not changed even a bit for the assesses whose cases are pending before the tribunal for more than 365 days. Such assesses are still at the mercy of the departmental officers till the larger bench decides the issue.

(12) Accolades have been conferred on the new Government for having such a thought full budget. Accolades are also for not introducing any retrospective amendments. It is true that retrospective amendments in tax laws are anathema to any legal system and not looked upon with a favour. But still, there is no doubt and it is well established that legislature has the power to enact the laws retrospectively and such retrospective operation of the law can not be questioned in the court of law just because they are given retrospective operation. The key is to use this power of retrospective amendment for the benefit of the honest tax payers. Clearly this Finance Act, 2014 has been failed in this aspect. It is true that retrospective amendment of section 35F is not possible as it would involve very serious consequences like assesses may have asked for refund of pre-deposit. However, this is not the case with section 35C (2A). Author is of the view that amendment in section 35C(2A) could have been made with a retrospective effect after choosing a well thought bottom line along with a transitional provision protecting every thing done or omitted from doing. In that case, Tribunal with respect to the pending cases would have only obligation to dispose off the appeal within three year wherever it is possible to do so. Omitting first, second and third proviso with a retrospective effect along with prospective amendment in section 35F, as has been done in Finance Act, 2014, would create a situation where tribunal have the obligation to dispose off the appeal within three years form the date of filing appeal wherever it is possible to so along with the power to waive off the requirement of making pre-deposit wherever it is fit to do so. In this situation, with respect to the appeals pending before tribunal where requirement of making pre-deposit has been waived of or complied with, the Tribunal would have the obligation to dispose of that Appeal with three years of filing appeal wherever it is possible to do so. Wherever it is not possible to do so, the order of the Tribunal waiving requirement of making pre-deposit or compliance with the order of making pre-deposit would operate as an stay till final disposal of the Appeal. At this juncture, it would be worthy to recall the judgment in case of Ashoka Rubber Products v Collector of Central Excise, 1989 (7) TMI 103 - HIGH COURT OF KERALA AT ERNAKULAM wherein it was held that the order dispensing with the requirement of pre-deposit will operate as a stay order against recovery of the amount, or balance amount till the disposal of appeal. It may also be noted that ratio of the aforesaid judgment has been followed by Tribunal while dismissing the draconian Circular No.967/01/2013-CX dated 01.01.2013.

Had the Section 35C (2A) been amended with a retrospective effect, assessees whose cases are pending before Tribunal could have the benefit of amendment which is now available only with effect from 6.8.2014.