Forced Litigation in CBIC – reasons thereof

[HansRaj Garg]

Despite having a robust Litigation Policy put in place, the mechanical way of passing Orders-in-Original and the Orders-in-Appeal by the departmental adjudicating authorities and the appellate authorities under the CBIC has not ceased.

A study of the Final Orders passed by the final fact finding authority viz. Hon’ble CESTAT, would reveal that the Applicants, who are the noticees, have been forced to move the Tribunal for no fault of theirs.  This is a sorry state of affairs that is all pervasive in the Commissionerates – Customs and Central Excise/GST. The study  would further reveal that the so-called success rate of the department is abysmally low. Hon’ble CESTAT, various Hon’ble High Courts and even Hon’ble Supreme Court have many a time come down heavily on original adjudicating & departmental appellate authorities and in some cases exhibiting extreme callous attitude in total disregard to law, even imposed cost in exasperation, on account of blindly towing the line of the Revenue, albeit under pressure, despite the claim of the Board vide Instructions dated 21.12.2015 which in Para 4 claim to stress that:

  "adjudicating authorities to be suitably empowered/assured of the backing of the board, so that they do not succumb to pressure from enforcement agencies like DRI, DGCEI, etc. to confirm demands and levy penalties on all the accused".

The above quoted Instruction brings out the malaise in the system wherein it emerges categorically that the adjudicating authorities are pressurized to decide a case in a particular manner by DRI & DGCEI (now DGGI) notwithstanding the merits or binding precedents on the issues involved in the case. This article attempts to examine the issues confronting the departmental adjudicating/appellate authorities.

The low success rate of the Revenue at the Hon’ble Tribunal level is alarming.  The success rate is hardly 10-15% of the total number of cases decided. In order to understand the malaise, reference is invited to one of the latest Final Orders of Hon’ble CESTAT, Chandigarh passed in the case of Commissioner of Customs, Ludhiana Vs M/s. Overseas Warehousing Pvt. Ltd., reported as 2021 (5) TMI 504 - CESTAT CHANDIGARH, in which the Respondent, the Custodian of warehouse, was asked to pay interest on duty on the goods warehoused by the importer. The issue in this case was that M/s. Golden Enterprises, the importer, had filed two bills of entry on 19.01.2013 for clearance of Pressed Distillate Oil. A case was booked by DRI and the said imported goods were detained, seized and later confiscated. After prolonged litigation, the matter was finally decided against the DRI/Customs (an euphemism for failure). Aggrieved against the refusal of the department to aggressively pursue the matter of waiver of detention/demurrage and the refusal of the Custodian to accept the Detention Certificate issued by the department, M/S GOLDEN ENTERPRISES VERSUS UNION OF INDIA AND OTHERS [2019 (11) TMI 1622 - PUNJAB AND HARYANA HIGH COURT] the importer, filed a Civil Writ Petition No.13194/2018 before the Hon’ble High Court of Punjab and Haryana on 19.05.2018. During pendency of the said Petition, the Respondent-Custodian disposed off goods on 13.11.2019. The importer moved a Contempt Petition before the Hon’ble High Court upon which the Hon’ble High Court took a very strong view in the matter. Hon’ble High Court vide Order dated 21.11.2019 held as under:

“Before the next date, Customs authorities shall consider the refund of the duty paid along with interest on the declared value of the goods seized way back in the year 2013.”’

It needs to be mentioned straight away that in the case before the Hon’ble High Court, the Writ Petitioner was the importer and the Custodian M/s Overseas Warehousing (P) Ltd. was Respondent No 3. Obviously, the relief was to be provided to the importer-Writ Petitioner as he had initially paid the customs duty. For complying with the directions of Hon’ble High Court, the department froze bank account of the Respondent No 3 (Custodian) against which they filed  [OVERSEAS WAREHOUSING PVT. LTD., LUDHIANA VERSUS THE UNION OF INDIA AND OTHERS  2020 (1) TMI 1181 - PUNJAB AND HARYANA HIGH COURT  ]Writ Petition No. 282 of 2020.  Hon’ble High Court vide its Order dated 10.01.2020 directed the Respondent (Custodian) to put ₹ 25 lakhs in escrow account and the department will determine the question of admissibility of interest and its rate, if any, after adjudicating the recovery of customs duty from the Respondent - Custodian after giving an opportunity of hearing. 

The matter of interest was adjudicated against the Custodian by ordering recovery from them. The Order was set aside by the Commissioner (Appeals) and it was taken by the department as Appellant to the Hon’ble Tribunal wherein vide the impugned Final Order dated 13.05.2021 (supra) it was held as under:

         ‘’19. According to the spirit of the order of this Tribunal, there was no goods in question were in the custody of the custodian in terms of section 47 of the Act then the duty is payable by the custodian but no such notice has been issued to the respondent by the appellant to determine the liability on the respondent.   Moreover, it is fact on record that the appellant has enjoyed duty paid way back in 2013 on the goods in question.  Therefore, the question mark on the person who has received duty, who can duty, who is liable to pay interest thereon and duty has been enjoyed by the appellant themselves how can demand interest from the respondent without determine liability.  In that circumstance, The Revenue’s appeal is only an abuse of process of law as the adjudicating authority has determined duty liability against the respondent. The duty has been enjoyed by the appellant themselves how can demand interest from others.  Therefore, I do not find any infirmity in the impugned order and the same is upheld.  The appeal filed by the Revenue is dismissed.’’

The entire exercise of carrying forward the matter in Appeal before the Hon’ble CESTAT against the Order-in-Appeal was essentially to drag the Custodian, who had no role in the entire exercise of payment of interest.  A person who was not a party to the demand cum SCN was asked to pay interest by stretching the case too far.  It only exhibits that the entire exercise was an exercise in futility and a deliberate mis-directed venture, to put it mildly. As can be seen, an Appeal was filed when none was required. So, the authorities, who are bound to examine each of the case on merits, refuse to acknowledge the same and require the stamp of approval of higher appellate fora to play safe. It appears that the decision making process is at its lowest point and the confidence level is progressing south at a faster rate.

Hon’ble Tribunal and Hon’ble High Courts in a number of cases have down upon heavily on the adjudicating authorities for passing pro revenue orders/one sided orders without going into the submissions of the noticee/appellant before them.    Obviously, it only leads to increase in litigation and a study of the Final Orders passed by the Hon’ble Tribunal will only reveal that adjudicating/appellate authorities are the biggest contributing factors for increase in frivolous litigation.  Repeated Instructions of the Board to the effect that the Order should be judicious and the matters be decided on merit have definitely been given a go by.

The Orders-in-Original/Orders-in-Appeal are not passed on due application of law and binding precedents, despite the Hon’ble Supreme Court in the case of Union of India Vs Kamlakshi Finance Corporation Ltd. reported as 1991 (9) TMI 72 - SUPREME COURT holding way back in the year 1991that:

 ‘’It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.’’.

On the scathing and unpalatable observations of the Hon’ble High Court, it was held by the Hon’ble Supreme Court that:

       ‘’It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assessee-public without any benefit to the Revenue. We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them.’’ 

       Despite this, the adjudicating/appellate authorities continue to be blissfully oblivious to their onerous obligation in this regard.

By way of an illustration to explain the stubborn attitude of the officers of ignoring the binding precedents, even the Orders passed by the jurisdictional High Court of the State, which are binding not only on the quasi-judicial authorities but also on the Hon’ble Tribunals under the superintendence of the said jurisdictional High Court [See EAST INDIA COMMERCIAL CO. LTD., CALCUTTA VERSUS COLLECTOR OF CUSTOMS, CALCUTTA 1962 (5) TMI 23 - SUPREME COURT], the case of M/s TVS Srichakra Ltd. Vs  Commissioner of CGST and Central Excise, reported as  2021 (5) TMI 804 - MADRAS HIGH COURT, is cited as throwing the required judicial discipline to wind.  The facts of this case were that the Petitioner M/s TVS Srichakra Ltd. sold their plant and machinery in favour of M/s OPC Assets Solutions Private Limited on 22.03.2013 and this agreement came into effect from 01.04.2013.  The sold out plant and machinery were leased back in favour of the Petitioner M/s TVS Srichakra Ltd.  by M/s. OPC Assets Solutions Private Limited. Both the transactions were done by way of book entries. The adjudicating authority was of the opinion that as a result of these transactions, there was a deemed removal of capital goods from the factory premises of the Petitioner M/s TVS Srichakra Ltd. And, therefore, the CENVAT Credit availed on original purchase of the plant & machinery was required to be reversed. The Central Excise Act, 1944 and the Cenvat Credit Rules, 2004 mandated payment of Central Excise duty or reversal of the CENVAT Credit on removal of the goods.  The Division Bench of the Hon’ble Madras High Court, in the case of M/s. Dalmia Cements (Bharat) Ltd., reported as 2015 (7) TMI 267 - MADRAS HIGH COURT relying upon the decision of the Hon’ble Allahabad High Court in the case Hero Motors Ltd. Vs Commissioner of Central Excise, Ghaziabad reported as 2012 (8) TMI 890 - ALLAHABAD HIGH COURT had earlier held vide Order dated 04.06.2015 as under:

           “18. The above is the view succinctly expressed by the Allahabad High Court in Hero Motors case (supra). This Court is in agreement with the view expressed by the Allahabad High Court in the above-cited decision and the above decision is squarely applicable to the facts of the present case. In view of the above, the interpretation with regard to Rule 3 (5) of CCR, 2004, as made by the Tribunal in the present case is fully justified and it calls for no interference at the hands of this Court.

The Madras High Court Order in the case of M/s. Dalmia Cements (Bharat) Ltd was accepted by the Board and no SLP was filed against the Order before Hon’ble Supreme Court as communicated vide the Board’s Circular No.1063/2/2018-CX dated 16.02.2018 issued from F. No. 116/2/2018-CX 3. The stated purpose of the Circular, which was in public domain, was to reduce frivolous litigation as admitted therein:

“This exercise has been undertaken as an endeavour to reduce litigations so that cases on similar questions of law or identical case on facts pending in your jurisdictions can be decided.”

That the above Circular was binding on the officers is trite law inasmuch as Hon’ble Supreme Court in the case of Ranadey Micronutrients Vs Collector of Central Excise reported as 1996 (9) TMI 124 - SUPREME COURT held in Para 13 that:

“’there can be no doubt whatsoever, in the circumstances, that the earlier and later circulars were issued by the Board ………. …………… circular remains in operation the Revenue is bound by it and cannot be allowed to plead that it is not valid.’’                                          (emphasis applied). 

In the above cited case of TVS Srichakra Ltd, the SCN was issued on 21.12.2016 which was originally adjudicated on 31.10.2017. The OIO was set aside by the High Court vide Order dated 23.02.2018. In the denovo proceedings again the adjudicating authority repeated the earlier order vide Order dated 28.09.2018 in spite of now knowing vide the Circular dated 16.02.2018 that there was a binding precedent {decision of the Hon’ble Supreme Court in EAST INDIA COMMERCIAL CO. LTD., CALCUTTA VERSUS COLLECTOR OF CUSTOMS, CALCUTTA 1962 (5) TMI 23 - SUPREME COURT also refers) in the Hon’ble Madras High Court Order in the case of M/s. Dalmia Cements (Bharat) Ltd supra. A case of avoidable litigation was created.

Moving further, we find that the low quality and non-judicious orders passed by the adjudicating/appellate authorities do not stand scrutiny of law.  Penalties are imposed on persons who were not even called upon to show cause in the first instance. Going beyond the SCN, while adjudicating a matter, is not uncommon.

Saddled with illegal demands made in the SCNs and the Orders-in-Original, the noticees prefer to knock at the doors of jurisdictional High Courts by filing Writ Petitions under Article 226 of the Constitution of India rather than going through the motion of following the appeal route where chances of getting justice are bleak. Needless to mention that in many cases, the High Courts quash the proceedings themself mainly on account of the non-adherence to the principles of natural justice, non-observance of the law on the issue and also in some case due to lack of jurisdiction. A large number of SCNs have been quashed by various High Courts on account of undue delay in adjudication. To cover its own lapses, in such cases, the department is fighting a losing battle in the Hon’ble Supreme Court.

The poor quality of Orders-in-Original can also be simply traced to the poor quality of show cause notices, which are issued at the whims and fancies of the officers. The unstated dictum of ‘demand confirmed and refund rejected’ further adds fuel to the fire.

There is absolutely complete lack of accountability of the adjudicating authorities which creates humongous amount of frivolous litigation. The Orders-in-Original are often passed keeping in mind the Review Authority. Hence, the independence of the adjudicating authority is completely lost/eroded. It should be emphasized by the Reviewing authority that the Orders-in-Original, irrespective of fact that the demand is dropped or confirmed, are required to be reviewed.  An officer passing a wrong order, if sensitized early, is bound to be careful in the future. If not nipped in the bud, the clogging of arteries of the legal system would continue resulting in abnormal delay of imparting justice in deserving cases. This delay is also one of the causes of corruption inasmuch as the officers as well as the parties know that there is no time frame for conclusion of the proceedings.

Department of Revenue being the controlling department has never undertaken any exercise so far to find out the quality of the show cause notices issued which has a direct bearing on the Orders-in-Original passed. Neither any study has been conducted by the NACIN or any other independent authority. In the garb of protecting revenue, show cause notices are issued left, right and centre, which also reflect on the issuing authority and subsequently on the adjudicating authority.  In the circumstances, it is always better to issue quality show cause notices so that the cases stand scrutiny of law.

Lastly, law is dynamic and an adjudicating authority needs to keep himself or herself updated, which seldom occurs. The manner of posting of officers in adjudication branch seldom inspires confidence. The adjudicating authority mostly relies on the Superintendent/Inspector to draft their Orders and with a slight correction here and there, the Order-in-Original comes to be passed.  As a natural corollary, the knowledge of the Superintendent or the Inspector has a direct bearing on the Order-in-Original. Further, the adjudicating authorities seldom use their personal assistant or private secretary to dictate Orders and they work under the mistaken belief that they are lord of their jurisdiction and for this attitude, the department pays a heavy price in the shape of frivolous litigation.  There is no independent periodic review of their performance and the department goes only by the Annual Confidential Report (ACR), replaced by APAR.

The aforesaid view holds equally good for the Orders-in-Appeal.  The need of the hour is for all the adjudicating authorities to rise to the occasion and work untiringly in the right spirit and enhance the image of the department amongst the assessee, noticee and the public, in general and become responsive to the changed circumstances.

 

HANS RAJ GARG,

ADDITIONAL DIRECTOR (RETD),

DIRECTORATE OF REVENUE INTELLIGENCE,

MUMBAI ZONAL UNIT

ID: virajpl

Mobile: 9158991437