1999 (4) TMI 83 - HC - Central Excise

Summary

Issues Involved:
1. Validity of the demand for differential excise duty.
2. Application of the correct basis for calculating excise duty.
3. Consideration of undue hardship for pre-deposit exemption.
4. Judicial discretion in granting exemption from pre-deposit.

Detailed Analysis:

1. Validity of the Demand for Differential Excise Duty:
The petitioners, manufacturers of footwear chappals, were issued show cause notices for short payment of Central Excise duty. The Superintendent of Central Excise alleged that the petitioners did not calculate the value of the goods based on the wholesale price of Bata India Ltd., resulting in a short payment of duty. The petitioners argued that the excise duty should be calculated based on the price at which Bata India Ltd. purchased the goods from them, as per their agreement.

2. Application of the Correct Basis for Calculating Excise Duty:
The petitioners contended that the price at which they sold the goods to Bata India Ltd. should be the basis for excise duty calculation. The agreement stipulated that the goods were manufactured according to Bata's specifications, and the petitioners had no right to sell the branded goods to any other party. The petitioners deposited excise duty based on the purchase price from Bata India Ltd. The respondent authority, however, held that the price charged by the petitioners to Bata India Ltd. was a "favoured price" and did not reflect the fair and reasonable price, thus confirming the demand for differential duty.

3. Consideration of Undue Hardship for Pre-Deposit Exemption:
The appellate authority directed the petitioners to deposit a sum of Rs. 1,50,000/- towards the duty amount for exemption from pre-deposit. The petitioners challenged this order, arguing that the appellate authority did not properly consider whether the pre-deposit would cause undue hardship. The court noted that Section 35F of the Central Excise Act allows for pre-deposit to be dispensed with if it causes undue hardship. The appellate authority must consider whether the appellant has a strong prima facie case, as undue hardship includes situations where an appellant would suffer if required to pay an amount not legally due.

4. Judicial Discretion in Granting Exemption from Pre-Deposit:
The court emphasized that judicial discretion in granting exemption from pre-deposit must be exercised judicially and not arbitrarily. The appellate authority must consider the appellant's financial position and the merits of the case. The court found that the appellate authority failed to apply its mind properly to the question of undue hardship and the financial position of the petitioners. The appellate authority's finding that the petitioners did not have a strong prima facie case was also not sustainable, as the petitioners had presented several instances and Supreme Court decisions supporting their position.

Conclusion:
The court set aside the impugned order of the appellate authority, directing it to reconsider the petitioners' prayer for total exemption from pre-deposit. The appellate authority must proceed on the footing that the petitioners have a strong prima facie case and consider their financial position. The appellate authority must pass a reasoned and speaking order, taking into account the protection of the revenue's interest as provided in Section 35F of the Act. All writ applications were disposed of with no order as to costs.