RECOVERY OF CONFIRMED DEMAND DURING PENDENCY OF STAY APPLICATION

[Mr. M. GOVINDARAJAN]

Section 35F of the Central Excise Act, 1944 (‘Act’ for short) provides for depositing the duty demanded or penalty in appeal.  The Section provides that where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of central excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied.  Where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue.

Where an application is filed 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.

It may not be expected that the Commissioner (Appeals) or Tribunal may dispose the stay petition within a short period.  In such cases the Department used to take coercive action to recovery the duty while the stay petition was pending.   The High Courts as well as Tribunals in many cases observed that it is not fair on the part of the department to take recourse to coercive measures for recovery of government dues during the pendency of stay petition. In this regard Law Ministry opined that the Department is within its right to proceed with recovery proceedings after waiting for decision on the stay application for a reasonable period, which would depend on the facts and circumstances of a particular case.  The Board accepted the Law Ministry’s advice vide its Circular No. 80/88-CX6, dated 18.11.1988.

Vide Circular No. 7/90-CX6, dated 2.3.1990 the Board considered the suggestions received from the trade for enhancing the waiting period from 3 months to 5 months before initiating coercive action.   The Board did not accept the suggestions of trade.   However the Board felt that it was hardly fair and just to proceed with the recovery proceedings while application for stay of the impugned order or for waiver of the condition of pre-deposit was pending before the Appellate Authorities.

Vide Circular No. 23/90-CX6, dated 21.12.1990 the Board decided that assessee should not be granted time beyond 3 months before restoring to coercive measures to recover dues arising out of orders passed by original adjudicating authorities as well as the appellate authorities. However, if a stay application of an assessee is rejected by an appellate authority even before the lapse of the time limit of three months, recovery proceedings should be initiated immediately.

During the course of discussions in the National Workshop on Customs organized by the Confederation of Indian Industries on 2-9-1992, a point was raised that the Departmental officers should not take coercive measures to recover the duty demanded as a result of adjudication till such time as the appeal filed by the appellant has been disposed of by the Collector (Appeals). Vide Circular No. 16/92, dated 12.11.1992 the Board was of the view that it is not desirable to revise the existing instructions in the matter and provide for a blanket stay order for not taking coercive measures as pleaded by the Confederation of Indian Industries. If the assessee is diligent, as the things stand today, it would be possible to get orders on stay application well within a period of 3 months. In case of any individual hardships the case could be decided on a case to case basis.

Vide Circular No. 47/47/94-CX, dated 03.08.1994 it was clarified that the 3 months time allowed to take action for recovery of the dues is from the date of communication of the order. Vide Circular No. 396/29/98-CX, dated 02.06.1998 the Board has decided that no coercive action should be taken to realize the dues till the disposal of the stay application by the Commissioner (Appeal) and the Commissioner (Appeal) must dispose of the stay application within one month of its filing. taxmanagementindia.com

Vide Circular No. 788/21/2004, dated 25.2.2004 the Board has conveyed the decisions taken which are as follows:

a)	For cases where the appeals lie with the Commissioner (Appeals) and no stay application is filed along with the appeal, recovery proceedings may be initiated after 60 days from the date of communication of the order.  In respect of Orders-In –Original of Commissioners where the first appeal lies with the Tribunal and no stay application is filed along with the appeal, the aforesaid time period would be 90 days.
b)	Where conditional stay orders are issued specifying the time limit for fulfillment of the conditions but conditions are not fulfilled as per the directions of the Tribunal or Commissioner (Appeals), as the case may be, recovery proceedings should be initiated immediately after the lapse of the time period prescribed in the appellate stay order for fulfillment of the conditions.
c)	In respect of stay applications pending against the Orders-In Original of the Commissioners before the CESTAT a view similar to Board ‘s Circular No.396/29/98-CX dated 2.6.1998 should be taken. The two provisos to Section 35C(2A) of the Central excise Act, 1944 read as follows:
	“Provided that where an order of stay is made in any proceeding relating to an appeal filed under sub-section (1) of section 35B,the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such order:
	Provided further that if such appeal is not disposed of within the period specified in the first proviso, the stay order shall, on the expiry of that period, stand vacated.”.
	In view of the above stated legal position, the field officers should refrain from taking coercive action till the period of six months of filing a stay petition before the CESTAT, or till the disposal of the stay petition, whichever is earlier.
	The instructions in this clause relate to only stay application filed with first stage appeals not to those with further appeals i.e. only in respect of stay applications filed with appeals filed against the Orders-In Original of the Commissioners.

Now the Department issued a circular rescinding the circulars as discussed above and furnished the methods by which recovery proceedings shall be initiated against a confirmed demand in terms of the following order:

Sl.No.	Appellate Authority	Situation	Directions regarding recovery
1	NIL	No appeal filed against a confirmatory order in original against which appeal lies with Commissioner (Appeals)	Recovery to be initiated after expiry of statutory period of 60 days for filing appeal.
2	Commissioner (Appeals)	Appeal filed without stay application against a confirmatory order in original.	Recovery to be initiated after such an appeal has been filed, without waiting for the statutory 60 days period to be exhausted.
3	Commissioner (Appeals)	Appeal filed with a stay application against an order in original.	Recovery to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any specified, whichever is earlier.
4	NIL	No appeal filed against an order in original issued by the Commissioner.	Recovery to be initiated after expiry of statutory period of 90 days for filing appeal from the date of communication of order.
5	CESTAT	Appeal filed without stay application against an order in original issued by the Commissioner.	Recovery to be initiated on filing of such an appeal, without waiting for the statutory 90 days period to be exhausted.
6	CESTAT	Appeal filed with a stay application against an order in original issued by the Commissioner.	Recovery to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any, whichever is earlier.
7	NIL	No appeal filed against an order in Appeal issued by a Commissioner (Appeals) confirming the demand for the first time.	Recovery to be initiated after expiry of statutory period of 90 days for filing appeal from the date of communication or order.
8	CESTAT	Appeal filed without stay application against an order in Appeal confirming the demand for the first time.	Recovery to be initiated on filing of such an appeal in the CESTAT without waiting for the statutory 90 days period to be exhausted.
9	CESTAT	Appeal filed with a stay application, against an order in Appeal confirming the demand for the first time.	Recovery to be initiated after 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any, whichever is earlier.
10	CESTAT	All cases where Commissioner (Appeals) confirms demand in the order in original.	Recovery to be initiated immediately on the issue or order in appeal.
11	High Court or Supreme Court	Tribunal or High Court confirms the demand	Recovery to be initiated immediately on the issue of order by the Tribunal or the High Court if no stay is in operation.

The Department gains support of the Supreme Court decision in ‘Collector of Customs, Bombay V. Krishna Sales (P) Limited’ 1993 (9) TMI 124 - SUPREME COURT OF INDIA for arriving at the above instructions.  In this the Supreme Court observed that ‘As is well known, mere filing of an appeal does not operate as a stay or suspension of the order appealed against’.

On analysis of the above said case it may be inferred that such observation is against the Department.  In this case the Department refused to implement the order in appeal.  The Supreme Court observed that if the authorities are of the opinion that the goods ought not to be released pending the appeal, the straight-forward course for them is to obtain an order of stay or other appropriate direction from the Tribunal or the Supreme Court, as the case may be. Without obtaining such an order they cannot refuse to implement the order under appeal. As is well-known, mere filing of an appeal does not operate as a stay or suspension of the order appealed against. Moreover, such detention is likely to create several complications relating to the demurrage charges besides the possible deterioration of the machinery and goods. We hope and trust that the Collector of Customs, Bombay shall appropriately revise the said public notice in the light of the observations made herein. If he does not do so, there is a likelihood of the customs authorities being themselves made liable for demurrage charges in appropriate cases.

Litigation may arise in this regard.