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2015 (5) TMI 655 - DELHI HIGH COURT

2015 (5) TMI 655 - DELHI HIGH COURT - [2015] 376 ITR 87 (Del), 2015 (324) E.L.T. 525 (Del.) - Constitutional validity of the third proviso to Section 254(2A) challenged - discrimination, based on an impermissible or invalid classification - grant extension of stay beyond 365 days - Held that:- In the present case, we find that there are several conditions which have been stipulated. First of all, as per the first proviso to Section 254(2A), a stay order could be passed for a period not exceeding .....

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t if the appeal is not disposed of within the period of 365 days, then the order of stay shall stand vacated, even if the delay in disposing of the appeal is not attributable to the assessee. While it could be argued that the condition that the stay order could be extended beyond a period of 180 days only if the delay in disposing of the appeal was not attributable to the assessee was a reasonable condition on the power of the Tribunal to the grant an order of stay, it can, by no stretch of imag .....

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h was available to him prior to the 365 days having passed, is snatched away simply because the Tribunal has, for whatever reason, not attributable to the assessee, been unable to dispose of the appeal. Take the case of delay being caused in the disposal of the appeal on the part of the revenue. Even in that case, the stay would stand vacated on the expiry of 365 days. This is despite the fact that the stay was granted by the Tribunal, in the first instance, upon considering the prima facie meri .....

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nation against the assessees to whom the delay is not attributable. It is for this reason that we find that the insertion of the expression – ‘even if the delay in disposing of the appeal is not attributable to the assessee’– by virtue of the Finance Act, 2008, violates the non-discrimination clause of Article 14 of the Constitution of India. The object that appeals should be heard expeditiously and that assesses should not misuse the stay orders granted in their favour by adopting delaying tact .....

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eted by the Bombay High Court in Narang Overseas (supra), with which we are in full agreement. Consequently, we hold that, where the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to grant extension of stay beyond 365 days in deserving cases. - Decided in favour of assesse. - W.P. (C) Nos. 1334 of 2015 and 1934,1935,2326,2465,3650 & 4280 of 2014, CM Nos. 2337 of 2015 and 4053,4054,4885,5130,7417 & 8604 of 2014 - Dated:- 19-5-2015 - MR. BADAR DURR .....

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mmon issue and, that is, the challenge to the constitutional validity of the third proviso to Section 254(2A) of the Income Tax Act, 1961 (hereinafter referred to as the said Act ). An alternative prayer has also been made to read down the provisions of the said proviso to Section 254 (2A) of the said Act to mean that the power of the Income Tax Appellate Tribunal to grant interim relief is co-terminus with the main power of disposal of the appeal, as stipulated in Section 254(1) of the said Act .....

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itutional validity of the third proviso to Section 254(2A) and, particularly, to the amendment introduced therein by virtue of the Finance Act, 2008, with effect from 01.08.2008, which added the words - even if the delay in disposing of the appeal is not attributable to the assessee - is in question before us. The case of the petitioners is that prior to the said amendment, in a decision of the Bombay High Court in the case of Narang Overseas Private Limited v. Income Tax Appellate Tribunal: 295 .....

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ble to the assessee . It was urged on the part of the petitioners that the right of appeal is not inherent, but once it has been granted, it has to be construed as one which effectively redresses the grievances. It was further contended that the right to obtain a stay of demand/ penalty was integral and cardinal to an effective right of appeal. It was also contended that the introduction of the above mentioned words by virtue of the amendment of 2008 has made the right of appeal illusory and the .....

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o whom the delay was attributable. Therefore, the persons belonging to different groups/ classes have been clubbed together in one category and this has caused hostile discrimination against those assessees who are law abiding and did not cause any delay in the hearing of their respective appeals. This, in itself, was violative of Article 14 of the Constitution of India and, therefore, the amendment introduced by virtue of the Finance Act, 2008 was liable to be struck down, as being invalid. 3. .....

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Industries Limited v. CCE & Another: 2013 (30) STR 113 (Punjab and Haryana High Court) (DB); (vi) CIT v. Maruti Suzuki (India) Limited: (2014) 362 ITR 215 (Delhi) (DB); and (vii) Dr Subramanian Swamy v. Director, CBI: (2014) 8 SCC 682(SC) 4. On the other hand, the learned counsel for the revenue submitted that there was nothing wrong with the amendment brought about in 2008 inasmuch as all it did was to clarify the legislative intent and make it explicit. What was already provided under the .....

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n the case of Jethmal Faujimal Soni v. Income Tax Appellate Tribunal: (2011) 333 ITR 96 and V. M. Salgaocar and Brothers v. Board of Trustees of Port of Mormugao and Another: (2005) 4 SCC 613. 5. At this point, it would be relevant to set out the provisions of Section 254 (2A), including its provisos, which reads as under:- 254. Orders of Appellate Tribunal. (1) xxxx xxxx xxxx xxxx (1A) xxxx xxxx xxxx xxxx (2) xxxx xxxx xxxx xxxx (2A) In every appeal, the Appellate Tribunal, where it is possible .....

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h order and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order: 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 per .....

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iso, 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. (2B) xxxx xxxx xxxx xxxx (3) xxxx xxxx xxxx xxxx (4) xxxx xxxx xxxx xxxx (underlining added) 6. Section 254 (2A) stipulates that the Appellate Tribunal, where it is possible, may hear and decide the appeal within a period of four years from the end of the fin .....

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hundred and eighty days from the date of such order: Provided further that if such appeal is not so disposed of within the period specified in the first proviso, the stay order shall stand vacated after the expiry of the said period. 7. It is clear from the above that with effect from 01.06.2001, it was stipulated that where an order of stay had been granted, the Appellate Tribunal was required to dispose of the appeal within a period of 180 days from the date of said order. It was further provi .....

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e provisos, as they stand today, except the last portion of the third proviso, which reads as - even if the delay in disposing of the appeal is not attributable to the assessee -, were substituted for the provisos which had earlier been inserted by the Finance Act of 2001. Thereafter, by virtue of the Finance Act, 2008, the third proviso was substituted by the existing proviso with effect from 01.10.2008, the difference being that the expression - even if the delay in disposing of the appeal is .....

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l could, on an application made on this behalf by the assessee and on being satisfied that the delay in disposing of the appeal was not attributable to the assessee, extend the period of stay for a period or periods, provided that the aggregate of the period originally allowed and the period or periods so extended, would not, in any case, exceed 365 days. The Tribunal was also required to dispose of the appeal within the period or periods of stay so extended or allowed. The third proviso stipula .....

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gh Court, after considering various provisions and decisions, observed as under:- 20. It would not be possible on the one hand to hold that there is a vested right of appeal 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 continue the interim relief. Such a reading would result in such an exercise being rendered unreasonable and vilative of Article 14 of the Constitution .....

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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 a 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 .....

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t the Tribunal, while it had the power to pass an order in an appeal, did not have the power to continue the grant of interim relief for no fault of the assessee, the result would be rendered unreasonable or violative of Article 14 of the Constitution. In other words, the Bombay High Court took the view that the Tribunal had the power to extend the stay beyond the period of 365 days, provided the delay in disposal of the appeal was not attributable to the assessee. The Bombay High Court also too .....

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to a provision which was consistent with the constitutional mandate so as to avoid a provision being rendered unconstitutional. It is in this light that the Bombay High Court read down and interpreted the third proviso (prior to the amendment of 2008) to not take away the power of the Tribunal to extend the period of stay beyond 365 days, provided, of course, that the delay in disposing of the appeal was not attributable to the assessee. 10. The Notes on Clauses pertaining to the Finance Bill, .....

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id Appellate Tribunal may, on merit, pass an order of stay in any proceedings relating to an appeal. However, such period of stay cannot exceed 180 days from the date of such order and the said Appellate Tribunal shall dispose of the appeal within the specified period of stay. The second proviso to this sub-section provides that where the appeal has not been disposed of within the said specified period and the delay in disposing of the appeal is not attributable to the assessee, the Appellate Tr .....

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periods. The intention behind these provisions have been very clear that the Appellate Tribunal cannot grant stay either under the original order or under any subsequent order, beyond the period of 365 days in aggregate. To make this intention clear, it is proposed to amend section 254 of the Income-tax Act and further provide 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 five days, eve .....

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the appeal was not attributable to the assessee. 11. It is evident that the amendment introduced by virtue of the Finance Act, 2008 had nullified the effect of the decision of the Bombay High court in Narang Overseas (supra). The said provision, after its amendment by virtue of the Finance Act, 2008, came up for consideration before this Court in Maruti Suzuki (India) Limited (supra). The following observations made by a Division Bench of this Court in that case are relevant:- 26. In view of th .....

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(2A) would come into operation. (iii) Third proviso to Section 254 (2A) does not bar or prohibit the Revenue or departmental representative from making a statement that they would not take coercive steps to recover the impugned demand and on such statement being made, it will be open to the tribunal to adjourn the matter at the request of the Revenue. (iv) An assessee can file a writ petition in the High Court pleading and asking for stay and the High Court has power and jurisdiction to grant s .....

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(2A) of the said Act and left the issue open. It is only on a plain reading of the provisos, as they existed, that the Division Bench came to the conclusion that the Tribunal had no power to extend stay beyond a period of 365 days from the date of the first order of stay but that an assessee could file a writ petition in the High Court asking for stay even beyond the said period of 365 days and the High Court had the power and jurisdiction to grant stay and issue directions to the Tribunal and t .....

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has been brought to our notice by the learned counsel for the parties, wherein the constitutional validity of the third proviso to Section 254(2A) of the said Act has been examined. 13. At this point, we may also refer to certain other observations of the Division Bench in Maruti Suzuki (India) Limited (supra). The Court had examined various data with regard to the filing of appeals, pendency of appeals and stay orders granted by the Tribunal etc.. Paragraphs 21, 22 and 23 are of material import .....

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sal of the appeal before the Tribunal. c) (i) The year-wise details of the stay orders passed by the Tribunal are as under:- Year Number of stay orders 2011 173 2012 278 2013 321 (ii) The complete details in respect of each and every appeal where stay order was passed is annexed as Annexure-1, 2 & 3. d) The year-wise details of the cases/appeals which remained pending beyond 365 days of the stay order are as under:- Year Number of appeals disposed-off after 365 days or pending for more than .....

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ad/has been granted, were/are being disposed of within 365 days. Number of appeals, which were not disposed of within 365 days of grant of stay, have come down sharply in the year 2013. Grant of stay by the tribunal is not a matter of right, but is decided by a speaking order, recording prima facie view on merits. In case there is an error or the tribunal has erred in granting stay, Revenue is not without remedy and can approach the High Court in accordance with law. 23. We do not have figures o .....

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e the Tribunal. Furthermore, even a fewer number of appeals, in which stay orders have been passed, remain pending beyond the period of 365 days. It is in this light that the Division Bench observed that most of the appeals in which stay had/has been granted were/are being disposed of within 365 days. The Division Bench also observed that the grant of stay by the Tribunal was not a matter of right but was decided by a speaking order, recording the prima facie view on merits. Furthermore, in case .....

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es, we have examined whether we can read down the third proviso, by applying principles of equity, justice and fair play and also the principle that the court should interpret a provision in a manner that it does not lead to arbitrary results or make it violative of Article 14 or would render it unconstitutional. However, it is clear to us that the legislative mandate has to be respected and the courts do not legislate but interpret the statute as a legislative edict. The third proviso after ame .....

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High Court has power to grant and extend stay where the appeal is pending before the tribunal. The constitutional power and right is available and has not and cannot be curtailed. The powers of the High Court under Articles 226 and 227 form a part and parcel of the basic structure of the Constitution and cannot be over written and nullified as held by the Constitutional Bench in L. Chandra Kumar versus Union of India, (1997) 3 SCC 261. Thus, the High Court in appropriate matters can grant or ex .....

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el and ensure that the tribunal will try and dispose of and decide appeals within 365 days of the grant of stay order. The Bombay High Court in Jethmal Faujimal Soni vs. Income Tax Appellate Tribunal [2011] 333 ITR 96, had occasion to deal with a similar situation 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 enac .....

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enforcing demand subject matter of the appeal. (underlining added) 16. At this juncture itself, we may reiterate that the decision of the Division Bench in Maruti Suzuki (India) Limited (supra) was based on an interpretation of the third proviso to Section 254(2A) as it stands. The constitutional validity of the same had not been examined. It only spelt out the legislative intent and that was more than clear that no stay could be granted by the Tribunal beyond the period of 365 days under any c .....

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. The question before the Supreme Court was whether the Income Tax Appellate Tribunal had power under the relevant provisions of the said Act to stay the recovery of the realization of the penalty imposed by the departmental authorities on an assessee during the pendency of an appeal before it. In that case, the Tribunal had declined to order any stay holding that it had no power to grant such a prayer. We must be mindful of the fact that at that point of time Section 254(2A) was not there in th .....

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owers, which had been conferred by Section 254 on the Appellate Tribunal, were of the widest possible amplitude and, therefore, must carry with them, by necessary implication, all powers and duties incidental and necessary to make the exercise of those fully effective. Finally, the Supreme Court concluded by holding:- 13. Section 255(5) of the Act does empower the Appellate Tribunal to regulate its own procedure, but it is very doubtful if the power of stay can be spelt out from that provision. .....

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l such acts, or employing such means, as are essentially necessary to its execution and that the statutory power carries with it the duty in proper cases to make such orders for staying proceedings as will prevent the appeal if successful from being rendered nugatory. 14. A certain apprehension may legitimately arise in the minds of the authorities administering the Act that if the Appellate Tribunals proceed to stay recovery of taxes or penalties payable by or imposed on the Assessees as a matt .....

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stay will be granted in most deserving and appropriate cases where the tribunal is satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal. (underlining added) 18. From this decision, it is evident that the power to grant a stay is incidental or ancillary to the appellate jurisdiction of the Tribunal. It is also clear that the power of stay exercised by the Tribunal is not likely t .....

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he pendency of the appeal. These words of the Supreme Court were indeed prophetic, as can be discerned from the data which has been referred to by a Division Bench of this Court in Maruti Suzuki (India) Limited (supra), which shows that in less than 10% of the appeals filed by assessees, the Tribunal has granted stay orders and in a very few of such cases, the appeals are pending beyond the period of 365 days stipulated under the provisions, as they now stand. 19. A reference has been made to Ma .....

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the condition of such a deposit. Sub-section (2) of Section 17 itself says that no appeal shall be entertainable unless the borrower has deposited the aforesaid sum of amount claimed. Much stress has been given in reply to the proviso to sub-section (2) of Section 17, according to which the Tribunal has power to waive or reduce the amount. While waiving the condition of depositing the amount or reducing it, the Tribunal is required to record reasons for the same. It is submitted for the responde .....

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availing the right of appeal the Court held: right of appeal is a creature of the statute and while granting the right the legislature can impose conditions for the exercise of such right so long as the conditions are not so onerous as to amount to unreasonable restrictions rendering the right almost illusory. (emphasis supplied). While making said observation this Court referred to the decision in the case of Anant Mills Co. Ltd. (supra). In both the above noted decisions this Court had negated .....

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sion conferring discretion on the appellate authority to waive or reduce the amount of pre- deposit, it was considered to be valid, for the two reasons indicated above. The facts of the case in hand are just otherwise. xxxx xxxx xxxx xxxx 80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the De .....

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ses any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to .....

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ondition as it may deem fit and proper to impose. 4. In view of the discussion already held in this behalf, we find that the requirement of deposit of 75% of amount claimed before entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down. 5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civ .....

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pertained to the waiver of pre-deposit at the stage of an appeal pending before the Central Excise Service Tax Appellate Tribunal. The provision indicated that the waiver would stand vacated after 180 days. In that context, the question arose, as to whether the second proviso to Section 2A of Section 35C was directory and that the Tribunal, in appropriate circumstances, could extend the period of stay beyond 180 days. While considering the said question, the Punjab and Haryana High Court held a .....

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n for dispensing with the pre-deposit of duty demanded and penalty levied is made out, is compelled to pay the duty demanded and penalty levied, if the appeal is not decided within 180 days. The assessee has no control in respect of matters pending before the Tribunal; in the matter of availability of infrastructure; the members of the Tribunal and the workload. Therefore, for the reason that the Tribunal is not able to decide appeal within 180 days, the vacation of stay is a harsh and onerous a .....

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to mean that after 180 days the Revenue has a right to bring to the notice of the Tribunal the conduct of the assessee in delay or avoiding the decision of appeal, so as to warrant an order of vacation of stay. If the provision is not read down in the manner mentioned above, such condition suffers from illegality rendering the right of appeal as redundant. xxxx xxxx xxxx xxxx 54. Consequently, the second proviso in sub-section (2A) of Section 35C is ordered to be read down to mean that after 180 .....

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tore, Delhi (supra) was relied upon by the learned counsel for the petitioners for the proposition that the availability of a constitutional remedy would not remove the lacuna of a provision which was inherently unconstitutional. There can be no dispute with this proposition. The provision which is challenged, as being violative of Article 14 of the Constitution, would have to be tested on its own without recourse to the availability of the remedy of judicial review under Article 226 of the Cons .....

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eferred to as 'A.I. Regulations') held that certain conditions mentioned in the Regulations may not be violative of Article 14 on the ground of discrimination but if it is proved that the conditions laid down are entirely unreasonable and absolutely arbitrary, then the provisions will have to be struck down. With regard to due process clause in the American Constitution and Article 14 of our Constitution, this Court referred to State of West Bengal v. Anwar Ali Sarkar : (1952) SCR 284, a .....

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ad an occasion to consider the scope, content and meaning of Article 14. The Court referred to earlier decisions of this Court and in para 15, the Court observed: 15. Thus the fundamental principle is that Article 14 forbids class legislation but permits reasonable classification for the purpose of legislation which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those t .....

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slative process needs to be recognized by the Court and due regard and deference must be accorded to the legislative process. Where the legislation is sought to be challenged as being unconstitutional and violative of Article 14 of the Constitution, the Court must remind itself to the principles relating to the applicability of Article 14 in relation to invalidation of legislation. The two dimensions of Article 14 in its application to legislation and rendering legislation invalid are now well r .....

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onstitutional merely because there is another view or because another method may be considered to be as good or even more effective, like any issue of social, or even economic policy. It is well settled that the courts do not substitute their views on what the policy is. It is clear that where a legislation is sought to be challenged, as being unconstitutional or violative of Article 14 of the Constitution, the Court must keep in mind the principles relating to the applicability of Article 14 in .....

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so cautioned that the Courts need to be mindful that a legislation does not become unconstitutional merely because there is another view or because another method may be considered to be as good or even more effective, like any issue of social, or even economic policy. 23. Keeping in mind the principles set out by the Supreme Court in Dr Subramanian Swamy (supra), we need to examine whether the present challenge to the validity of the third proviso to Section 254(2A) can be sustained. This is no .....

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to certain conditions. In the present case, we find that there are several conditions which have been stipulated. First of all, as per the first proviso to Section 254(2A), a stay order could be passed for a period not exceeding 180 days and the Tribunal should dispose of the appeal within that period. The second proviso stipulates that in case the appeal is not disposed of within the period of 180 days, if the delay in disposing of the appeal is not attributable to the assessee, the Tribunal h .....

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ed beyond a period of 180 days only if the delay in disposing of the appeal was not attributable to the assessee was a reasonable condition on the power of the Tribunal to the grant an order of stay, it can, by no stretch of imagination, be argued that where the assessee is not responsible for the delay in the disposal of the appeal, yet the Tribunal has no power to extend the stay beyond the period of 365 days. The intention of the legislature, which has been made explicit by insertion of the w .....

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the part of the revenue. Even in that case, the stay would stand vacated on the expiry of 365 days. This is despite the fact that the stay was granted by the Tribunal, in the first instance, upon considering the prima facie merits of the case through a reasoned order. 24. Furthermore, the petitioners are correct in their submission that unequals have been treated equally. Assessees who, after having obtained stay orders and by their conduct delay the appeal proceedings, have been treated in the .....

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