TMI Blog2016 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicant, and must be established by him. A mere assertion of undue hardship would not suffice. The expression undue hardship is, ordinarily, related to economic hardship. The Tribunal is required to consider the question whether or not a direction to deposit the amount would cause undue hardship. Without considering the said question, it cannot go into the merits of the appeal itself. The other aspect, which relates to safeguarding the interests of Revenue, is a matter which the Tribunal should focus upon, while considering whether pre-deposit should be waived either wholly or partially. It is for the Tribunal to impose such conditions as it deems proper to safeguard the interests of Revenue. While dealing with the application, the Tribunal should consider the material placed by the appellant in support of the plea of undue hardship, and also stipulate such conditions as are required to safeguard the interests of the Revenue. Some principles should be borne in mind while considering applications for stay, or for dispensing with the requirement of pre-deposit, under Section 35F of the Central Excise Act or under Section 129E of the Customs Act, or other similar provisions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but, when Section 129-E made it obligatory on an appellant to deposit the duty or penalty pending the appeal, and if a party did not comply either with the main sub-section or with any order passed under the proviso, the appellate authority was fully competent to reject the appeal for non-compliance with the provisions of Section 129-E of the Customs Act, 1952. Accepting the contention, that Section 129-E of the Customs Act did not give any power to the CESTAT to dismiss the appeal for non-compliance with the requirements regarding deposit of duty, interest or penalty, would have meant that the appeal would have to be kept on file for ever, even when the requirements of Section 129-E was not complied with. Retention of such an appeal on the file would have served no purpose for, unless Section 129-E was complied with, the CESTAT could not have proceeded to hear an appeal on merits. The logical consequence of failure to comply with Section 129-E was rejection of the appeal on that ground. Section 129(1) of the Customs Act, 1952 prior to, and Section 129-E of the Customs Act after, the substitution of Chapter XV by the Finance Act, 1980, (and Section 35-F of the Central Excise Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t embedded, and is supplied separately, can it not be included in the value of the equipment. On the ground that embedded software was shown separately as customised software only to evade customs duty, the adjudicating authorities, besides demanding differential duty on the value attributable to the so called embedded software, and interest thereon, had also imposed penalties on PISL and VMCL as well as the overseas suppliers M/s Huawei Technologies Co. Ltd (HTCL), M/s Sojitz Corporation (SC) their financial partner based in Japan, several individuals working for these organizations, and Punjab Communications Limited (PCL), a public sector undertaking, which had participated in the auction and had entrusted supplies to VMCL. BSNL was also visited with penalty. In the appeals, filed against the orders passed by the adjudicating authorities, the CESTAT was mainly called upon to examine whether PISL and VMCL had deliberately shown the software, embedded in the system imported by them and supplied to BSNL, as separately imported customised software only to evade payment of customs duty on the software portion of the imported equipment. In the applications filed by the appellants he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave rise to a substantial question of law; the appellants were ready to deposit a further sum of ₹ 10 crores; this Court should direct waiver of pre-deposit for the balance amount, pending disposal of the appeals by the CESTAT; and, even otherwise, failure to deposit the amount, as directed by the CESTAT, would not result in dismissal of the appeals. Learned Senior Counsel, while referring to the judgment of the Calcutta High Court in Promising Exports Ltd v Union of India (2009) 243 ELT 3 in this regard, would fairly state that the said judgment has been overruled by a Division bench of the Calcutta High Court in Commissioner of Central Excise v Shree Gobinddeo Glass Works (2011) 263 ELT 178. On the other hand Sri Gopalakrishna Gokhale, Learned Standing Counsel for Central Excise, would submit that the CESTAT has passed an elaborate and well considered order; in the orders under appeal, the CESTAT had considered the question of financial hardship also; refusal by CESTAT to waive pre-deposit of customs duty, interest thereon, and a part of the penalty is on a detailed analysis of the evidence on record; failure of the appellants to deposit the amount, as directed by the CE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G, 32 channel and 10G, 40 channel, to be sourced only from domestic manufacturers. The bidders were all domestic manufacturers, including PISL and VMCL who, in turn, entered into an agreement with HTCL for import of the equipment. PISL and VMCL entered into agreements with SC which acted as their financial partner to make payment, through letters of credit, to HTCL after the equipments were dispatched. In the orders under appeal, the CESTAT noted that, when the software is embedded in the equipment itself and not supplied separately, the value of such embedded software is required to be included in determining the assessable value of the equipment; the General Manager of VMCL had admitted that the software received by them was embedded in the equipment, they had imported blank CDs mis-declaring them as customized software only to reduce their customs duty liability, and they were forced to resort to this modus operandi because of stiff competition in the tendering process of BSNL; the Senior Manager of VMCL had admitted that the software in the system was already loaded by the suppliers; the Senior Purchase Executive of VMCL had stated that he was advised, by the Managing Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borated by the statement that more than 16,000 CDs were burnt by the appellants; under the agreement between HTCL and the importer, the software was defined only as embedded software; the software was imported through one port, and the hardware through another; and the appellants had planned and conspired to avoid customs duty. After extracting the contents of the test report, the CESTAT further observed that the hardware equipment contained embedded software; the software in the CDs was not required for the equipment to function; the departments case was not only based on statements, but also on the CDs which contained 70 KB text data unconnected to the software; scrutiny of the records showed that the appellants had deliberately imported hardware and software separately, and the imported CDs were totally useless and unconnected with the equipment; there was enough evidence to show that the labels on the CDs were manipulated, and the CDs supplied were never used by the BSNL staff; and no software could have been recorded into the equipment since the equipment did not have any such system. I. THE SCOPE OF SECTION 129-E OF THE CUSTOMS ACT AND ITS PROVISO: In considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Collector (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 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. Provided that 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. The right of appeal is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions, it is upon fulfilment of these conditions that the right becomes vested in, and exercisable by, the appellant. The proviso gives a discretion to the authority to dispense with the obligation to deposit in case of undue hardship . It is a discretion vested in an obligation to act judicially and property. That discretion must be exercised on relevant material, honestly, bonafide and objectively. Once that position is established it cannot be contended that there was any improper exercise of the jurisdiction. (Vijay Prakash D. Mehta AIR 1988 SC 2010). The main section (Section 35-F of the Central Excise Act and Section 129-E of the Customs Act) makes pre-deposit mandatory in order to avail the remedy of an appeal before the CESTAT. The first proviso, an exception to the general rule, confers power on the CESTAT to dispense with such deposit subject to such conditions as may be imposed so as to safeguard the interests of revenue if the demand would cause undue hardship . The question of dispensing with pre- deposit would arise only when the duty demanded, or the penalty levied, would cause undue hardship to the appellants, and not otherwise. Any order to dispense with p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucational Committee, Poranki, Vijayawada (Judgment of A.P. High Court Division Bench in CEA No.301 of 2010 dated 19.01.2011)). Two significant expressions, used both in Section 35-F of the Central Excise Act and Section 129-E of the Customs Act, are undue hardship to such person and safeguard the interests of the Revenue. While considering the application, seeking waiver of pre-deposit, these twin requirements should be kept in view. Use of the word undue would mean something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant. Undue means something which is not merited by the conduct of the claimant, or is disproportionate to it. For a hardship to be undue it must be shown that the burden to observe or to perform is out of proportion to the nature of the requirement, and the benefit which the applicant would derive from its compliance. Undue hardship is a matter within the special knowledge of the applicant, and must be established by him. A mere assertion of undue hardship would not suffice. The expression undue hardship is, ordinarily, related to economic hardship. The Tribunal is required to consider the question wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly or partially) of pre-deposit of duty, interest and penalty is not acceded to, and the need to safeguard the interests of revenue (6) when the Tribunal decides to grant full or partial stay, it is imperative that it imposes such conditions as may be necessary to safeguard the interests of revenue; and (7) an appellate Tribunal, being a creature of the Statute, should be guided by the conditions stipulated in the statutory provision while exercising powers expressly conferred or those incidental thereto. (M/s. Sri Chaitanya Educational Committee, Poranki, Vijayawada (Judgment of A.P. High Court Division Bench in CEA No.301 of 2010 dated 19.01.2011)). As noted hereinabove, both VMCL and PISL were required to deposit the entire amount of differential duty, not covered by the bank guarantees, within twelve weeks from the date of receipt of the order, and report compliance by 27.10.2014; they were directed to pay the principal, ascertain the interest payable from the department, and pay the same; the department was permitted to encash the bank guarantees; the other appellants were directed to pre-deposit 10%, 5% and 1% of the penalty imposed by the adjudicating authorities; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r relating, among other things, to the determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law. The right of appeal to the High Court against the order of the CESTAT, under Section 130 of the Customs Act, 1952, is available only if a substantial question of law arises for consideration. The word substantial, as qualifying a question of law, meansof having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contra-distinction withtechnical, of no substance or consequence. In enacting Section 130 of the Customs Act, 1952 Parliament has chosen not to qualify the scope of a substantial question of law by suffixing the words of general importance thereto, as has been done in Article 133(1)(a) of the Constitution. The substantial question of law need not, therefore, necessarily be a substantial question of law of general importance, but a substantial question of law involved in the case. (Guran Ditta v. T. Ram Ditta AIR 1928 PC 172; Boodireddy Chandra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter, either ignoring or acting contrary to such legal principles. In the second type of cases, the substantial question of law arises not because the law is still debatable but because the decision, rendered on a material question, violates the settled position of law. (Boodireddy Chandraiah (2007) 8 SCC 155). When a question of law is fairly arguable, where there is room for difference of opinion on it or where the Court has thought it necessary to deal with that question at some length and discuss alternative views, then the question would be a substantial question of law. On the other hand if the question is practically covered by the decision of the highest Court, or if the general principles to be applied in determining the question are well settled and the only question is of applying those principles to the particular facts of the case, it would not be a substantial question of law. (Boodireddy Chandraiah (2007) 8 SCC 155; Chunilal V. Mehta AIR 1962 SC 1314; Rimmalapudi Subba Rao v. Noony Veeraju AIR 1951 Mad 969). Where it is found that the Tribunal has assumed jurisdiction which did not vest in it, the same can be adjudicated treating it as a substantial question of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty which they had, prima facie, evaded hoodwinking the authorities concerned into believing that the imported equipment did not contain software, and that customised software for such equipment was being imported separately. This elaborate ruse, the CESTAT prima facie held, involved several players both within the country and abroad including all the appellants herein. The facts, as noted in the order of the CESTAT, show that, though the software was embedded in the imported equipment, blank and useless CDs were imported in huge quantities to mislead the authorities into believing that these CDs contained customised software to be loaded into the imported equipment later. The invoices, for the imported equipment, were manipulated, and separate invoices for the alleged customised software were created only to evade customs duty. The prima facie findings recorded by the CESTAT are largely based on the admissions of various persons, and the statements recorded in this regard. Mere appreciation, of facts or the documentary evidence cannot be held to give rise to a substantial question of law. Where the Tribunal is shown to have exercised its discretion in a judicial manner, it cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to the High Court, we are satisfied that, in the facts and circumstances of the present case, no view, other than that formed by the CESTAT, is possible. It is wholly unnecessary for us to dwell on this aspect any further as Sri S. Ravi, Learned Senior Counsel, has not disputed any of the prima facie findings recorded by the CESTAT. As the CESTAT has only directed that the customs duty, payment of which was evaded to be paid earlier, be paid along with interest, and has waived a substantial part of the penalty for some of the appellants, and in its entirety for a few others, the orders under appeal cannot be said to suffer from a patent illegality giving rise to a substantial question of law necessitating interference in an appeal under Section 130 of the Customs Act. III. FAILURE BY THE APPELLANT TO COMPLY WITH THE ORDER, PASSED UNDER THE PROVISO TO SECTION 129- E OF THE CUSTOMS ACT, WOULD RESULT IN DISMISSAL OF THE APPEAL FILED BEFORE THE CESTAT: The only other submission urged by Sri S. Ravi, Learned Senior Counsel appearing on behalf of the petitioners, is that, notwithstanding the appellants failure to deposit the duty, interest and penalty, or their failure to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR 1988 SC 2010 ). On the question whether the insertion of sub-section (2-A) to Section 129-B of the Customs Act and Section 35-C of the Central Excise Act has brought a change to the law declared by the Supreme Court earlier, in Navin Chandra Chottelal AIR 1971 SC 2280 and Vijay Prakash D. Mehta AIR 1988 SC 2010 , it is necessary to read Section 35-C (2A) of the Central Excise Act in juxta-position with Section 129-B(2-A) of the Customs Act. Section 35 C of the Central Excise Act Orders of Appellate Tribunal (2A) The Appellate Tribunal shall, where it is possible to do so, hear and decide every appeal within a period of three years from the date on which such appeal is filed: 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. Provided also that where such appeal is not disposed of wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section 2-A of Section 35-C of the Central Excise Act (similar to Section 129-B of the Customs Act, 1952), fell for consideration before the Calcutta High Court in Promising Exports Limited (2009) 243 ELT 3. A learned Single Judge of the Calcutta High Court held that the second proviso to Section 35C(2A) postulated automatic vacation of the order of stay, if the appeal was not disposed of within a period of one hundred and eighty days; there was no question of extension of an order of stay; in a case where the order of stay, passed by the Tribunal, was automatically vacated there were no fetters on the Revenue, in order to safeguard public revenue, from recovering the sum due; after vacation of the order of stay, it was the appeal which remained; in that case the Tribunal should, where it is possible to do so, hear and decide the appeal within a period of three years from the date on which such appeal was filed; the word Decide means to give a judgment concerning a matter or a legal case (Concise Oxford English Dictionary); decide would mean a decision or a judgment by the Tribunal on merits on every appeal which is pending; an application, for waiver of pre-deposit, is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Calcutta High Court was overruled by the Division bench of the Calcutta High Court in Shree Gobinddeo Glass Works Ltd. (2011) 263 ELT 178). The Division bench opined that they were unable to accept the reasoning and conclusion that the ratio of the judgments of the Supreme Court, in Navin Chandra Chottelal11 and Vijay Prakash D. Mehta AIR 1988 SC 2010, had no binding force or that, with the insertion of Section 35C(2A), the provision of pre-deposit, pending hearing of the appeal, has been rendered otiose; keeping in view the necessity of speedy disposal of revenue matters, the legislature had fixed a time limit under Section 35C(2A) which was not provided earlier; the three year period therein was substituted with 180 days whenever any interim order of stay is granted in an appeal; the second proviso of the said Subsection provides that, if for any reason the appeal is not disposed of where interim order of stay is granted, then the stay order shall, on the expiry of that period, stand vacated; the provision has nothing to do with the provision for pre -deposit pending hearing of the appeal; the provision for pre -deposit is an independent provision, and is attracted in selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time specified; and the reasoning of the Tribunal as expressed by the impugned order, and as expressed in the Larger Bench in IPCL (2004) 169 ELT 267, could not be faulted. The Supreme Court made it clear that they should not be understood as holding that any latitude was being given to the Tribunal to extend the period of stay, except on good cause and only if it is satisfied that the matter could not be heard and disposed of by reason of the fault of the Tribunal for reasons not attributable to the assessee. After the judgment of the Supreme Court, in Kumar Cotton Mills Pvt. Ltd3, a third proviso was inserted to Section 35-C (2-A) of the Central Excise Act, and Section 129-B (2-A) of the Customs Act, w.e.f. 10.05.2013, conferring power on the Tribunal to further extend the period of stay. As held by the Division Bench of the Calcutta High Court, in Shree Gobinddeo Glass Workd Ltd2, Section 35-F of the Central Excise Act (similar to Section 129-E of the Customs Act) is independent of Section 35-C(2A) thereof (similar to Section 129-B (2-A) of the Customs Act). From the tabular statement extracted earlier in this order, it is clear that the provisions of Section 129(1) of the Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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