JUDGMENT A.K. Yog and Dilip Gupta, JJ.
1. Present writ petition, under Article 226 of the Constitution of India is preferred by the petitioner against the impugned order dated August 29, 2005 passed by the Commissioner (Appeals), Customs and Central Excise, Meerut-II (NOIDA)/respondent no. 4 on the application moved by the petitioner for dispensing with the deposit of duty and the penalty demanded.
2. The petitioner M/s. Moriroku UT India Pvt. Ltd. B-6-11, Sector-81, Phase-II, NOIDA Distt. Gautam Budh Nagar-UP filed an appeal along with stay application, being aggrieved by the Order-in-Original No. 12/ST/DC/NOIDA/2005 dated 28.1.2005 passed by the Deputy Commissioner, Central Excise, Div-IV, NOIDA/respondent no. 6 as provided under Section 35 of Central Excise Act, 1944 (hereinafter referred to as the 'Act'). Section 35 F of the Act for convenience is reproduced below:-
" 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. "
3. The Appellate Authority in the impugned order observed as follows:-
"This is an arguable case and there are various judgments of higher forums from both the sides on this issue. Though they have prayed to dispense with pre-deposit of Service Tax, interest and penalties on the ground of financial hardship but no documentary proof has been submitted in support of the same". However, in the interest of justice the Appellants are directed to deposit the amount equivalent to demand of Service Tax, Rs. 15, 13,017/- only. 1 stay the operation of the impugned order in original for rest of the amount. The said amount of Rs. 15,13,017/-should be deposited within three, weeks from the date of receipt of this order and proof regarding the deposit of the same duly verified by the jurisdictional Officer must be produced to this office. Failing which the appeal may be dismissed without any further reference. "
4. The petitioner being aggrieved by the aforesaid impugned order has come up before this Court contending that the Appellate Authority has failed to discharge its statutory obligations inasmuch as it has ignored the relevant circumstances and the decisions of various High Courts (including this Court) and that of the Apex Court which provide that in case of strong prima facie case the Appellate Authority must exercise its power of dispensing with the condition of pre-deposit for hearing the appeal on merit. The other argument of the petitioner is that the Appellate Authority has committed a mistake manifest on the face of the record in refusing to waive off imentirety the condition of pre-deposit by making an observation that "...though they have prayed to dispense certain interest and penalties on the ground of financial hardship but no documentary proof has been submitted in support of the same...."
5. In this context our notice is drawn to paragraphs 6 and 7 of the application filed under Section 35F seeking stay of the operation of the Order-in-Original dated 28th January, 2005 and dispensing with the pre-deposit. These paragraphs make reference to certain documents in the form of annexures A, B and C. Aforesaid paragraph Nos. 6 and 7 are reproduced below:-
"6. The Appellant company was incorporated in the year 1996 and is a highly capital intensive industry requiring large capital investment with lower returns. This had resulted into very heavy losses. Even in the 9th Year of incorporation MUIPL had brought forward losses of Rs. 1.22 Crore. Till March, 2004 MUIPL had invested Rs. 27 Crore in its project. In this respect, a copy of the Annual Report of the Applicant for the year 2003-2004 is annexed hereto and marked as Annexure-"A".
MUIPL is in the process of expansion and for this purpose looking for money from different sources. Recently the company has been sanctioned the borrowing limit of Rs. 15 Crore by Mizuho Corporate Bank. Company has also been sanctioned loan facility of Rs. 3 Crore by Bank of Tokyo Mitsubishi Ltd. In this respect, copies of the correspondence exchanged with the Applicant are annexed hereto and marked as Annexure-"B" Colly.
The new capital investment plan is for Rs. 19 Crore to be completed by March, 2006. Copies of the statement along with the documents establishing the concrete steps and measures takes by the Applicant to implement the said expansion plan are annexed hereto and marked as Annexure-"C" Colly. However, the present impugned order, which is in blatant disregard of the well settled law unless stayed till the decision in the accompanying Appeal > would be a deterrent and add to the financial hardships being faced by MUIPL and would counterblast all the maneuvers of MUIPL towards expansion.
7. The balance of convenience weighs heavily in favour of the Appellant and against the Department, No hardship would be caused to the Department in case the present Application is allowed as prayed for and on the contrary in case the' relief as prayed is not granted to the Appellant, the letter will face irreparable loss and injury. "
6. Learned counsel appearing for the Revenue has failed to point out any reference in the impugned order to the averments and the documents made in the afore quoted paragraphs 6 and 7. To this extent we find that Appellate Authority has failed to take notice of the necessary circumstances and the documents filed as annexure-A, B and C (referred to in afore-quoted paragraphs 6 and 7) while considering the question of dispensation of the condition of pre-deposit.
7. The learned counsel for the petitioner, in order to reinforce his contention for complete waiver of the condition of pre-deposit, submitted that the Appellate Authority having found that appeal before the said Authority was "an arguable case", it prima facie indicates that the appellant had a strong prima facie case. Reliance has been placed upon the case of Bongaigaon Refinery & Petrochem Ltd. v. Collector of Central Excise (A), 1994 (69) E.L.T. 193(Cal), in which on Calcutta High Court, while examining a similar issue and placing reliance upon a large number of judgments held that the phrase "undue hardship" would cover a case where the appellant has a strong prima facie case and the phrase also covers a situation where there is an arguable case in the appeal. If the Appellate Authority forms the opinion that appellant has a strong prima facie case, it should dispense with the pre-deposit condition altogether. However, where it is of the opinion that/the appellant has no arguable case, the Appellate Authority must safeguard the interest of the Revenue, as the same also cannot be jeopardised.
8. Learned counsel for the Revenue on the other hand submitted that there is no finding/observation in the impugned order that the petitioner/appellant had a 'strong prima facie' case.
9. Before we proceed to test the soundness of the impugned order passed in the instant case while refusing to exercise its power to waive condition of pre-deposit in its entirety, we may refer to certain decisions of the Courts.
10. In I.T.C. Ltd. v. Commissioner of Central Excise and Customs (Appeals) and Ors. ILR 2000 Kar. 25, the Karnataka High Court while examining the issue of pre-deposit under Section 35 of the Act, after considering a large number of judgments of the Apex Court and various High Courts, it was held as under:-
"While considering the case of 'undue hardship', the authority is required to examine the prima facie on merits of the dispute as well Pleading of financial disability would not be the only consideration. Where the case is fully covered in favour of the assessee by a biding precedent like that of the judgment of the Supreme Court, jurisdictional High Court or a Special Bench of the Tribunal, then to still insist upon the deposit of duty and penalty levied would certainly cause undue hardship to the assessee. Absence of the financial hardship in such a case would be no ground to decline the dispensation of pre-deposit under the proviso to Section 35F. The power to dispense with such deposit is conferred under the authorities has to be exercised precisely in cases like this type and if it is not exercised under such circumstances then this Court will require it to be exercised. Such like cases where two views are not possible then the condition of pre-deposit before the appeal is heard on merits, can be dispensed with. In case two views are possible on interpretation, based on conflicting judgments of the Tribunal or different High Courts in the absence of the judgment of the jurisdictional High Court then the authorities may pass the order under proviso to Section 35F of the Act keeping in view the facts of the case in hand. "
11. In Hoogly Mills Co. Ltd. v. Union of India, 1999 (108) E.L.T 637 the Calcutta High Court again reiterated the view that if the appellant has a strong prima facie case, he is entitled for waiving of the pre-deposit condition and in case the Appellate Authority insists for deposit of the amount so assessed or penalty so levied, it will cause undue hardship to the assessee. While considering the said case, the Court placed reliance upon the large number of judgments including Tata Iron & Steel Co. Ltd. v. Commissioner (Appeals), Central Excise, ; Hari Fertilizer v. Union of India, 1985 (22) E.L.T. 301 (All.); Re. American Refrigeration Co. Ltd., 1986 (23) E.L.T. 74; and V.I.T.. Sea foods v. Collector of Customs, 1989 (42) E.L.T. 220 (Ker.), wherein the Courts had expressed the similar view.
12. In J.N. Chemicals Pvt Ltd. v. CEGAT, 1991 (53) E.L.T. 543, the Calcutta High Court while considering the provisions of pre-deposit of duty and penalty, observed that where the authority concerned comes to the conclusion that the appellant has a good prima facie case so as to justify the dispensation of requirement of pre-deposit of the disputed amount on duty and penalty, the authority must exercise its discretion to dispense with such requirement particularly in a case where the appellant satisfies the authority concerned that its case is squarely covered by the decision of a competent Court binding on it'. In such an eventuality, asking the appellant to deposit the duty demanded the penalty levied would undoubtedly cause undue hardship to the appellant. While deciding the said case, Calcutta High Court placed reliance upon the judgment of the Hon'ble Apex Court in L. Hirday Narain v. Income-Tax Officer, Bareilly, , wherein the Court observed as under :
"if a statute invests a public officer with authority to do an act in a specified set of circumstances, it is imperative ' upon him to exercise his authority in a manner appropriate to the case when a party interested and having a right to apply moved in that behalf and circumstances for exercise of authority are shown to exist. Even if the words used in the statute prima facie enabling, the courts will readily infer a duty to exercise power which is invested in aid of enforcement of a right-public or private - of a citizen. "
13. In Andhra Civil Construction Co. v. CEGAT, , the Madras High Court has emphasized that unless a very strong prima facie case is made out, stay should not be granted.
14. In B.P.L. Sanyo Utilities and Appliances Ltd. v. Union of India, 1999 (108) E.L.T. 621, the Karnataka High Court held that in the matter of grant of waiver of pre-deposit, each case has to be examined on its own merit and no hard and fast rule can be formulated.
15. In Income-tax Officer v. M.K. Mohammad Kunhi, AIR 1969 SC 430, the Supreme Court held that stay should be granted if a strong prima facie case 'has been made out and in the most deserving and appropriate cases where entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue, during the pendency of the appeal.
16. In Mehsana District Cooperative Milk P.U. Ltd. v. Union of India, , the Supreme Court considered the case of dispensation of pre-deposit condition and held that the Appellate Authority must address to itself to the prima facie merits of the appellant's case and upon being satisfied of the same, determine the quantum of deposit taking into consideration the financial hardship and other such related factors.
17. In Sri Krishna v. Union of India 1998 (104) ELT 325 (Del) the Delhi High Court observed thus:-
" Suffice it to observe that while disposing of an application under Section 129 of the Customs Act, 1962 the Tribunal is obliged to adhere to the question of undue hardship. The order of the Tribunal should show if the pleas raised before it, it have any merit prima facie or not. If the appellant has such a prima facie strong case as is most likely to exonerate him from payment and still the Tribunal insists on the deposit of the amount it would amount to undue hardship. "
18. In Delhi Administration v. Manohar Lal, , the Supreme Court held that power vested by Statute in a public authority should be viewed as a trust coupled with duty to be exercised in larger public and social interest and no authority including the appropriate Government can be permitted to act in a routine course to exercise its powers as its sweet will, pleasure and whim or fancy, for the reason that if any authority is permitted to act as it wants to, it will reduce the legislative will to a mere dead letter at the whim of such an authority.
19. A provision of appeal is a substantive right which is a statutory creation in the wisdom of the Legislature and it can also impose condition precedent, like pre-depos't for the purposes of hearing appeal. Courts should not interfere but must ensure strict compliance of the statutory provisions but if the Legislature, in (sic) wisdom, while imposing conditions confers power to waive one or all such conditions like pre-deposit in certain condition/situations the concerned Authority is under a statutory obligation and bound to examine whether the relevant conditions are fulfilled or not so as to dispense with or waive the condition of pre-deposit. The issue, in view of the decisions referred to above is no more res integra.
20. The Appellate Authority is required to read the ratio in a harmonious manner keeping in mind the object of the Legislature while providing for waiving of the condition of pre-deposit. Vide the provision contained in Section 35F of the Act, the basic criterion is 'undue hardship' to a person concerned in forcing the said person to deposit the duty/penalty demanded and levied and by dispensing with the condition of pre-deposit it has to 'safeguard the interest of revenue'. While considering the question of dispensing with condition of pre-deposit. in the facts of a case, the Appellate Authority has been given wide powers as is apparent from the fact that it can dispense with the condition of pre-deposit in part or in whole 'subject to such condition as it may deem fit to impose'. There is no doubt that when Legislature provides enabling or discretionary power upon a public authority, even though the words are permissive in character, the concerned authority is required to exercise that power reasonably on relevant considerations and not in a arbitrary or mala fide manner particularly when such exercise of power involves legal right or entitlement or enjoyment and for effectuating such right in favour of someone. The aforesaid view stands fortified in view of the fact that the Court/Tribunal/Authority has to proceed giving strict adherence to the provisions of law. Reference may be made in the cases of Julius v. Lord Bishop of Oxford, (1880) 5 Appeal Cases 214; Commissioner of Police, Bombay v. Gordhandas Bhanji, ; K.S. Srinivasan v. Union of India and Ors., ; Yogeshwar Jaiswal v. State Transport Appellate Tribunal, ; Ambica Quarry Works etc. v. State of Gujarat and Ors., .
21. In view of the observations made by this Court in the case of Mehsana District Cooperative Milk P.U. Ltd. (supra) it is clear that the Appellate Authority should not grant interim relief/stay of the recovery merely on the asking of the appellant. The Appellate Authority has to maintain a balance between the rights of the individuals and the revenue so far as the recovery of sovereign dues is concerned. While considering the application for stay/waiver of a pre-deposit, as contemplated in relevant provisions, the Appellate Authority has to apply its mind as to whether the appellant has a strong prima facie case (i.e. arguable case) on merit. It may be clarified that when the ' Appellate Authority feels that there is a binding decision of the Supreme Court or High Court or a Tribunal or the like and there are fairly good chances or strong chances of the appeal being eventually decided in favour of the appellant, it shall constitute only one of the relevant circumstances to lean in favour of granting dispensation/waiver of condition of pre-deposit. It will be too much to construe that in case the Appellate Authority feels that appellant has a strong prima facie case it must waive the condition of pre-deposit without taking into account the other relevant considerations for deciding the undue hardship to the appellant considering particularly the financial position as well as the interest of the Revenue. For example there may be a case where the appellant is very sound financially but the Appellate Authority may have information or material that by the time the appeal is to be finally decided, the appellant will not be available. It will be justified to refuse the grant of waiver of the condition of pre-deposit. At the same time the condition of pre-deposit may have some strong impact on another person who may not be financially sound and so cause undue hardship. Not only this, even if the Appellate Authority is of the opinion that appellant has a very strong prima facie case, it may not be dispense with the condition of pre-deposit in its entirety but for cogent and good reason, relevant to the case before it ask for partial dispensation of this. An Appellate Authority has to do so by applying its mind to the material on record as well as the relevant circumstances pertaining to each case. It may also be clarified that financial hardship as such, without taking into account the other relevant fact or circumstances is of no consequence. Whenever the appellant is required to make a pre-deposit, it will be a case of financial hardship. The question, for consideration will be as to whether such financial hardship causes 'undue hardship' i.e. by imposing the condition of pre-deposit the very purpose of filing of appeal itself may not be reduced nugatory or illusory for the appellant.
22. From a perusal of the impugned judgment and order dated 29.8.2005 it is manifestly clear and apparent on the face of the record that the Appellate
23. Authority has failed to take into consideration the principles laid down by this Court/Apex Court in the aforementioned judgment and hence the said judgment and order cannot be sustained and is liable to be set aside.
24. Apparently the Appellate Authority has not taken into consideration the precedent laid down by this Court in Civil Misc. Writ Petition No. 1219 of 2003, I.T.C Ltd. v. Commissioner (Appeals), Customs & Central Excise and others, decided on 23.10.2003, wherein this Court has held as under:-
"In view of the above, the aforesaid authorities make it clear that the Court should not grant interim/relief stay of the recovery merely asking of a party. It has to maintain a balance between the rights of an individual and the State so far as the recovery of sovereign dues is concerned. While considering the application for stay/waiver of a pre-deposit, as required under the law, the Court must apply its mind as to whether the appellant has a strong prima facie case on merit. In case it is covered by the judgment of a Court/Tribunal binding upon the Appellate Authority, it should apply its mind as to whether tin view of the said judgment, the appellant is likely to succeed on merit. If an appellant having strong prima facie case, is asked to deposit the amount of assessment so made or penalty so levied, it would cause undue hardship to him, though there may be no financial restrain on the appellant running in a good financial condition. The arguments that appellant is in a position to deposit or if he succeeds in appeal, he will be entitled to get the refund, are not the considerations for deciding the application. The order of the Appellate Authority itself must show that it had applied its mind to the issue raised by the appellant and it has been considered in accordance with the law. The expression ''undue hardship" has a wider connotation as it takes within its ambit the case where the assessee is asked to deposit the amount even if he is likely to exonerate from the total liability on disposal of his appeal. Dispensation of deposit should also be allowed where two views are possible. While considering the application for interim relief, the Court must examine all pros and cons involved in the case and further examine that in case recovery is not stayed, the right of appeal conferred by the legislature and refusal to exercise the discretionary power by the authority to stay/waive the pre-deposit condition, would be reduced to nugatory/illusory. Undoubtedly, the interest of the Revenue cannot be jeopardized but thai does not mean that in order to protect the interest of the Revenue, the Court or authority should exercise its duty under the law to take into consideration the rights and interest of an individual. It is also clear that before any goods could be subjected to duty, it has to be established that it has been manufactured and it is marketable and to prove that it is marketable, the burden is on the Revenue and not on the manufacturer.
"In view of the above, we are of the considered opinion that as the Appellate Authority has not addressed to itself any of the issues involved in the appeal rather has gone to the issue of financial hardship which was unwarranted and uncalled for in the fact situation of this case. The order impugned cannot be sustained in the eyes of law and we have no option but to allow this petition and set aside the order impugned."
25. In the result the impugned judgment and order dated 29.8.2005 (Annexure-1 to the writ petition) passed by the respondent no. 4 is hereby set aside with the direction to decide the stay application afresh after giving opportunity to the parties in the light of the observations made above.
26. The writ petition stands allowed. The Appellate Authority/respondent no. 4 is directed to decide the application expeditiously preferably within a period of four weeks from the date of receipt of a certified copy of this order.
27. There shall be no order as to costs.