Samuel Alito said – A judge can’t have any preferred outcome in any particular case. The judge’s only obligation – and it’s a solemn obligation – is to the rule of law.
Language is an imperfect medium of conveying intent is well documented. However, since no other means of communication exists, language is by default the means of communication. The impasse that we find ourselves today is not because of language though. The solution to the problem of pre deposit has proven to be more expensive than the problem due to application of unheard of principles of interpretation to various sub-clauses in one provision. Section 35F of the Central Excise Act, 1944 & 129E of the Customs Act, 1962 (CA) were amended w.e.f. 6.08.2014, where the fundamental purpose of the amendment, was “to reduce the burden of the Tribunals”. Whether the recent Larger Bench decision dated 20.04.2017 furthers this objective, is the topic of this paper.
The sections are not abstracted herein to reduce the size of an already lengthy paper. Readers may refer to the same separately. What emanates, for me, from a careful reading of the provisions of section 35F of the Central Excise Act, 1944 (CEA) and section 129E of the Customs Act, 1962 (CA) is –
The Commissioner (Appeals) shall not entertain an appeal:-
i. Where an order is passed by an officer lower in rank than a Principal Commissioner / Commissioner and the appeal lies before the Commissioner (Appeals) the Appellant has pre deposited 7.5% of the duty or penalty pursuant to a decision or order passed by an officer lower in rank than a Principal Commissioner / Commissioner
ii. Where the order is passed by Principal Commissioner / Commissioner and appeal lies before the Tribunal 7.5% of the duty or penalty pursuant to a decision or order appealed against
iii. Where the appeal lies to the Tribunal from the order at sl.no. i above on payment of 10% of the duty or penalty pursuant to a decision or order appealed against.
The heading of section 35F & 129E of the CA read: – SECTION 35F. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. SECTION 129E. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. Though heading of a section cannot be used in interpreting the provision, it nevertheless sheds some light in the eventuality that the provision has to be interpreted.
The critical aspects which emerge from the above provision are that the appeal at sl.no.iii above is a fall out of sl.no.i. In other words sl.no.iii is inaccessible unless sl.no.i is exhausted. I’m not getting into the concept of doctrine of merger of order’s here, though it is a relevant aspect which also has to be factored. Unless and until an Appellant exhausts sl.no.i, he cannot approach sl.no.iii. Both the sub-clauses i.e. section 35F & 129E (i) & (iii) are therefore linked and cannot be read de-hors each other. I note that this aspect of linkage between 35F & 129E (i) & (iii) does not find a mention in the LB order nor in the CBEC Circular or other relevant decisions cited in the LB decision. It is therefore possible that this aspect was missed out. The principle of law i.e. per-incurim and sub-silentio may be applicable to the decision of the LB since it has the possibility of being applied as a precedent. Which brings me to – Whether it is incumbent on judges to take cognizance of law / legal aspects which have not been brought to their notice? As per Supreme Court decisions it is obligatory on the part of judges to take cognizance of aspects though not brought to their notice. This is not an issue under deliberation and hence not pursued.
I have no doubts in my mind about the % of pre deposit to be made when an appeal lies before the Tribunal arising out of an order of the Commissioner (Appeals). Section 35F of the CEA and 129E of the CA have no ambiguity whatsoever, if one attempts to understand the provision holistically given the entire circumference of the reason for the amendment and subsequent clarification by the CBEC. In short ambiguity is conspicuous in the sections by its absence.
The purpose of amending section 35F of the CEA and 129E of the CA arose because of the huge pendency before the Tribunals across the country and because main / regular appeals were not disposed off and stay matters kept piling up and the entire time of the Tribunals was gainfully employed in hearing the stay applications. The Finance Minister at paragraph 252 of Budget speech of 2014-15 has clarified on the purpose of the amendment to section 35F of the CEA and 129E of the CA – “To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal”. The purpose of the amendment is therefore known and there can be no escaping this knowledge. How far this amendment has achieved the purpose ought to have been a question which the LB ought to have asked itself. In 2014 vide Circular No.984/8/2014-CX dated 16.09.2014 (which Circular was further clarified by another Circular) the CBEC in its usual wisdom on receipt of doubts clarified at Para 2.1 that “it is therefore, clarified that in the event of appeal against the order of Commissioner (Appeals) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals).
Para 3.1 clarifies “3.1 Payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10%, subject to the limit of Rs. 10 crores, can be considered to be deposit made towards fulfilment of stipulation under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962”
Para 3.2 Since the amount paid during investigation/audit takes the colour of deposit under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962 only when the appeal is filed, the date of filing of appeal shall be deemed to be the date of deposit made in terms of the said sections.
Interpretation of the amended section 35F of the CEA and 129E of the CA, if any, therefore ought to have adopted the above approach keeping within their sights the above background and backdrop of the clarification given by the Finance Minister on the floor of the Parliament and the clarification by the CBEC. Both these clarifications when read with the sections 35F & 129E and when the provisions including all sub-clauses are holistically appreciated (not independently but holistically) would bring out the aspect that firstly the amendment should not be interpreted so as to give rise to more litigation and that any interpretation to the provision should not fuel litigation but ought to reduce it and enable Tribunals to dispose of main appeals. Secondly that when the amount deposited during investigation is to be reckoned towards pre deposit, the amount of pre deposit made before the Commissioner (Appeals) also ought to be reckoned for the purpose of fulfilling the condition precedent of pre deposit in appeals before the Tribunals where the adjudication is by officers lower in rank than the Principal Commissioners / Commissioners.
The question now determined by the Larger Bench of the CESTAT in Order No.39/2017 dt.20.04.2017 is on the issue where appeal lies before the Tribunal when Commissioner (Appeals) has passed an order contested by the taxpayer. Whether on appeal to the Tribunal only the differential 2.5% (10% – 7.5% already pre deposited) is to be paid or an additional 10% ignoring the earlier pre deposit is to be paid ought not to have been an issue, given the speech on the floor of the Parliament by the Finance Minister as also the words employed in section 35F of the Central Excise Act, 1944 (CEA) or 129E of the Customs Act, 1962 (CA) as also the clarification given in the Circular of 2014 in Para 3.
The determination of the answer to this issue is factual because pre-deposit is a legislative prescription by the Parliament to exercise the right of appeal – it is not an absolute right i.e. reasonable restrictions can be placed on the exercise of this right, it being a statutory right. Section 35F of the CEA and 129E of the CA in the amended form were brought into force with effect from 6.08.2014 where the Finance Minister in the Budget of 2014-15 stated in his speech at paragraph- 252 “To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal”. Emphasis in bold supplied. The interested reader may refer to the decisions of the apex court in Vijay Prakash D. Mehta Vs. CC, 1989 (39) ELT 178 (SC) and Bhavya Apparels Pvt., Ltd., Vs. UOI, 2007 (216) ELT 347 (SC), for more insight on the aspect of pre deposit. Also to CC & E, Vs. A. S. Bava, 1978 (2) ELT J333 (SC).
This brings us to the next question – what happens to the pre-deposit made before the first appellate authority when the second appeal is to be preferred before the Tribunal? The Larger Bench in their wisdom have determined at Para 6.1 that pre deposit needs to be refunded in accordance with law. At Para 6.2 they state that the pre deposit needs to be decided in accordance with law. Whether the Finance Minister’s speech and intent of bringing in mandatory pre-deposit vide ss. 35F of the CEA & 129E of the CA would be fulfilled given the LB’s approach, is a question best left unanswered. The propensity that the LB’s decision has to further lis interpreting a provision intended to reduce the existing burden of lis, is an example of paradox.
What is concerning is whether judges are aware of their mandate when they decide cases sitting on benches as “their lordships”, that they owe a responsibility to the litigating public as also to uphold the rule of law, the latter of which ought to be foremost on any judges mind as stated in the preamble to this paper.
The decision of the Larger Bench raises these three fundamental questions:-
- Is the decision just?
- Is the decision fair?
- Is the decision judicious?
The above questions lead me to another issue – Should a decision be just, fair and judicious? To me personally, the answer is in the affirmative. This is because the judges are on the bench to render / deliver justice over everything else. In doing justice due care and attention ought to be given to the language and the letter of the law and the letter of the law ought to be interpreted keeping in mind the spirit of the law. However, the language and the letter of the law ought to be interpretationally guided by the spirit of the provision rather than the letter. The overwhelming sense of justice ought to be the pervasive factor in deciding cases, nothing else. Justice not only to the facts / litigating populace but also to the rule of law.
The LB decision advances a proposition that sub-clauses in s.35F of the CEA & 129E of the CA have to be independently interpreted. This statement in the LB order, in my opinion has no basis. The question – Why should these sub-clauses be independently interpreted? is left to the realms of imagination. There is no light thrown on this aspect in the LB decision. I was unaware that sub-clauses in one provision have to be interpreted as independent provisions. If this be so – why were they enacted as sub-clauses and not separate sections by themselves? I was under a belief, being a student of Interpretation of Statute that the question of interpretation arises only when there is an ambiguity on a plain reading of a provision, “a provision” being the operative word. The provision sought to be interpreted presently is section 35F of the CEA and 129E of the CA. On a plain reading of the provision there is no ambiguity therein which calls for interpretative skills to be deployed to reach a conclusion. There exists no impasse when one reads the provision as a whole. Reading a provision as a whole is one of the principles of statutory interpretation, which principle did not find favour with the LB. The LB decision however with regard to the Circular of 2014 states that the same presents no ambiguity. I have never in my years of experience as a student and practitioner of law come across a principle of law laying down a principle that “created ambiguity” ought to be interpreted and a forced impasse resolved. The ambiguity may have been created by the CBEC by issuance of a Circular in 2014, but the LB states that the Circular did not create any ambiguity. This brings me to the principle of ex-abundant cautela – which may be the basis for issuance of Clarifications by way of Circulars where none are called for or required. Interpretation ought to be of a provision (provision being the operative word) irrespective of the number of sub-clauses.
The decisions cited in the LB decision may provide us with some answers. They therefore have to be carefully appreciated.
- Balajee Structural (India) Pvt., Ltd., This is not a reported decision.
- Hindalco Industries Ltd., & Ors Vs. CCE, 2016-TIOL-3050-CESTAT-KOL, the relevant part begins from Para 4 of the decision where the issue involved has been stated as whether Appellants are required to deposit an additional 10% of duty confirmed……….. This issue has been answered at Para 4.2 as neither section 35F(iii) of the CEA nor CBEC Circular dt.16.09.2014 specifically mention whether 10% deposit required before appeal is entertained should be inclusive of 7.5% deposit made before the first appellate authority………. After success at the level of the first appellate authority may be Legislature wants that the case has passed one test of first appeal successfully and Revenue deserves an additional 10% of the duty or penalty as deposit till the issue is finally decided in the second appellate stage. At Para 5 the conclusion – In view of the above Appellants were required to pay additional 10% deposit…………….
- ASR Multimetals Pvt., Ltd., & Ors- 2016-TIOL-3154-CESTAT-Ahm, where the only reference to the saga of s.35F & 129E is in paragraph 3. Paragraph 3 nowhere brings out the ambiguity in section 35F of the CEA or 129E of the CA. Further, the fact that what is paid before the Commissioner (Appeals) before preferring a first appeal is an amount of pre-deposit of 7.5% has also not been appreciated as a fact.
Where is the justice or the rationale in not adjusting former pre-deposit against future pre-deposit when the deposit made at the time of investigation (as clarified in the Circular) is to be adjusted against pre deposit to be paid at any stage be it Commissioner (Appeals) or at the stage of the Tribunal? What is the difference between the pre-deposit made before preferring an appeal before the Commissioner (Appeals) and before preferring an appeal before the CESTAT? Why is it that functionaries of our system don’t function with a sense of serving the public and always serve the mandarins in the North Block? Why is it that benefits never percolate to the deserving but always have the capability of working to the deleterious interest of the litigating public?
The why’s, it appears are mightier than any answers.
The informed reader would do well to know that in the decisions cited and referred to by the Larger Bench there is not an iota of space dedicated on the ambiguity in the law i.e. the ambiguity in the provisions of section 35F of the CEA and provisions of section 129E of the CA. There is much on “created ambiguity” i.e. Balajee Structural (India) Pvt., Ltd., Hindalco Industries Ltd., & Ors and ASR Multimetals Pvt., Ltd. If these decisions were to be carefully read, what follows is that there is an affirmation of an opinion without any deliberation on the process of arriving upon such an opinion. That the provision reads so and so and that the conclusion is so and so. There is no discussion on why such an opinion is arrived upon. The basis of entertaining the conclusion is unknown. There is no deliberation on why such a conclusion is warranted given the Budget speech of the FM at Para 252. There is no discussion on what are the differences between pre-deposit made before various appellate authorities in the hierarchy of one department and deposit which can be adjusted paid even before the lis can commence against pre deposit payable after commencement of the list at the stage of appeal. There is no discussion on how factually the pre-deposit made before the first appellate authority would lose its contour as a pre-deposit when the balance is paid before the CESTAT. All these and many more questions remain unanswered. The manner in which conclusions are formed to look as ratios (albeit ostensibly) is turning bizarre in these testing times. The so-called discussion in ASR’s case is an opinion. Not a decision. The recent CBEC Circular on the process of adjudication and appeals may be gainfully referred to by the interested reader if justice is what is to be dispensed at the altar of the CESTAT. Reference to the following decisions of the apex court is invited to appreciate the meaning of a speaking decision – Kranti Associates P. Ltd., Vs. Masood Ahmed Khan, 2010 (9) SCC 496 also CIT Vs. Jagit Singh Chahal, 2014 (369) ITR 260 (P & H). Be that as it may, leaving aside the point that the order is not a speaking order, the question is whether the Larger Bench order is fair and judicious? Whether the order has done justice to the language employed in section 35F of the CEA and 129E of the CA?
In my opinion it has not. Now this is an opinion after due deliberation on the why and how of the process of decision making in the context of this deliberation. This is because, the LB order does not take cognizance of the fact that where a provision has been inserted in an enactment with a purpose – being reduction in litigation and pendency, the said provision ought to be interpreted (only if there is ambiguity) not otherwise and if interpreted ought not to have the capability of furthering the cause of litigation. What is not supposed to be done is exactly what has been done. The interpretative ingenuity in the decision of the LB is that where one section has various sub-clauses, the various sub-clauses (emphasis supplied in bold) have to be read as independent provisions and not as a whole. EUREKA! is the expression that comes to mind at this juncture. Such a reading and advancement of such a principle is ludicrous to say the least. It belies understanding of basics and fundamentals. The decision of the LB has shown us benchmarking of the depths to which one can delve not heights of judiciousness.
To examine whether there is any ambiguity in 35F or 129E some examples will prove useful – since examples are pictures in the context of words where a picture speaks a thousand words:
- A Joint Commissioner confirms a demand of 1,00,000. I prefer an appeal before the Commissioner (Appeals) on pre deposit of 7,500/- being 7.5% of the order impugned. The Commissioner (Appeals) reduces the demand to Rs.10,000/-. Do I need to pay an additional 1,000/- being 10% of 10,000 before preferring an appeal to the CESTAT? Here I have paid 7,500/- more than 7 times the requirement. The question therefore is – What will be just?
- (For the purpose of this example I have assumed that the Additional commissioner can adjudicate demands of 1000 crore). Assuming an Additional Commissioner demands 1000 crore, I prefer an appeal before the Commissioner (Appeals) on pre deposit of Rs.10 crore, 10 crore rupees being the maximum. Since 7.5% will be more than 10 crore. The demand of 1000 crore is confirmed by the appellate Commissioner. Do I have to pay an additional 10 crore as pre deposit on appeal to the Tribunal? What will be just?
- There is an investigation conducted during the course of which I pay 2 lakhs. The SCN raises a demand of 10 lakhs, which is confirmed. I prefer an appeal before the Commissioner (Appeals) citing payment of 2 lakhs in compliance with the requirement of pre deposit of 7.5% which actually works out to 75,000. The demand is reduced to 5 lakhs by the Commissioner (Appeals). Do I have to further pay 50,000 in compliance with 10% of pre deposit while an amount of 1,25,000 remains as deposit despite adjusting the 7.5% already paid. How should the section be interpreted in this context? What will be just?
I can go on with examples. However I think I have painted a detailed enough picture to make my point. If the decision of the LB of the Tribunal is to be given effect, the answer to all the above examples would be a resounding YES. Further pre deposit will have to be made irrespective of the fact that in two examples above an amount more than the prescription has already been deposited. Thereby, resulting in pre depositing more than what is stipulated under the CEA / CA. This will lead to a situation which is not envisaged in the CEA section 35F or the CA section 129E. Such a supposition will be excessive exercise of power wouldn’t it? Being a creature of the statute the CESTAT cannot transgress into the domain of the legislature, in the name of interpretation. This is more-so because the Circular of 2014 clarifies on deposit made during investigation which graduates to a pre deposit on an appeal but a pre deposit made before the first appellate authority i.e. Commissioner (Appeals) will not be eligible to be adjusted as pre deposit before the CESTAT is a proposition which one may not be in a position to digest. The LB decision stultifies the intent, content, the letter and the spirit of section 35F of the CEA and 129E of the CA. The question that all of us have to therefore ask is – Whether deposit made prior to the process of adjudication and pre deposit made before preferring an appeal have to be treated differently?
Whether by adjusting the pre deposit made before the lower appellate authority in reckoning compliance with pre deposit to be made before the CESTAT the purpose for which section 35F & 129E were amended will be fulfilled or stultified?
Lastly – By adoption of which method will litigation reduce?
I leave these questions unanswered and in the good hands of the esteemed readers.
All in all “good judgment ought to come from experience a lot of which comes from bad judgment”. The present LB decision is therefore experience which when cannot be cured has to be endured.