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CBEC Circular Violates Due Process Of Law

Published on Mon, Jan 28,2013 | 15:59, Updated at Tue, Feb 12 at 14:46Source : 

By: S. Thirumalai & Harish Bindumadhavan, Deloitte India

Circular No.  967/01/2013 dated 1.1.2013 issued by the Central Board of Excise and Customs (CBEC) rescinds seven previous circulars issued from 1988 to as recently as in 2004 while bringing into effect a new “order” to operate henceforth from Jan 1, 2003. It amends the CBEC Excise Supplementary Instructions or any other circular or instruction to the contrary. A significant step showing a deep sense of urgency with respect to recovery of demands!

The circular has put in place a “ten step” matrix to deal with situations in appeals before the Commissioner (Appeals), Appellate Tribunal (CESTAT), and High Court /Supreme Court including when no appeal has been filed against an order confirming a demand.

The basis of the said “order” is explained with reference to the Supreme Court judgment delivered in 1994 in a Customs matter in Commissioner of Customs versus Krishna Sales Pvt Ltd 1994(73)E.L.T. 519(SC to the effect that  a demand remains confirmed until its operation is stayed.

What has to be read into this verdict of the Apex Court is the implicit recognition that there is in place an effective comprehensive first stage appellate machinery to effectively deal with stay applications keeping in view the principles of “balance of convenience” as between the parties. But the general direction coming out of the matrix in the said “order” of the CBEC is that recovery will be initiated “30 days after filing of appeal except in cases before the High Court or Supreme Court” unless a stay is granted by the Appellate Authority in which case the recovery shall follow the terms of the stay order. In the latter cases even this grace period of 30 days is not available. A bare look at the time limits fixed in the order would show that while in cases where no appeal is filed or filed without stay application a waiting period equal to that for filing of statutory appeal ( 60 or 90 days as the case may be) is allowed on the other hand in all cases where the appeal is filed with stay application the recovery period is reduced to one of waiting for 30 days.

 There is justification when recovery proceedings are to be initiated on the expiry of the time limit for filing of statutory appeal when no such appeal is filed, but it would be completely unfair on the part of the Department to initiate recovery proceedings within 30 days after the filing of appeal when the application for stay has not been disposed of. The non-disposal could be on account of several reasons; non-availability of the First Appellate Authority or a Division Bench at the CESTAT and medical reasons of the counsel of the appellant etc. Being a Central Excise circular “order” this is issued presumably in the powers vested under Sec 37 B of the Central Excise Act, 1944 and by virtue of Sec 83 of the Finance Act, 1994 shall apply to Service tax recoveries as well. Customs Central excise and the Service Tax assesses have been receiving recovery notices ever since the “order” was issued on Jan 1, 2013. Proviso to section 35C of the Central Excise Act, 1944 provides that when a stay has been granted, the CESTAT has to dispose of the matter before 180 days. However due to the heavy pendency and lower disposal rate, it becomes almost impossible to stick to this condition. A little clarification would be required here as generally the stay order of the CESTAT continues till the disposal of the appeal if so ordered by the Tribunal while in several cases extension applications are filed after the expiry of 180 days.

The Circular fails to take note of the ground reality that the coordinate benches of CESTAT at Bangalore and Chennai for instance and of late in Kolkatta as well have not had a continuous functioning division bench for the past one year which has resulted in a pile up of cases, some of them with significant revenue implications. Even today, there is no functioning Bench at Bangalore which deals with appeals and stay applications from the States of Andhra Pradesh, Karnataka and Kerala..

Even prior to the Circular, historically the Department has been very actively pursuing tax payers who after losing the case before the first Appellate Authority have preferred an appeal along with a stay application before the Appellate Tribunal. This was on the strength of the Circular that existed earlier. Tribunals and High Courts have consistently directed the Department not to initiate any coercive measures till the disposal of the Stay application by the Appellate Tribunal. Recently, the Andhra Pradesh High Court in Siva Sai Constructions,(2013-TIOL-09-HC-AP-ST) directed the Department not to enforce recovery proceedings against the tax payer till the disposal of the interim stay application pending before the CESTAT Recently  in  a batch of Writ Petitions questioning the recovery based on the said order of the CBEC the Andhra Pradesh High Court, ordered interim stay against the recovery proceedings initiated under the Circular until the matter is disposed of by the CESTAT while protecting the interest of revenue to the effect that the pendency of the writ petition before the High Court will not be a reason for the assessee from not complying with the result of the stay application when disposed of by the CESTAT.

The interim decision of the AP High Court is likely to resonate across the Country where similar orders may be passed by other High Courts. In the present economic climate to further ‘tax’ the burdened assessee especially when the assessee has not been allowed to exhaust his statutory first stage full fact appellate remedy and obtaining a stay of the demand before an appropriate forum goes against the very principle of “due process of law” guaranteed under the Constitution.


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