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CBEC Circular: Respite from Bombay High Court

Published on Sat, Feb 16,2013 | 13:00, Updated at Mon, Feb 18 at 20:12Source : 

By: Amit Bhagat, Associate Director – Tax & Regulatory services, Ernst & Young

The Circular [No. 967/01/2013-CX dated 1 January 2013] issued by the Central Board of Excise and Customs (CBEC) instructs the Service tax & Excise field formations to initiate recovery proceedings where no Stay is in operation against the demand order. The Circular provides timelines of initiating recovery proceedings where stay application has been filed but no stay is granted within 30 days. In case of stay applications before the High Courts and Supreme Court, even this 30 days' time is not available.

As expected, ever since the issuance of the Circular, the field formations have been enthusiastically issuing notices to the assessees. With no legal remedy at hand, the assessees have no option but to file writ petitions before the High Courts pleading relief from such unjust and coercive proceedings. The Circular has already triggered a flood of litigation at the already busy High Courts. As a corollary, both the industry as well as the CBEC are expending valuable time and money in litigating the validity and consequences of this Circular. Meanwhile, the small scale industries in India which do not have the wherewithal to litigate are left at the mercy of the field formations.

The Circular was under challenge before the Bombay High Court in a batch of Writ petitions filed by assesses including Larsen & Toubro Ltd. The directives of the CBEC in the Circular which stipulated recovery during pendency of stay application, if no stay was granted within 30 days of filing of the stay application, were challenged by the petitioners. It was submitted that such stipulations were arbitrary and against Article 14 (which provides that the State shall not deny to any person equality before the law) of the Constitution of India.

Let’s examine the ground realities whether a plea for grant of stay can be heard within 30 days of filing the appeal. At the Tribunal level, a stay application can be heard only by a Division Bench (i.e. case has to be heard by at least two members/ judges). However, presently, only a single member is appointed in the Appellate Tribunals at Chennai and Bangalore. Sometimes, delay could also be on account of non availability of a Division Bench on a particular day to hear the stay application. There are various other administrative reasons whereby it is practically impossible for a stay application to be heard & disposed off within 30 days. Situation is worse at the Commissioner (Appeals) level with the spate of pending cases and vacant posts in many jurisdictions. To make matters worse, no formal procedures/ rules/ departmental instructions have been prescribed wherein an assessee can approach the Commissioner (Appeals) for an urgent hearing.

The Bombay High Court in the Writ, has acknowledged the administrative gaps in the Indian judicial set up and held that in a situation where the Commissioner (Appeals) or Tribunal are unable to decide the application for stay within a period of 30 days of the filing of the appeal and stay application, there can be no reason or justification to penalize the assessee by recovering demand in the meantime. The High Court held that it would be completely arbitrary and a travesty of fair justice to take recourse to coercive proceedings for recovery of demand in the meantime.

The Circular also supersedes the statutory provisions effectively by giving powers to field formations to initiate recovery proceedings even while the time period allowed to an assessee to prefer appeal has not expired. As is evident, the Circular is clearly against the directives of the Supreme Court and the statutory provisions. The Bombay High Court labeled the Circular as one issued to instill fear and intended to deprive the assessees of the remedy provided in the law.

The Bombay High Court accordingly, has put on hold implementation of the directive of the CBEC vide the Circular that allowed immediate recovery of tax dues in cases where an assessee appeal has not been heard within 30 days of the demand being raised.

Several other High Court such as Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu etc have consistently questioned the directives of the Circular and have uniformly granted interim stay on initiation of any coercive action till the time the stay petition is disposed of by the appellate authorities. The uniform view of the High Courts acutely indicates the prima facie evaluation of the judiciary that the Circular is against the very principles of just law and equity.

The judgment of the Bombay High Court and other High Courts gives much needed relief to worrying tax payers.

The Circular has already come under heavy criticism from domestic and foreign investors alike, with many terming the step draconian. It may be prudent for the CBEC to reconsider its instructions, its underlying fallacy and the resultant hardships for the tax payer and rescind the Circular.

(Views expressed are personal)


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