TIOL-DDT 134 · the untouched capture
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<html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 134</font><br> 13 06 2005<br> Monday</b></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Mc Dowell – The hangover lingers</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Even after two whole days of rest and rumination, the hangover of the Mc Dowell case which we broke on Friday lingers. While the Karnataka High Court lambasted the Tribunal for its order in the most uncharitable terms - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2005/2005-TIOL-72-HC-KAR-CX.htm"><font size="1" face="Verdana, Arial, Helvetica, sans-serif">2005-TIOL-72-HC-KAR-CX</font></a>, the issues decided by the Hon’ble High Court of Karnataka are most disturbing and if given effect to will bring the whole judicial system adopted in the Tribunal all these years to a tragic grinding halt. Though we had carried a rather exhaustive analysis of the Karnataka High Court order, two profound statements from the Hon’ble High Court’s judgement, cause deep concern and apprehension in the context of the working of the Tribunal and need urgent attention of all concerned.<br> <br> In para 33 of the order, the Hon’ble High Court observed,<br> <br> <b>I am unable to accept the contention that an existence of mere prima facie case in itself amounts to causing undue hardship to an assessee if the assessee is required to fulfil the requirements of pre-deposit.</b><br> <br> If prima facie case in favour of the assessee does not amount to undue hardship, if he is asked to pre deposit, what else does? The department is fond of issuing Show Cause Notices on frivolous grounds and confirming them on less than frivolous grounds. Now if they ask you to pay duty on the onions used in the canteen and you go and tell the tribunal that prima facie, onions are not excisable, should the Tribunal insist on pre deposit, if there is no undue hardship? Do you think I am stupid to suggest that the department will demand duty on onions? They have demanded duty on coconut oil in spite of several judgements and Board circulars against it; they have demanded duty on rusted steel as rusting is a natural process of manufacture of scrap; they have demanded duty on LPG to be discharged at the non-domestic rates even for domestic LPG. These are just three examples and in the last case the duty demand ran into hundreds of Crores. Now just because the oil companies are rich, should they pre deposit in a case which is prima facie heavily in their favour? You know a Commissioner imposed a penalty of Rs 50 Crores on a BHEL employee? Yes Sir! I am not joking, a penalty of fifty Crores of Rupees on a PSU employee, while BHEL itself was penalised Rs. 251/- in that case. You call this judicial decision! Now should the unfortunate employee prove undue hardship to deposit those fifty Crores before he gets a stay from the Tribunal? <br> <br> If this decision of the Karnataka High Court is to be followed, there will be no waiver of pre deposit, if your balance sheet shows a profit. <br> <br> The Kerala High Court had in <b>1989 (42) E.L.T. 220 (Ker.)</b> observed,<br> <br> The existence of a prima facie case on merits constitutes an important relevant factor in the consideration of the question of undue hardship. <b>This is so because it causes undue hardship to any assessee to be called upon to make payment of amounts which are not legally due.</b> The very mandate of Article 265 of the Constitution is that there can be no levy or collection of tax without the authority of law.<br> <br> In <b>1999 (108) E.L.T. 637 (Cal.)</b>, the Calcutta High Court observed, <br> <br> Because of the several judicial pronouncements, it is no more in doubt that the expression ‘undue hardship’ as used in Section 35F of the Central Excise Act will cover a case where the appellant has a strong prima facie case. If an appellant can establish before the Commissioner of Appeal or before the Tribunal, as the case may be, that he has got a strong prima facie case, in such event the same itself independent of other factors would come within the relevant consideration for determining whether the order of pre-deposit will cause undue hardship or not. <b>This is because of the reason that an assessee will suffer undue hardship if he has to pay an amount which is not legally due. It is not necessary for the appellant to show, in addition to, that the appellant has suffered financial hardship.</b><br> <br> Justice Ruma Pal’s decision on the issue was covered in our story on Friday and may be referred to from the story for more convincing reasoning.<br> <br> Now the Karnataka High Court is not convinced that prima facie case is not enough to plead undue hardship. What will happen if Departmental officers pass orders in utter disregard of court orders? Pay pre deposit? <b>In fact the Kerala High Court had held that a High Court decision in the party’s favour is prima facie case, even if the High Court order is in appeal! </b><br> <br> The second and equally important issue that cries for our immediate attention, in the High Court order, is on modification of the Tribunal’s order.<br> <br> The Karnataka High Court observed,<br> <br> <b>It is also clear that the Tribunal after having exercised jurisdiction for the purposes of passing an order for waiver of pre-deposit under the proviso to Section 35-F of the Act cannot modify that order subsequently like an appellate authority, nor can keep tinkering with the order as and when applications for modification of the order are filed.</b><br> <br> It is a routine practice in the Tribunal and even with Commissioners (Appeals) to ask for modification of stay orders, to reduce pre deposit, to ask for time etc,. Now according to the High Court there can be no modification application at all because the Tribunal cannot sit in judgement over its own earlier order!<br> <br> In <b>2004 (170) E.L.T. 3 (Bom.)</b>, the Bombay High Court held,<br> <br> In Baron International Ltd. the Division Bench of this Court though held that the Tribunal cannot exercise review jurisdiction but the party before the Tribunal can always seek modification of the order. It would be, thus, seen that the Tribunal had jurisdiction to modify its order <br> <br> Interestingly, a division bench of the Karnataka High Court presided over by the Hon’ble Chief Justice had long ago held that <b>If as a result of subsequent decision of the Tribunal any change in the correct legal position has been brought about, then the appellant can move the Tribunal for modification of the earlier stay order passed by the Tribunal.</b> - 1995 (75) E.L.T. 470 (Kar.) <br> <br> This order of the Karnataka High Court is binding on the Hon’ble single judge of the Karnataka High Court who passed the Mc Dowell order. Apparently this was not brought to the notice of the Hon’ble judge. <br> <br> Without waiver of pre deposit and without modification, the whole appellate system will turn into a mockery of justice itself. Let us hope that the Mc Dowell judgement will be considered a <b>per incuriam</b> one and fade into history <b>sub silentio</b>.<br> <br> On that sobering thought,<br> <br> <font color="#FF6666"><b>Until Tomorrow with more DDT<br> <br> Have a nice Day. <br> <br> Mail your comments to</b></font> <b>vijaywrite@taxindiaonline.com </b></font></p> </body> </html>