Finance Bill (No. 2), 2014

INDIRECT TAXES IMPORTANT RECENT DEVELOPMENTS By Vipin Jain Managing Partner, TLC Legal, Advocates. Finance Bill (No. 2), 2014 10th October, 2014

Mandatory Pre-deposit • Settlement Commission • Advance Ruling

Mandatory Pre-deposit

MANDATORY PRE-DEPOSIT BILL ACT 83. In the Customs Act, for section 129E, the following section shall substituted, namely:— “129E. The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertainany appeal,— (i) under sub-section (1) of section 128, unless the appellant has deposited seven and a half per cent. of the duty demanded or penalty imposed or both, in pursuance of a decision or an order passed by an officer of customs lower in rank than the Commissioner of Customs; [SECTION 129E. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. — The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal, — (i)under sub-section (1) of section 128, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of customs lower in rank than the [Principal Commissioner of Customs or Commissioner of Customs];

AMENDTMENTS IN APPEAL PROCEDURE – Mandatory Pre-deposit (ii) against the decision or order referred to in clause (a) of sub-section (1) of section 129A, unless the appellant has deposited seven and a half per cent. of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against; (iii) against the decision or order referred to in clause (b) of sub-section (1) of section 129A, unless the appellant has deposited ten per cent. of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against: (ii)against the decision or order referred to in clause (a) of sub-section (1) of section 129A, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against; (iii)against the decision or order referred to in clause (b) of sub-section (1) of section 129A, unless the appellant has deposited ten per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against :

MANDATORY PRE-DEPOSIT Provided that the amount required to be deposited under this section shall not exceed rupees ten crores: Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No. 2) Act, 2014.’’.

COMPARISON WITH SETTLEMENT COMMISSION PROVISIONS Settlement Commission Proposed Provision for Pre-deposit. 127B. Provided that no such application shall be madeunless, — (a)…. (b)…. (c) the applicant has paid the additional amount of customs duty accepted by him along with interest due under section 28AB. 129E. The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal,— (i) under sub-section (1) of section 128, unless the appellant has deposited seven and a half per cent. of the duty demanded or penalty imposed or both, in pursuance of a decision or an order passed by an officer of customs lower in rank than the Commissioner of Customs;

MANDATORY PRE-DEPOSIT – CASE ANALYSIS

RETROSPECTIVELY A pre-existing right of appeal cannot be destroyed by an amendment unless the same is retrospective. • Hoosein Kasam Dada (India) Limited SC 1983 • Supreme General Films Exchange Limited SC 1960

RETROSPECTIVELY • Hoosein Kasam Dada (India) Limited SC 1983 9.…..... In the language of Jenkins C.J., in Nana v. Sheku (supra) to disturb an existing right of appeal is not a mere alteration in procedure. Such a vested right cannot be taken away except by express enactment or necessary intendment. An intention to interfere with or to impair or imperil such a vested right cannot be presumed unless such intention be clearly manifested by express words or necessary implication. 12.……. It will appear from the dates given above that in this case the `lis’ in the sense explained above arose before the date of amendment of the section. Further, even if the `lis’ is to be taken as arising only on the date of assessment, there was a possibility of such a `lis’ arising as soon as proceedings started with the filing of the return or, at any rate, when the authority called for evidence and started the hearing and the right of appeal must be taken to have been in existence even at those dates. For the purposes of the accrual of the right of appeal the critical and relevant date is the date of initiation of the proceedings and not the decision itself.

ENTERTAINMENT OF APPEAL Issue Whether the pre-deposit is required to be made at the time of presentation of the appeal or hearing of the appeal?

ENTERTAINMENT OF APPEAL Lakshmi Ratan Engineering Works Limited SC 1968 The distinction made by the learned chief Justice between the tangible and intangible objects does not in our opinion fall for consideration in the present case. If one holds that by 'entertainment' is meant the time of admission of the appeal, satisfactory proof may be furnished at the time of admission of the appeal. We are of opinion that by the word "entertain" here is meant the first occasion on which the court takes up the matter for consideration. It may at the admission stage of if by the rules of that Tribunal the appeals are automatically admitted, it will be the time of hearing of the appeal. But on the first occasion when the court takes up the matter for consideration, satisfactory proof must be presented that the tax was paid within the period by limitation available for the appeal. The Supreme Court has followed the aforesaid proposition of law in the case of RanjitImpex (2013)

ENTERTAINMENT OF APPEAL Hindustan Commercial Bank Limited SC 1969 4. It is the contention of the appellant that the expression. "entertain" found in the proviso refers to the initiation of the proceedings and not to the stage when the court takes up, the application for consideration. This; contention was rejected by the High Court relying on the decision of that court in KundanLal v. JaganNath Sharma AIR 1982 All 547 The same view had been taken by the said High Court in Dhoom Chand Jain v. Chamanlal Gupta AIR 1902 All 543 and Haji Rahim Bux and Sons v. Firm Samiullah and Sons AIR1963All320 and again in Mahavir Singh v. Gauri Shankar AIR1964All289 . These decisions have interpreted the expression "entertain" as meaning 'adjudicate upon' or 'proceed to consider on merits‘….

WRIT REMEDY Issue Is the Writ Remedy available in cases where the right of appeal becomes illusory on account of exorbitant or arbitrary demands?

WRIT REMEDY Har Devi Asnani SC 2011 12. …. The learned Single Judge of the High Court and the Division Bench of the High Court have not considered whether the determination of market value and the demand of deficit stamp duty were exorbitant so as to make the remedy by way of revision requiring deposit of 50% of the demand before the revision is entertained ineffective. In Government of Andhra Pradesh and Ors. v. P. Laxmi Devi (supra) this Court, while upholding the proviso to Sub-section (1) of Section 47A of the Indian Stamp Act introduced by Andhra Pradesh Amendment Act 8 of 1998, observed: “29. In our opinion in this situation it is always open to a party to file a writ petition challenging the exorbitant demand made by the registering officer under the proviso to Section 47A alleging that the determination made is arbitrary and/or based on extraneous considerations, and in that case it is always open to the High Court, if it is satisfied that the allegation is correct, to set aside such exorbitant demand under the proviso to Section 47A of the Stamp Act by declaring the demand arbitrary. It is well settled that arbitrariness violates Articles 14 of the Constitution vide Maneka Gandhi v. Union of India (1978) 1 SCC 248. Hence, the party is not remediless in this situation.

ISSUE WHAT IS THE FATE OF THE BALANCE AMOUNT?

Interlocutory Stay Order vs. Entertainment of Appeal Shreenath Corp vs. Consumer Education and Research Society (Supreme Court) (2014) - Relevant observation: 11. The second proviso to Section 19 of the Act mandates pre-deposit for consideration of an appeal before the National Commission. It requires 50% of the amount in terms of an order of the State Commission or Rs. 35,000/- whichever is less for entertainment of an appeal by the National Commission. Unless the Appellant has deposited the pre-deposit amount, the appeal cannot be entertained by the National Commission. A pre-deposit condition to deposit 50% of the amount in terms of the order of the State Commission or Rs. 35,000/- being condition precedent for entertaining appeal, it has no nexus with the order of stay, as such an order may or may not be passed by the National Commission. Condition of pre-deposit is there to avoid frivolous appeals. 12. It is not the case of any of the Appellants that the Consumer Forum including State and National Commissions has no power to pass interim order of stay. If the National Commission after hearing the appeal of the parties in its discretion wants to stay the amount awarded, it is open to the National Commission to pass an appropriate interim order including conditional order of stay. Entertainment of an appeal and stay of proceeding pursuant to order impugned in the appeal stands at different footings, at two different stages. One (pre-deposit) has no nexus with merit of the appeal and the other (grant of stay) depends on prima facie case; balance of convenience and irreparable loss of party seeking such stay.

Interlocutory Stay Order vs. Entertainment of Appeal Reckiti Benckiser vs. Commissioner of Commercial Taxes (Rajasthan HC) (2010) - Relevant observation: 7. Section 82(3) of the VAT Act provides that no appeal under this section shall be entertained unless it is accompanied by a satisfactory proof of the payment of tax and other amounts admitted by the Appellant to be due to him and in case of an appeal from an ex-parte assessment order, five percent and in other cases ten percent of the disputed tax amount. Section 82(3) envisages deposits which are necessary for hearing of the appeal. With respect to rest of the amount, interim order can be passed by the Appellate Authority under Section 38(4) of the VAT Act.When Section 38(4) confers power upon the authority to grant stay after hearing and to extend life of the interim order by reasoned order, there is an obligation casts upon the authority to act in consonance with law while granting stay. Rule of reason is inhered in the provision itself When life of the interim order has to be extended for the reasons to be recorded in writing, obviously interim stay has to be granted for the reasons recorded by it, depending upon facts of each case. Thus it cannot be said that arbitrary power is conferred upon the authority to deal with the interim stay matters under the provisions of Section 38(4) of the VAT Act. (Note: Raj. VAT act contained provisions for waiver of the balance amounts)

Recent Board Circular F. No. 390/Budget/1/2012-JC dated 16.09.2014 on MANDATORY PRE-DEPOSIT

QUANTUM OF PRE-DEPOSIT Filing an appeal against the order of the Commissioner (Appeals) before the CESTAT: • 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals). • This need not be the same as the amount of duty demanded or penalty imposed in the OIO in the said case. • Where penalty alone is in dispute, the pre-deposit would be calculated based on the aggregate of all penalties imposed in the order against which appeal is proposed to be filed. ISSUE: Whether the 10% is in addition to the 7.5% deposited at the first stage appeal?

PAYMENT MADE DURING INVESTIGATION • 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%, can be considered to be a pre-deposit. • Any shortfall from the amount stipulated under these sections shall have to be paid before filing of appeal before the appellate authority. • As a corollary, amounts paid over and above the stipulated amounts, shall not be treated as deposit. • Since the amount paid during investigation/ audit takes the color of deposit only when the appeal is filed, the date of filing of appeal shall be deemed to be the date of deposit.

RECOVERY OF THE AMOUNTS DURING THE PENDENCY OF APPEAL • Circular no. 967/1/2013 dated 1.01.2013 would not apply to cases where appeal is filed after the enactment of the amended section 35F/129E. • No coercive measures for the recovery of balance amount shall be taken during the pendency of appeal. • Recovery action, if any, can be initiated only after the disposal of the case by the Commissioner (Appeal) / Tribunal in favor of the department unless the said orders are stayed by the Higher forums.

REFUND OF PRE-DEPOSIT • Where the appeal is decided in favour of the party / assessee, he shall be entitled to refund of the amount deposited along with the interest at the prescribed rate from the date of making the deposit to the date of refund. • Pre-deposit for filing appeal is not payment of duty. Hence, refund of pre-deposit need not be subjected to the process of refund of duty under Section 11B/27. (Unjust enrichment not applicable).Therefore, refund with interest should be paid to the appellant within 15 days of the receipt of the letter of the appellant seeking refund, irrespective of whether order of the appellate authority is proposed to be challenged by the Department or not. • In the event of a remand, refund of the pre-deposit shall be payable along with interest. • In case of partial remand where a portion of the duty is confirmed, it may be ensured that the duty due to the Government on the portion of order in favour of the revenue is collected by adjusting the deposited amount along with interest.

PROCEDURE AND MANNER OF MAKING THE PRE-DEPOSITS • E-payment facility can be made use of by the appellants, wherever possible. • A self attested copy of the document showing satisfactory proof of payment shall be submitted before the appellate authority. • The columns of the EA1,EA3 etc., representing payment of duty may be used for the purpose of indicating the amount of deposit made, which shall be verified by the appellate authority before registering the appeal. • As per existing instructions, a copy of the appeal memo along with proof of deposit made shall be filed with the jurisdictional officers.

PROCEDURE FOR REFUND • A simple letter seeking refund. • A self attested Xerox copy of the order in appeal or the CESTAT order consequent to which the deposit becomes returnable. • Attested Xerox copy of the document evidencing payment of such deposit.

Settlement Commission - Snapshot • Provision of settlement of cases made one time affair. • Applications can now be filed only after receipt of a SCN.

Settlement Commission- Excise and Service Tax

Settlement Commission- Customs

ADVANCE RULING The Advance Rulingprovisions have been extended to Resident Private Limited Companies.

THANK YOU

Finance Bill (No. 2), 2014