ORDER
T.K. Jayaraman, Member (T)
1. The appellants have filed a Misc. application for modification of Stay Order No. 831/2005 dated 7.11.2005 passed by this Tribunal. In the said order, the appellants were directed to pre-deposit the entire duty amount of Rs. 9,40,20,482/- subject to adjustment of Rs. 25,00,000/- already deposited by the appellants. The pre-deposit of penalty was waived. The appellants, in their application, have stated that the order directing them to pre-deposit the entire sum of duty has resulted in irreparable financial hardship and the plea as to the financial hardship was not even recorded in the Stay Order of the Tribunal.
2. Shri K.S. Ravi Shankar and Shri N. Anand, the learned Advocates, appeared for the appellants and Shri K.S. Bhatt, the learned SDR for the Revenue.
3. With regard to the financial hardship, the learned Advocate submitted that the net profit for the period from April 2005 to September 2005 is only Rs. 11,47,967/- whereas for the previous financial year 2004-2005, the profit was Rs. 85,09,744/- The turnover for the period from April 2005 to September 2005 is less than Rs. 5 crore and it would cause great financial hardship and prejudice to the appellants if they are directed to deposit the duty of more than Rs. 9.6 crores. There has been substantial fall in the turnover and net profit in the current period when compared to previous year. If the appellants are asked to pre-deposit such a huge sum it would totally cripple and paralyse the business of the appellant. Moreover, the ratio analysis reveals that the quick assets ratio which is equal to quick assets divided by current liabilities has been declined over the last two years.
4. The learned Advocate invited our attention to the three decisions in respect of the case McDowell Co. Ltd. v. CCE.
5. In the first decision, as reported in 2004 (177) ELT 1009(Tri-Bang), passed by this Tribunal, in the penultimate paragraph, it has been stated that the appellants had not pleaded financial hardship. Therefore, they were required to pre-deposit a sum of Rs. 25,00,00,000/-. The appellants approached the Tribunal for modification of the above stay petition on the ground that prima facie, they had a case and a similar issue was decided by the Hyderabad Commissioner in favour of the assessee. The Tribunal, in its order as reported in 2005 (182) ELT 114(Bang.), modified its earlier order dispensing with the payment of duty. The Revenue, aggrieved over the modification order of the Tribunal, approached the Karnataka High Court and the Hon’ble Karnataka High Court, in its order dated 13.4.2005 as reported in 2005 (186) ELT 145(Kar.), held that while examining the stay petition, the Tribunal should consider the financial hardship even if prima facie, the assesses has a case.
6. Our attention was also invited to the following observations of the High Court of Karnataka in the case of Commissioner of Customs v. United Telecom Ltd. in para 28, which is extracted herein below:
28. The phrase ‘undue hardship’ which occurs in the proviso to Section 129E where the rule is pre-deposit of the amount that is disputed in the appeal, has to receive the meaning in the context in which it occurs viz., in the context of the requirement of the pre-deposit. In all tax matters, the lis between the revenue and the assessee is about the tax liability which again is in terms of the amount the assessee has to pay in favour of the revenue. The difficulty arises to an assessee because of this liability and not for other reasons. The concept of undue hardship in the context of taxing statutes and occurring in a provision like the pre-deposit provision under Section 129E can only be linked to the financial hardship that the assessee faces if the assessee has to comply with the pre-deposit requirement and cannot be anything else. Unless an assessee pleads the financial hardship for the compliance of pre-deposit and the assessee in fact is unable to pay the pre-deposit amount in reality also, there is no undue hardship as contemplated in the proviso to Section 129E. In the present case, it is not even the case of the appellant before the Tribunal that it faces any financial hardship or has any difficulty in this regard. Even in the absence of any plea from the appellant before the Tribunal to this effect, the tribunal ventures upon to grant total waiver of pre-deposit. It is undoubtedly yet another instance of as observed by this Court in the case of McDOWELL & COMPANY (supra) the Tribunal being more loyal than the king. It is rather surprising that the Tribunal persists in ignoring the statutory provisions as contained in the proviso to Section 129E in passing such order for the purpose of pre-deposit when the order is passed only under this proviso and not under any other provision. The impugned order is clearly a violation of the statute, fit to be characterized as arbitrary inasmuch as the Tribunal has not shown its awareness to the aspect of undue hardship if in fact existed or will be caused to the assessee if the assessee has to fulfill the statutory requirement of pre-deposit and not because of the Tribunal directs it and therefore calls for interference even in the exercise of jurisdiction under Article 227 of the Constitution of India.
7. In view of the above decisions, it was pleaded that when financial hardship is pleaded, the Tribunal should have considered the same while deciding the petition for stay. In other words, prima facie merit or demerit of the case alone is not sufficient to take a decision.
8. Our attention was also drawn to para 6 of the Stay Order wherein there is no discussion regarding the financial hardship at all. Our attention was also drawn to certain judicial decisions. The Hon’ble High Court of Madras, in the case of Ranga Industries v. Collector of Central Excise 1992 (57) ELT 603(Mad.) modified the Tribunal’s order fixing Rs. 5 lakhs as pre-deposit by reducing the same to Rs. 2 lakhs in view of the fact that the financial aspect of the appellant was not considered by the Tribunal while fixing the amount. The Hon’ble High Court of Calcutta in the case of Hindustan Laminators Pvt. Ltd. v. CCE, Calcutta-I directed the Tribunal to examine the pleading of financial hardship when the Tribunal rejected the modification of stay order. The Hon’ble High Court of Bombay, in the case of Maina Khemka v. Union of India , has held that the Tribunal is not right in observing that no financial hardship was pleaded by the petitioner when he filed copies of Income Tax Returns for last three years along with Auditor’s report for the balance sheet showing insufficient income to comply with pre-deposit. The Hon’ble High Court of Delhi, in the case of U.S. Sitani v. UOI , observed that the order of the Tribunal is not sustainable when no reason is assigned in rejecting petitioner’s contention regarding financial hardship.
9. It was further pleaded that the appellants have a strong case on account of time bar.
10. The learned SDR strongly opposed the modification petition for the Stay Order. He said that it is not correct to say that the Tribunal has not considered the financial hardship because in para 6 of the Stay Order, the Tribunal has stated that “Having regard to the facts and circumstances, payment of Rs. 9,40,20,482/- is ordered, which is only half the amount of the total demand of Rs. 19,05,40,964/-“. He also said that the appellants have not made out a strong case for waiver of pre-deposit as observed by the Tribunal in para 2 to 5 of the Stay Order. He also invited our attention to the observations of the Hon’ble High Court of Kerala in the case of M/s. MI Metal Sections Pvt Ltd. v. Collector of Central Excise, Bangalore wherein it is observed that “Merely because there is no elaborate discussion and detailed reasons are not given, it cannot be said that the plea of financial hardship has not been properly considered by the Tribunal.” The Apex Court’s observations in the case of ACCE, West Bengal v. Dunlop India Ltd. and Ors. were quoted. “No Government business and for that matter no business of any kind can be run on mere bank guarantees. Liquid cash is necessary for the running of a Government as indeed any enterprise. Where matters of public revenue are concerned, it is of utmost importance to realize that interim orders ought not to be granted merely because a prima facie case has been shown.”
11. We have gone through the records of the case carefully. The Hon’ble High Court of Karnataka, in the McDowell case as well the United Telecom case has emphasized the point that financial hardship should be examined for deciding waiver of pre-deposit even if there is a prima facie strong case on merits. In the Stay Order dated 7.11.2005, there is no discussion of the financial hardship pleaded by the appellants.
12. After going through the financial statements produced by the appellants, we find that as on 30.9.1995, the current assets, loans and advances, cash and bank balances, amount to Rs. 98,80,077.93. In these circumstances, we feel that the ends of justice would be met if the appellants are ordered to deposit a sum of Rs. 1,00,00,000/- (Rupees one crore only) instead of Rs. 9,40,20,488/- ordered in the first stay order. In taking this decision, we are faithfully following the ratio of the Hon’ble High Court of Karnataka in McDowell case as well as United Telecom case wherein it is held that in deciding stay matters, the financial hardship should be examined even if prima facie, the appellants have strong case on merits. Therefore, the appellants are directed to deposit the above amount within a period of two months and report compliance on 11th May, 2006. The misc. application is disposed of in the above terms.
(Pronounced in open Court on 27 FEB 2006)