JUDGMENT
R.B. Misra, J.
1. Heard Sri Bharat Ji Agrawal, Senior Advocate along with Piyush Agrawal, learned Counsel for the petitioner and Sri G.R. Gupta, learned State Counsel for Commissioner, Central Excise/Revenue.
2. In this writ petition order dated 28th June, 2002 passed by Commissioner, Central Excise, Ghaziabad directing the dispensation for the pre-deposit of Rs. 23,00,000 has been challenged and further direction has been sought to decide the petitioner’s appeal filed on 12th April, 2002 without insisting for pre-deposit of any amount expeditiously.
3. Brief facts necessary for adjudication in the present writ petition are that the petitioner is a public limited Company engaged in the manufacture of processed cotton and man-made fabrics on job work falling under Chapter 52 and Chapter 55 of the Schedule to the Central Excise Tariff Act. The petitioner is not engaged in any business of purchase and sale of excisable goods or fabrics. The Government of India has presented excise duty known as compounded levy, at the rate of Rs. 1,50,000 regardless of the job work done by the machines. Rule 96ZQ(3), of the Central Excise Rules, 1944 provided for levy of compounded duty which has to be paid by 5th of every month in advance.
The Rule 96ZQ(5) provides as below :
“If an independent process or fails to pay the amount of duty or any part thereof by the date specified in Sub-rule (3), he shall be liable to :
(i) pay the outstanding amount of duty along with interest at the rate of thirty-six per cent per annum calculated for the outstanding period on the outstanding amount; and (ii) a penalty equal to an amount of duty outstanding from him at the end of such month or rupees five thousand, whichever is greater." 4. From 1st April, 2000 the due dates for payment of compounded levy were revised and as per the amended provisions of Rule 96ZQ(3), 50 per cent of the duty payable for a month was to be paid by 15th of the month and the balance 50 per cent by the end of the relevant month. 5. For the period of 16th April, 2000 up to 28th February, 2001 the petitioner has deposited duty an amount of Rs. 23,00,000 along with the interest as contemplated in Rule 96ZQ(5) at the rate of 36 per cent per annum for the outstanding period.
6. The petitioner was served with a show cause notice dated 16th October, 2001 (Annexure-1) for imposition of penalty on the ground that the petitioner had failed to pay the duty in the manner prescribed under Rule 96ZQ(3), hence the petitioner is liable for penalty. The petitioner submitted in reply to the show cause notice 4th February, 2002 in which it was specifically mentioned that the petitioner having deposited the entire amount of duty along with interest and there being bona fide reasons for the delay, as such no penalty should be imposed. According to the petitioner, the Deputy Commissioner, Central Excise, Aligarh, had imposed the penalty of Rs. 99,46,000 by order dated 30th January, 2002, by completely over looking the fact that the delay in depositing the amount of duty was only in respect of Rs. 23,00,000 and the maximum penalty which could be imposed shall be a penalty equal to an amount of duty outstanding. The petitioner filed an appeal against the said order before the Commissioner (Appeals). On the prayer of the petitioner on the ground that the factory was closed from 1st July, 1999 to 19th August, 1999 to 24th November, 1999 and 1st May, 2000 to 17th May, 2000 for sanctioning abatement under Rule 96ZQ(7) and the Commissioner, Central Excise, in its orders dated 29th October, 1999 and 7th March, 2000 had granted exemption for the aforesaid period. Before the Commissioner respondent No. 1, the petitioner filed the application for waiver and stay and for dispensing with the entire pre-deposit and also for recovery of the impugned amount. (Annexure-7).
7. According to the petitioner, without considering prima facie the merits of the case, the Commissioner (Appeals), by its order dated 28th June, 2002 (Annexure-8) directed to deposit Rs. 23,00,000. It has also been contended on behalf of the petitioner that the validity of the Notification No. 43 of 1998, providing payment of excise duty on certain categories of processed textile fabrics, to be paid in advance, failing which interest at the rate of 36 per cent per annum and imposition of penalty equal to the amount outstanding could be made. Such notification has been challenged in Writ Petition No. 206 of 2000 before Delhi High Court where interim order dated 4th January, 2000 and 14th February, 2000 (Annexures 9 and 10). Similarly, a Writ Petition No. 1961 of 1999 was filed before Rajasthan High Court, in which also the validity of the ‘Rules’ and the ‘Notification’ were challenged and Rajasthan High Court has passed an order on 10th May, 1999 restraining the Central Excise Department from taking any coercive steps for making the recoveries in accordance with Rule 96ZQ.
8. It has been contended on behalf of the petitioner that the impugned order dated 28th June, 2002 is not a speaking order and the merits of the case was not considered therefore, order is not sustainable, more so without keeping in mind the financial difficulties of the petitioner, the above order has been passed.
9. It has been contended on behalf of the learned Counsel for the petitioner that in 1998 (98) E.L.T. 350 (Cal.), Tata Iron and Steel Co. Ltd. v. Commissioner (Appeals), Central Excise, Calcutta, it was held that one of the relevant factors which is required to be considered by the Appellate Authority under Section 35F of the Act is prima facie case on merits and such other relevant factors pertaining to undue hardship while dealing the stay/dispensation of pre-deposit.
10. In Para 4 of Tata Iron and Steel Co. (supra), it was noticed that in the case of Vijay Prokash D. Mehta and Jawahar D. Mehta v. Collector of Customs (Preventive), Bombay, 1989 (39) E.L.T. 178 (S.C) = A.I.R. 1998 S.C. 2010, Supreme Court observed that while dealing with Section 129E of the Customs Act, which is para materia to Section 35F of the Central Excises and Salt Act, 1944, that the proviso gives the discretion to the authority to dispense with the obligation to deposit in case of undue hardship and that such discretion must be exercised on relevant materials honeslty, bona fide and objectively. Their Lordships further observed that in the facts and circumstances of each case, all the relevant factors, viz., the probability of prima facie case of the appellant and the conduct of the parties have to be taken into consideration by the appellate forum while it is to decide the question whether the deposit has to be dispensed with or not.
11. In 1990 U.P.T.C. 321, Matsushita Television Audio Ltd., India v. Commissioner (Appeals), Customs and Central Excise, Noida, while dealing Rule 57G, of Central Excise Rules, 1944 in respect of Modvat claimed, the adjudication officer issued show cause notice and after obtaining objection claimed to Modvat was disallowed and appeal with stay application preferred against such order, the Appellate Authority passed stay in part and condition of pre-deposit was waived in part. Since Section 129E of Customs Act is identical to Section 35F of Central Excise Act., therefore, High Court directed the Appellate Authority to rehear and dispose of the stay application.
12. It was held in Para 9 of Matsushita Television (supra) that there could not be any dispute about legal proposition that the Appellate Authority while considering an application under proviso to Section 35F should take a realistic view of the matter in determining whether the prayer for dispensation of precondition of deposit of the amount required to be deposited should be allowed or not and if so allowed what conditions should be imposed upon the person claiming such dispensation.
13. In para 12 of M/s. Matsushita Television (supra) it was observed that considering the amount involved and the nature of goods, authorities below were to give opportunity to the appellant before passing the order to produce material in support of its claim as the appellant had very good case on merits and if the stay as prayed for was not granted it might great irreparable loss, injury and hardship to the appellant, therefore, the Court felt it was expedient in the interest of justice to remand the matter to the Appellate Authority for fresh disposal of the stay application after affording an opportunity to the parties to produce material/evidence in support of the grounds taken in the stay application.
14. In M.C. Geel’s v. Union of India, 1988 (35) E.L.T. 449 dealing with the Excise and Customs Act. It was observed that Section 129E of the said Act had almost similar provisions as contained in Section 35F of the Central Excise Act had almost similar provisions as contained in Section 35F of the Central Excise Act. Proviso to Section 129E is identical to the proviso to Section 35F of the Central Excise Act. In both the provisos it is mentioned that the person desirous of appealing against the order shall, pending the appeal deposit with the proper officer the duty demanded or the penalty levied. Provisos to Section 129E of the Customs Act as well as to Section 35F of the Central Excise Act similarly provide that where in any particular case, the Collector (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Collector (Appeals) or as the case may be, the Appellate Tribunal may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safe guard the interest of the revenue.
15. In 1999 U.P.T.C. 423, Kaushal Industries, Agra v. Commissioner (Appeals), Customs and Central Excise, Ghaziabad, it was held in reference to Section 35F of Central Excises and Salt Act, 1944 prima facie case on merits and the financial condition has to be looked into for deciding the application for waiver and stay.
16. In 1998 (104) E.L.T. 330 (Cal.), Ruby Rubber Industries v. Commissioner of Central Excise, Calcutta-II, while dealing the stay/dispensation of pre-deposit while elaborating the prima facie, case and its meaning the Calcutta High Court has indicated that prima facie case is a relevant factor for deciding the question of undue hardship and prima fade case did not necessarily mean that one must have edged case which is bound to succeed where as the prima facie case always has been held by the Courts to be a case which is arguable and fit for trial and consideration and the court finds that there is non-application of mind on the part of Tribunal to prima facie case, the Court may set aside Tribunal’s partial stay order and remand the matter for afresh decision.
17. It was also held that in the matter of stay/dispensation of pre-deposit the alternative remedy of appeal is not provided for against stay orders passed under Section 35F of Central Excise Act, 1944, therefore, the writ petition against stay order is maintainable under Article 226 of the Constitution.
18. In 1998 (104) E.L.T. 325, Sri Krishna v. Union of India, following A.I.R. 1970 S.C. 713, Malkiat Singh v. State of Punjab, A.I.R. 1989 S.C. 1789, State of M.P. v. Narayan Singh; A.I.R. 1972 S.C. 1610, Nasir Sheikh v. State of Bihar and 2003 (153) E.L.T. 36 (S.C.) = A.I.R. 1976 S.C. 1527, S. L. Coir Mills v. Additional Collector, it was observed that in respect of stay/dispensation of pre-deposit and undue
hardship, the Tribunal is obliged to consider in its order, the pleas raised before it about existence of prima facie merits and if appellant has such a strong prima facie case then he is most likely to be exonerated him from payment and the Tribunal if still insist on pre-deposit of the amount that would amount to undue hardship.
19. In the case of State of M. P. v. Bharat Heavy Electricals Ltd., 1998 (99) E.L.T. 33 (S.C), the Supreme Court has examined the expression “shall be liable to pay penalty equal to ten times the amount of entry tax” in Section 7(5) of the M. P. Entry Tax Act 1976. The Supreme Court held that the penalty for violating the provisions of Entry Tax is the maximum and not a fixed rate of penalty the penalty imposed under the Entry Tax Act in M. P. is not confiscatory in nature. An assessee is always liable to explain the circumstances and satisfy the genuine reasons forcing the assessee of not complying with the law in letter and spirit in such cases, the penalty can be waived or token penalty can be imposed by the authority. The Supreme Court thus held that the penalty is not automatic under the statute.
20. The Hon’ble Supreme Court in the case of Pratibha Processors v. Union of India, 1996 (88) E.L.T. 12 (S.C.) observed that penalty is ordinarily levied for some contumacious conduct or for a deliberate violation of the provisions of the particular statute when the appellants have deposited the duty as soon as they arranged funds though there has been a delay in depositing the duty for a few days, but it cannot be said that they were acting with a guilty mind therefore, in the absence of mens rea on the part of the appellants, the learned adjudicating authority has erred in applying the penal provisions of Rule 96ZQ(5) in a mechanical manner.
21. Learned Counsel for the petitioner has also referred and relied on Hindustan Steels Ltd. v. State of Orissa, reported in 1978 (2) E.L.T. (J 159) (S.C.) = (1970) 25 S.T.C. 211 at 214, the Supreme Court has held that liability to pay penalty does not arise merely on proof of default and where the breach flows from bona fides no penalty should be imposed. Hon’ble the Apex Court has held as follows :
“But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carryout a statutory obligation is the result of a quasi criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberatley in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will also not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. These in charge of the affairs of the company is failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.”
22. Learned Counsel for the petitioner has referred and relied Heins India Private Limited v. Deputy Commissioner, Central Excise, 2002 U.P.T.C. 690, where this Court has held that while dealing with the dispensation of the pre-deposit of the duty, the prima facie case on merits has to be considered by Commissioner (Appeals).
23. In view of the above discussions, it is clear the Commissioner has not considered the merits of the case and the judgments referred for protecting the case of the petitioner. Therefore, the order of the Commissioner Excise, dated 28th June, 2002 is liable to be set aside and is directed to reconsider the entire question under Section 35 of the Act on the prayer of the petitioner with regard to the deposit of the amount in question and after hearing the parties on merits in the light of the observations made above and shall pass, afresh order. Till the respondent considers and disposes of afresh the petitioner’s application for dispensation of the deposit, the recovery of the amount demanded shall stay and thereafter the order the Commissioner passes shall take effect. The respondent shall very expeditiously dispose of the matter relating to the question of deposit within three months with the co-operation of the parties.
24. In view of the above, the writ petition is allowed without costs.
