Pre-deposit can be waived off in certain circumstances

The Hon'ble Bombay High Court in the case of Lalit Kulthia & Anr. v. Commissioner of Customs (Appeals) Mumbai III & Ors. [Writ Petitioner NO. 476 of 2024 dated December 06, 2024] held thatonly in rare and deserving cases where a clear justification is made out for such interference can a waiver of pre-deposit can be granted be granted.

Facts:

Mr. Lalit Kulthia & Anr.("the Petitioners") had instituted Writ Petition No. 2884 of 2017 before the Hon'ble Bombay High Court to challenge the Order-In-Original dated June 6, 2019 without resorting to the appellate remedy. The said Petition was disposed of by an Order dated June 06, 2019, which clarified that the Petitioners would have to satisfy other requirements for filing an appeal, including the statutory requirement of pre-deposit in terms of Section 129E of the Customs Act, 1962 ("the Customs Act") The Petitioners never challenged the order but chose to institute an appeal without the pre-deposit.

After such appeal was not entertained, the present Petition was filed, and the relief contrary to the statutory provisions was sought from this Court. Such relief cannot be granted in exercising discretionary jurisdiction under Article 226 of the Constitution of India.

The Petitioner argued that penalty cannot be imposed on gold without foreign marking, out of 12 gold bars, only one had foreign marking, and the assessor found gold of 99.5 and not 99% in another. Hence, the customs authorities had no jurisdiction to impose any penalty.

The Petitioner filed the present writ and seeked direction on the Respondent-1 to admit the Petitioner's appeal without insisting on a pre-deposit as stated in Section 129E of the Customs Act. The second direction is to restore the appeal, which is already dismissed for want of pre-deposit.

The Petitioner relied on, Kotak Mahindra Bank Pvt Ltd v. Ambuj A Kasliwal and Others [2021 3 SCC 549] wherein the Hon'ble Supreme Court has held that even the High Court should not direct the appellate authorities to admit and hear appeals unaccompanied by the minimum predeposit requirement under the statute. The Hon'ble Supreme Court held that discretion under Article 226 of the Constitution of India cannot be exercised against the mandatory requirement of statutory provision. Further, relied on, Manjit Singh v. Union of India [Writ Petition No. 673 of 2020 dated October 18, 2022], wherein the Coordinate Bench of the Hon'ble Bombay High Court held relief of waiver of the minimum pre-deposit of 7.5% of the penalty under Section 129E of the Customs Act was declined. This decision considers all the contentions raised in this Petition and discusses earlier precedents on the subject. Lastly, elied on, Pioneer Corporation v. Union of India [(2016) 340 ELT 63] wherein it was held that a Court exercising its jurisdiction under Article 226 of the Constitution can waive the requirement of pre-deposit.

Issue:

Whether pre-deposit can be waived of in order to file appeal?

Held:

The Hon'ble Bombay High Court in the case Writ Petitioner No. 476 of 2024 held as under:

• Observed that, the relief the Petitioners seek contradicts Section 129E of the Customs Act, which contemplates a pre-deposit.
• Held that, the court did not rely on the case relied by the Petitioner and stated that in the Pioneer Corporation (supra), the Delhi High Court rejected the petitioner's contentions that upon the petitioner ceasing its business operations, it ceased to exist as a legal entity for the purpose of its liability under the Central Excise Law. The Court held only in rare and deserving cases where a clear justification is made out for such interference can a waiver be granted. Apart from the fact that Pioneer Corporation does not consider the Hon'ble Supreme Court's decision in Kotak Mahindra(Supra). Hence, the Court was satisfied that this is not some rare and deserving case where waiver could be granted, assuming we could, in the exercise of our extraordinary jurisdiction grant such waiver.

Our Comments:

Section 129E of the Customs Act governs "Deposit of certain percentage of duty demanded or penalty imposed before filing appeal". It was inserted vide the Finance Act (No. 2) Act, 2014 and substituted "Deposit, pending appeal, of duty and interest demanded or penalty levied".

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;

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:

However, notwithstanding anything stated above, the amount required to be deposited under this section shall not exceed rupees ten crores and 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.

Further, in a recent decision by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case of RTI Spinners v. C.C. Mundra and Shri Sushil Ratanlal Garg v. C.C.- Mundra [Final Order No. A/ 10160-10161 /2024 dated January 16, 2024], a significant ruling was made concerning the mandatory pre-deposit requirements under Section 129E of the Customs Act. This case involved two appellants who challenged the order of the Commissioner (Appeals) rejecting their appeals for non-compliance with the pre-deposit mandate.

Further, Section 107(6) of the Central Goods and Service Tax Act, 2017 ("the CGST Act") states that no appeal can be filed before Appellate Authority unless a specified amount of pre-deposit is made by the Appellant.

Such amount shall be paid in full, such part of the amount of tax, interest, fine, fee and penalty arising from impugned order, as is admitted by him; and a sum equal to ten percent of the remaining amount of tax in dispute arising from the said order, subject to a maximum of twenty-five crore rupees, in relation to which the appeal has been filed. It is submitted that pre-deposit ensures staying of the recovering proceedings for the balance amount of demand in dispute. Minimum of 10% of the disputed amount of tax needs to be paid as pre-deposit before filing an appeal. There is no deed to pre-deposit any percentage of disputed interest, fine, fee and penalty arising from impugned order.

Cash Ledger Balance and Credit Ledger Balance can be utilised for making the payment of pre-deposit amount. Input Tax Credit ("ITC") available in the Credit Ledger Balance can be used for making the payment/adjusted against tax liability only. As per Rule 86(2) of the Central Goods and Service Tax Rules, 2017 ("the CGST Rules"), "the electronic credit ledger shall be debited to the extent of discharge of any liability in accordance with the provisions of Section 49 or Section 49A or Section 49B." Further, Section 49(4) of the CGST Act prescribes that "the amount available in electronic credit ledger may be used for making the payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed." It means amount available in electronic credit ledger can be used only for making the payment towards output tax only and not for interest, penalty or fine etc.

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