- Bookmark
- Share
- CaseIQ
Poly Fill Sacks v. Union Of India
Factual and Procedural Background
The petitioner moved the Court under Article 226 of the Constitution seeking a writ of mandamus to quash an order of attachment dated 6th September 2004 and the action of respondent No. 3 in invoking and encashing Bank Guarantee No. 24/4 for Rs.1,00,000/-. A consequential relief for restitution of the pre-encashment position was also sought.
Procedurally, the petitioner had earlier preferred an appeal under the Central Excise Act, 1944 before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) together with an application for stay of demand. After hearing on 21st May 1996, CESTAT directed the appellant to furnish a Bank Guarantee of Rs.1,00,000/- within two months and report compliance by 12th August 1996. The Bank Guarantee furnished by the petitioner was extended from time to time and, as of 29th March 2004, respondent No.4 informed respondent No.2 that the Bank Guarantee had been extended upto 6th July 2005.
Despite the stay order by CESTAT, an order of attachment was made on 6th September 2004, followed the same day by the invoking and encashment of the Bank Guarantee. The petition was heard by consent after service of rule was waived for respondents 1–3, and the Court considered the legal effect of the amended Section 35C(2A) of the Act (w.e.f. 11-05-2002) on such stays.
Legal Issues Presented
- Whether the Second Proviso to Section 35C(2A) of the Central Excise Act (inserted w.e.f. 11-05-2002) — which provides that where a stay is granted the Tribunal shall dispose of the appeal within 180 days and that the stay shall stand vacated if the appeal is not disposed within that period — applies to stay orders granted before 11-05-2002 (i.e., whether the proviso operates retrospectively or only prospectively).
- Whether the respondents were entitled to initiate recovery (attachment and encashment of the Bank Guarantee) after the expiry of 180 days from the date of a stay order made by the Tribunal where the stay was granted prior to 11-05-2002.
- Whether the insertion of the two provisos to Section 35C(2A) curtails or obliterates the CESTAT's statutory discretion and power to grant or continue stay orders in appropriate cases.
Arguments of the Parties
Appellant's Arguments (as presented by Mr. Dhaval Shah)
- Reliance on the amended provisions of Section 35C(2A) of the Act, specifically the Second Proviso, by the respondents is unwarranted in relation to the petitioner’s case.
- Because the Tribunal's stay order was made prior to 11th May 2002, the 180-day period in the Second Proviso cannot be applied to that order; the provision operates prospectively and cannot be applied retrospectively to stays granted before its insertion.
- Relied on a Supreme Court order dated 13th January 2005 in S.L.P. No. 13792 of 2003 (Commissioner of Customs and Central Excise, Ahmedabad v. Kumar Cotton Mills (P) Ltd. and Anr.) and related matters to show that the Tribunal decision in Kumar Cotton Mills (2002 (146) E.L.T. 438 (Tribunal Mumbai)) stands approved and supports the petitioner's position.
Respondents' Arguments (as presented by Mr. Jitendra Malkan)
- The petitioner had a duty to seek extension of the stay from the Tribunal after the statutory provision (Second Proviso) was incorporated; failure to do so justified the respondents in initiating recovery proceedings.
- On expiry of the statutory period specified in the Second Proviso to Section 35C(2A), the stay granted by CESTAT stands vacated automatically, permitting attachment and encashment.
- Invoked a sentence from the Supreme Court order to contend that the Court should not give latitude to the Tribunal to extend stays except on good cause; on that basis urged that the petition should be rejected.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of Customs and Central Excise, Ahmedabad v. Kumar Cotton Mills (P) Ltd. and Anr. — Supreme Court order dated 13th January 2005 (S.L.P. No. 13792 of 2003) | Approved the Tribunal decision in Kumar Cotton Mills (Tribunal Mumbai) and articulated that an assessee should not be punished for matters beyond its control; addressed the object of the proviso as curbing dilatory tactics. | The Court relied on the Apex Court's approval to hold that an assessee cannot be punished for delays beyond its control and that the observations about limiting Tribunal latitude were only applicable where extension of stay was specifically sought. This supported the conclusion that automatic vacatur of pre-11-05-2002 stays was not mandated. |
| Kumar Cotton Mills Pvt. Ltd. v. Commissioner of Customs and Central Excise, Ahmedabad-I, 2002 (146) E.L.T. 438 (Tribunal Mumbai) | Tribunal decision on the effect of the proviso and stays (as later approved by the Supreme Court). | The Court treated the Tribunal decision (and the Apex Court's approval of it) as authority for the principle that the proviso is aimed at curbing dilatory tactics and does not mean automatic punishment of an assessee where delays are not attributable to the assessee. |
| Indo-Nippon Chemicals Co. Ltd. and Anr. v. Union of India and Ors., 2002 (49) RLT 642 (Guj.) | Principles on interpretation of provisos: a proviso normally qualifies or carves out an exception to the main enactment and aids construction of the main provision where ambiguous. | The Court cited this decision to support the approach that the Second Proviso should be read as qualifying the main provision and cannot be used to negate the Tribunal's discretion; it informed the Court's interpretation of Section 35C(2A). |
| Hindustan Ideal Insurance Co. Ltd. v. Life Insurance Corporation Ltd., AIR 1963 SC 1087 (Mudholkar, J.) | Principle that where the main provision is not clear, a proviso may be looked into to ascertain the meaning and scope of the main provision; proviso should not be treated as surplusage. | The Court relied on this principle to justify consulting the proviso to understand the main enactment and to avoid an interpretation that would render the proviso redundant or that would unduly curtail the main provision's scope. |
Court's Reasoning and Analysis
The Court began with a plain reading of Section 35C(2A) (inserted w.e.f. 11-05-2002): the main provision requires the Appellate Tribunal, where possible, to hear and decide every appeal within three years; the First Proviso requires disposal of appeals within 180 days where a stay is granted; the Second Proviso states that if the appeal is not disposed of within that 180-day period, the stay shall stand vacated on expiry.
The Court then addressed the interpretive question raised by the parties. It observed that, while the language of the provision may appear mandatory, the phrase "where it is possible to do so" in the main provision indicates a directory tenor and recognition of administrative realities. The Court emphasized the established rule that a proviso is ordinarily an exception that qualifies the generality of the main provision rather than an independent addendum.
Citing Indo-Nippon and Hindustan Ideal, the Court explained the correct approach to reading provisos: a proviso aids construction and should not be used to undermine the enacting portion where the main provision contemplates practical difficulties (e.g., non-availability of benches, backlog of appeals). Consequently, the insertion of the provisos did not obliterate the Tribunal's discretion under Section 35C(2A) and Section 35C(1), which confers broad powers on CESTAT to make orders it thinks fit, including stays necessary to prevent a successful appeal from being rendered nugatory.
The Court rejected the Revenue's contention that the assessee must always approach the Tribunal for extension of stay once the statutory period came into force, at least in relation to orders made before 11-05-2002. The Court found this contention premised on an incorrect assumption and observed that in the absence of any change in circumstances there was no reason to inundate the Tribunal with extension applications when the Tribunal was already overburdened.
The Court did, however, leave room for the Revenue to move the Tribunal where there was evidence of dilatory tactics by an assessee who had obtained stay. The Court recommended that for stays granted after the insertion of the Second Proviso the Tribunal, as a matter of practice, should specify the period during which the stay will operate, taking into account relevant factors; that period could be limited or co-terminous with disposal of the appeal.
Applying these principles to the facts, the Court noted that respondents did not assert that the petitioner was not ready and willing to proceed with the hearing. The respondents' action was based solely on a strict interpretation that the 180-day period operated to automatically vacate any stay and hence justified attachment and encashment. The Court held that such an interpretation was contrary to the plain language, statutory object, and the authorities (including the Apex Court's approval of the Tribunal's decision in Kumar Cotton Mills), and therefore the respondents' actions were legally unsustainable.
On that basis the Court directed immediate remedial orders: lifting the attachment, quashing and setting aside the encashment of the Bank Guarantee, and directing re-deposit of the encashed amount to enable revival of the Bank Guarantee.
Holding and Implications
Holding: The petition is allowed and the rule is made absolute to the extent directed by the Court.
Direct consequences directed by the Court:
- The order of attachment dated 6th September 2004 is directed to be lifted forthwith, without waiting for a certified copy of the judgment.
- The action of respondent No. 3 in invoking and encashing Bank Guarantee No. 24/4 for Rs.1,00,000/- is declared bad in law, quashed and set aside.
- The respondent authorities are directed to re-deposit Rs.1,00,000/- with respondent No.4 Bank within three weeks so that respondent No.4 may revive the Bank Guarantee in favour of the Commissioner of Central Excise & Customs, Vadodara-I.
- There shall be no order as to costs.
- A subsequent request by respondent counsel to stay this order for four weeks was rejected by the Court.
Implications: The decision directly affects the parties by restoring the pre-encashment position and preventing the respondents from relying on an automatic vacatur theory of the Second Proviso in the circumstances of this case. The opinion does not purport to lay down a novel binding precedent beyond applying and reconciling existing authorities; it emphasizes that the proviso must be read in light of the main provision and the Tribunal's statutory powers, and that the strict automatic application urged by the Revenue was inappropriate in the facts before the Court.
1. RULE. Mr. Jitendra Malkan, learned Senior Standing Counsel, waives service of rule on behalf of respondent Nos. 1, 2 and 3. By consent of the respective parties, for the reasons that follow hereinafter, the matter is taken up for hearing and final disposal.
2. The facts lie in a very narrow compass. The petitioner has moved this Court under Article 226 of the Constitution of India seeking a writ of mandamus for quashing the order of attachment of goods dated 6th September 2004 and action of respondent No. 3 of invoking and encashing Bank Guarantee No. 24/4.A further consequential relief seeking restitution of the position as prevailing before the encashment is also sought. The petitioner had preferred an appeal in accordance with provisions of the Central Excise Act, 1944 (the Act) before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) accompanied by an application for stay of demand. After hearing the parties on 21st May, 1996 an order came to be made by the CESTAT : for the purpose of securing the interest of revenue the appellant was directed to furnish a Bank Guarantee in the sum of Rs.1,00,000/- (Rupees One lac only) within a period of two months and report compliance on 12th August, 1996. It is an admitted position that since then the Bank Guarantee, furnished by the petitioner, has been extended from time to time and lastly on 29th March, 2004, respondent No. 4 had informed respondent No. 2 that the Bank Guarantee had been extended upto 6th July, 2005.
3. The grievance of the petitioner is that despite the order made by the CESTAT staying recovery of duty and penalty amount, an order of attachment (Annexure-D) came to be made on 6th September 2004. This order was followed by invoking and encashment of Bank Guarantee No. 24/4 for a sum of Rs.1,00,000/- (Rupees One lac only) vide another order dated 6th September 2004.
4. Mr. Dhaval Shah, learned advocate for the petitioner, has stated that reliance placed by the respondents on amended provisions of Section 35C(2A) of the Act with special reference to the Second Proviso is unwarranted and the impugned action is bad in law. According to Mr. Shah, the order staying the recovery having been made prior to 11th May, 2002, the period of 180 days mentioned in the Second Proviso cannot be made applicable to such an order and the provision operates prospectively. In support, reliance has been placed on an order dated 13th January 2005 made by the Hon'ble Supreme Court of India in S.L.P. No. 13792 of 2003 (in case of Commissioner of Customs and Central Excise, Ahmedabad v. Kumar Cotton Mills (P) Ltd. and Anr.) and cognate matters to point out that the decision in case of Kumar Cotton Mills Pvt. Ltd. v. Commissioner of Customs and Central Excise, Ahmedabad-I, 2002 (146) E.L.T. 438 (Tribunal Mumbai) stands approved.
5. Mr. Malkan, learned Senior Standing Counsel appearing on behalf of the respondent - department, submitted that it was bounden duty of the petitioner to seek extension of stay from the Tribunal once a statutory provision had been incorporated and the petitioner having failed to do so, the respondent authorities were well within their rights in initiating action for recovery of outstanding dues because on expiry of the statutory period prescribed in Second Proviso to Section 35C(2A) of the Act the stay granted by the CESTAT would stand vacated automatically. Mr. Malkan also invited attention to a sentence from the aforesaid order of the Hon'ble Apex Court to contend that the order of the Apex Court should not be understood as giving any latitude to the Tribunal to extend the stay except on good cause. He, therefore, urged that it was not necessary to entertain the petition and the same should be rejected.
6. Section 35C of the Act deals with the Orders of the Tribunal and sub-section 2A has been inserted w.e.f. 11-05-2002 and reads as under:
"[(2A) The Appellate Tribunal shall, where it is possible to do so, hear and decide every appeal within a period of three years from the date on which such appeal is filed :
Provided that where an order of stay is made in any proceeding relating to an appeal filed under sub-section (1) of section 35b, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such order :
Provided further that if such appeal is not disposed of within the period specified in the first proviso, the stay order shall, on the expiry of that period, stand vacated.]"
On a plain reading of the provision it becomes apparent that where an order of stay is made in any proceeding relating to an appeal, the Tribunal is required to dispose of the appeal within a period of 180 days from the date of such an order granting stay of recovery and under the Second Proviso it is laid down that in case such appeal is not disposed of within the period specified in the First Proviso, on the expiry of the said period, the stay order shall stand vacated. The main provision states that the appellate Tribunal shall, where it is possible to do so hear and decide every appeal within a period of three years from the date of filing.
7. Thus, the scheme is that an appeal is required to be disposed of within a period of three years from the date of filing, but where stay is granted by the Tribunal, the said period of three years stands curtailed to 180 days from the date of the order granting stay. Though, the language employed by the statute appears to be mandatory in terms, considering the object behind the provision it has to be understood to mean as being directory in nature. In other words, disposal of appeal has to be within the specified period, three years or 180 days, where it is possible to do so. What meaning does one ascribe to the phrase "where it is possible to do so", if the contention of Revenue is required to be upheld. If Second Proviso is read in isolation the interpretation canvassed by Revenue may appear to be correct. But one cannot loose sight of the legal position : a proviso carves out an exception to the main rule. This Court in the case of Indo-Nippon Chemicals Co. Ltd. and Anr. v. Union of India and Ors., 2002 (49) RLT 642 (Guj.) has laid down :
"..... The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which, but for the proviso, would be within the purview of the enactment. To this real nature of proviso is also another principle of interpretation that the proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception. Ordinarily, it is foreign to the proper function of proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment. Proviso can be taken aid of as useful guide to construction of the main enactment. If the enacting portion of a Section is not clear a proviso appended to it may give an indication as to its true meaning. As stated by Lord Herschel, 'of course, a proviso may be used to guide you in the selection of one or other of two possible constructions of the words to be found in the enactment, and show when there is doubt about its scope, when it may reasonably admit of doubt as to having this scope or that, which is the proper view to take of it'. Mudholkar, J. in Hindustan Ideal Insurance Co. Ltd. v. Life Insurance Corporation Ltd. reported in AIR 1963 SC 1087 stated the rule thus - 'there is no doubt that where the main provision is clear, its effect cannot be cut down by the proviso. But where it is not clear, the proviso, which cannot be presumed to be a surplus age, can properly be looked into to ascertain the meaning and scope of the main provision." Since the natural presumption is that but for the proviso, the enacting part of the Section would have included the subject matter of the proviso, the enacting part should be generally given such a construction which would make the exceptions carved out by the proviso necessary and the construction which would make the exceptions unnecessary and redundant should be avoided (See Principles of Statutory Interpretation by Justice G.P. Singh, Eighth Edition, 2001, pages 168, 169, 174, 175 and 176)."
8. When legislature has provided in the main provision, i.e. sub-section (2A) of Section 35C of the Act, that CESTAT may hear and decide the appeal within a period of three years, where it is possible to so, legislature is well aware of the administrative exigencies and difficulties of the said body. There could be a host of reasons ranging from non-availability of a bench due to non-appointment of adequate number of technical and/or judicial members at a particular station to the quantum and quality of appeals at a particular station. One cannot and should not even attempt to exhaustively list these. Suffice it to state - the discretion available to CESTAT under Section 35C(2A) of the Act does not stand obliterated by insertion of the two provisos, and more particularly by the Second Proviso.
9. The matter may be considered from a slightly different angle. Section 35C(1) of the Act empowers CESTAT to pass such orders, on an appeal before it, as CESTAT thinks fit. The said provision confers on CESTAT powers of the widest amplitude in dealing with appeals before it, grants by implication the power of doing all such acts, or employing such means, as are essentially necessary to its execution. The statutory power under the said section carries with it a duty in proper cases to make such orders for staying recovery of demand of duty, etc. pending an appeal before the Tribunal, as will prevent such an appeal, if successful, from being rendered nugatory. Sub-section (2A) of the Act was brought on statute book to ensure disposal of pending appeals within a reasonable time frame and curtail delays. But from this it is not possible to infer a legislative intent to curtail/withdraw powers of the Tribunal to grant stay in appropriate cases. It is also not possible to infer any curtailment of such powers beyond the period of six months. The legislature would have specifically provided so if it was so intended. Any other interpretation of the sub-section with both the provisos would frustrate the object of Tribunal dispensing justice in deserving cases where the assessee is not at fault in any manner : the assessee having filed appeal and stay application within period of limitation, prima facie proved his case at hearing and obtained stay with or without conditions, and co-operating with Tribunal for hearing and disposal of appeal : but, the Tribunal is not in a position to proceed for various reasons.
10. The contention on behalf of Revenue that the assessee must approach the Tribunal and seek extension of stay already granted is misconceived - atleast in relation to orders of the Tribunal made before 11-05-2002. Firstly, it proceeds on a fallacious premise as stated hereinbefore. Secondly, in absence of any change in circumstances why should the Tribunal be inundated with extension applications when admittedly, it is already overburdened and reeling under backlog of pending appeals.
11. However, in cases where the Revenue finds that a particular assessee having obtained stay is adopting dilatory tactics, it is always open to Revenue to move the Tribunal in such an eventuality.
12. For the period subsequent to the insertion of the Second Proviso the Tribunal should, as a matter of practice, specify the time period during which the stay shall operate after exercising its judicial discretion. The period may be limited or could be co-terminous with disposal of appeal -- on consideration of all relevant factors in a given fact situation.
13. Therefore, as held by the Apex Court in case of Commissioner of Customs & Central Excise, Ahmedabad v. Kumar Cotton Mills (P) Ltd. (supra) an assessee cannot be punished for matters which may be completely beyond the control of the assessee. The situations set out by the Apex Court in its order are only illustrative and not exhaustive. The object of the provision is expressed by the Apex Court to be for the purpose of curbing the dilatory tactics of assesses, who having obtained an interim order in their favour, seek to continue the interim order while delaying the disposal of the proceedings. The observations i.e. the last sentence on which reliance has been placed by the learned Senior Standing Counsel regarding latitude being given to the Tribunal are relatable only in the situation where extension of period of stay is sought.
14. In the facts of the present case, it is not even the case of the respondents that the petitioner was not ready and willing to proceed with the hearing of the appeal. The entire case is built only on interpretation of the provision being mandatory permitting the authorities to initiate action once period of 180 days expired from the date of the order granting stay. As stated hereinbefore, such an interpretation is against the plain language of the provision and does not flow from the provision. Such an interpretation is also against the object with which the said provision has been incorporated in the statute. It is necessary to take note of the fact that the decision of the Tribunal on which reliance has been placed as well as subsequent decision of Larger Bench of the Tribunal have been approved by the Hon'ble Apex Court in no uncertain terms.
15. In the result, the petition is allowed. The respondent authorities are directed to lift the order of attachment dated 6th September, 2004 and this shall be done forthwith, without waiting for a certified copy of judgment and order of this Court.
The action of respondent No. 3 in invoking and encashing Bank Guarantee No. 24/4 is bad in law and is hereby quashed and set aside. The respondent authorities are directed to re-deposit the amount of Rs.1,00,000/(Rupees One lac only) with respondent No. 4 Bank within a period of 03 (three) weeks from today so as to enable respondent No. 4 to revive the Bank Guarantee in favour of the Commissioner of Central Excise & Customs, Vadodara-I.
16. Rule is made absolute to the aforesaid extent. There shall be no order as to costs.
17. At this stage, Mr. Malkan, learned Senior Standing Counsel, prays for staying the aforesaid order for a period of 04 (four) weeks. In light of the fact that the issue stands concluded by an order of the Hon'ble Supreme Court of India, the request is rejected.
Alert