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This article is written by Puneet Chhabra, here he discusses retrospectivity of section 35 (f) of the Central and Excise Duty Act.

Introduction

Retrospectivity of the taxation laws has always been a controversial topic in the Indian context. Whenever any law in contravention of Part 3 of the Constitution of India comes into the picture, it is considered as unconstitutional and against the basic structure of the Constitution. The Indian Constitution contains procedure with respect to any other law. In this article, I will discuss the provisions regarding the taxation law with special focus on the Section 35 f of the Central Excise Act, its retrospective effect, and what are the provisions regarding taxation law followed by leading cases and conclusion.

What are the provisions given under the Constitution regarding taxation and limitation?

Article 20 (1) states that the law which at the commencement of the act was in existence shall prevail and shall not have retrospective effect on the cases instituted. However, the limitation conferred by this article only applied to criminal cases, not on tax laws. Therefore, tax laws have ex post facto effect.

The Indian Constitution has put some restriction on the legislative power of the Parliament by inserting the provisions of the Lists in the constitution so that the Union and the State cannot exercise their power at their own will and there has to be some restriction with regard to their power. The limitation imposed by the Constitution to control legislative power is

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  1. The  Indian Constitution has inserted the provisions of Union List, State List, and Concurrent List and powers to make laws are given to the central and state governments on particular matters.
  2. The second provisions are that taxable legislation is contrary if these are unreasonable and put an unreasonable condition to carry business or if these are a contravention to the fundamental right.

 

Provision and Retrospective effect of Section 35(F) of Central and Exercise Act

Section 35 (f) of the Central and Exercise Duty Act contains the provision of deposit, fees to be paid before Appeal and penalty to be paid to the adjudicating authority, if the appeal is made against the duty demanded of those goods and services which does not  fall under the control of central excise authorities or the goods and service on which the penalty is imposed, the person appealing for it has to submit the fees or the penalty imposed.

Where the Appellate body under this Section found that the penalty levied or imposed to the person cause hardship to the person or seeing the facts and circumstances of the case, the Appellate Tribunal of Commissioner (Appeals) can allocate such deposit and put some conditions as it deemed fit.

Provided within thirty days of filing the application, the Commissioner or the competent tribunal shall decide the matter of allocation of deposits.

For the purpose of this Section “duty demanded” include

  1. The sum which is contained under Section 11 (d) of the Act;
  2. The sum of erroneous CENVAT credit taken;
  3. The sum which has to be paid under 57CC of Central Excise Rules 1944
  4. The sum payable under rule 6 of CENVAT Credit Rules,2001 of CENVAT Credit Rules, 2002 or CENVAT credit Rules 2004;
  5. The interest which is to be under the said provisions of this Act or the rules made under the Act.

Amendment to Section 35(f)

Before the amendment of Section 35(f) of the Central and Excise Duty Act, 1944 if any appeal has to be made, the appellate has to pay duty demanded or levied a penalty.

After the amendment, the person making appeal has to pay 7.5% or 10% of the duty demanded.

Official Notification of Government of India, Ministry of Finance Department of Revenue (Central Board of Excise & Customs) regarding Section 35F of Central and Excise Act,1944

Following is the official Notification of Government of India(Ministry of Finance Department of Revenue) regarding the amendment of Section 35F of Central and Excise Act,1944

http://www.eepcindia.org/download/150324175843.pdf

Judicial decisions on the retrospective effect of Section 35(f)

The  Controversy related to Section 35(f) of the Central and Excise Act, 1944 when the amendment in the section was made by the legislature which mandates pre-deposit as a percentage of the duty demanded and the clause which deals with the pending appeals should be dealing with the erstwhile provisions till the Financial Bill cannot be enacted.

There is a different opinion by the jurists on this amendment and some are of the opinion that the amendment made under the respective Section 35(f) of the Central and Excise Act, 1944 does not make the retrospective effect to the provisions.

Some of the High Courts of the Country also in the view that the amendment does not constitute the retrospective effect on the section. The opinions of the High Courts reflect while pronouncing their judgments on the case filed before them.

  • This issue was decided by the Hon’ble CESTAT, New Delhi in the case of M/s Ahluwalia Construction Group & Ors [Final Order No ST/A/50473-50477 & C/A/59479/ 2015] dated 26.02.15 in which a Division Bench of the Hon’ble CESTAT, New Delhi has observed that the appeal filed before the amendment does not have an effect of the alternations made in Section 35(f) and the appeals in this regard are governed by the provisions . The Hon’ble Bench was of the opinion that the amended Section 35F of the Central Excise Act did not impair the appellant ‘s right to appeal to a degree higher than before, as the appellant was required to deposit the duty requested or the penalty levied even under the old regime.
  • In a  recent case, i.e. M/s Ganga Foundations Pvt. Ltd. vs The Commissioner Large Taxpayer Unit[1]  reported in 2015-TIOL-2095-HC-MADST, the Court issued the order in order to see the present situation regarding the validity of Section 35(f) and directed the Tribunal to admit the application without any pre-deposit of payment demanded.
  • A similar contention was laid down by the Madras High Court in the case of M/s Fifth Avenue Sourcing (P) Limited v CST reported in 2015-TIOL- 1592-HC-MAD-ST, wherein the Hon’ble Court on June 12, 2015, very categorically after discussing the second proviso to the S. 35F, finding no merits in the same, held that “Amended provisions of the Act are not given retrospective effect as of from an anterior date, it has been construed that the amendment is  prospective.” In view of the above statement by the Court, that the proviso given in section 35f does not apply to stay applications which are pending before the court.
  • The Allahabad High Court in the case of Ganesh Yadav v UOI reported in 2015-TIOL-1490-HC-ALL-ST has laid down following issues that the right to appeal is given by the law and the requirement of predepositing demand is not against  Article 14 and also the provision attached to the Section 35f also states that the provision of this section will apply on the date of implementation and further provision state that it will not apply to the application pending before the amendment. Therefore, in the light of above statement, it is clear that the appeals filed after the amendment shall be regulated with the provision of pre-deposit and the appeal file before or pending shall not be governed by the provision.
  • Similarly, the Hon’ble Gujarat High Court in the case of Premier Polyspin (P) Ltd. v UOI reported in 2015-TIOL- 1265-HC-AHM-CX, decided on May 4, 2015, also held that the appeal filed after the amendment are too regulated by the provision of pre-deposit.
  • However, the Hon’ble Punjab and Haryana High Court in the case of M/s Super Threading (I) Pvt. Ltd. v UOI reported in CWP- 7696- 2015 relying on the views laid down by the Hon’ble High Court of Madras and High Court of Gujrat has directed the petitioner of the case to  file an appeal after the amendment so that the provision of pre-deposit on appeal can be applied.
  • Likewise, the Hon’ble High Court of Kerala, in the cases of Secretary to Govt. of Agriculture v UOI, A.M Motors UOI v Sea Breeze Courier v CCE reported in 2015-TIOL-632-HC-KERALA-ST has held that the right of appeal is conferred on the person by the law at the time of admitting of the case, not at the time of its judgment  or filing of appeal and the same should be regulated by the law prevailing at that time.
  • it is very important to take a view on  the interim order of the Andhra Pradesh High Court in the case of K Rama Mohan Rao v UOI and Ors. reported in 2015-TIOL-511-HC-AP-CX, on the date of institution of case, the amendment does not have an effect and therefore the High Court issued an order directing the Tribunal to admit the application without pre-deposit.

Conclusion

From the above judicial decisions, it is now clear that the right of appeal is a statutory right and it does not contravene the Fundamental Right enriched under the constitution and occur only when at the time of admission of the case not after the judgement or during the pendency of the suits. Also, the law prior to the amendment does not apply to the appeal filed after the amendment came into the effect.

Also, various High Courts  pronounced their judgments on the view held by the Supreme Court Of India in the case

Hoosein Kasam Dada v State of Madhya Pradesh AIR 1953SC 221 and Garikapatti Veeraya v N. Subbiah Choudhury AIR 1957 SC 540, that

“The right of appeal is conferred by the statue and it only begins on the date of admission of the suit and this has to be regulated by the law which is in existence at that time and also this right cannot be invoked during the pendency of the suit and after the judgment has been given.

Furthermore, by relying on the ruling of the Supreme Court in the case of Anant Mills Company Ltd vs. the State of Gujarat( 1975) 2 SCC 175, the Court held that the right to appeal is a statutory right. Without the statutory provision, the person aggrieved is not entitled to file an appeal. Furthermore, it has been held that while granting the right of appeal, the legislature can always impose conditions for the exercise of such a right. The legislature has all power, jurisdiction and authority to make the right to prefer an appeal as a conditional one.

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