Jayashree Insulators Limited vs Collector of Central Excise on 31 December, 1986

8/14/2019 Jayashree Insulators Limited vs Collector of Central Excise on 31 December, 1986

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Jayashree Insulators Limited vs Collector Of Central Excise on 31/12/1986

ORDER

P.C. Jain, Member (T)

1. Short question involved in this stay application is whether in consideringdispensation of prior deposit of duty and/or penalty in terms of Section 35F ofthe Central Excise and Salt Act, 1944 (hereinafter referred to as the Act)question of financial hardship alone is to be considered by the Tribunal, whiledispensing with the prior deposit or other factors such as prima facie strengthof the case are also to be looked into.

2. Leanred Counsel for the applicant has stated that the financial positionof the applicant in the instant case is very sound. However, the demand raisedagainst the applicant by the impugned order is totally untenable in law andprima facie unjustifiable. Although there may not be any financial hardship ifthe duty demanded is deposited before the appeal is heard, yet it would cause

undue hardship inasmuch as the demand made is illegal and not tenable at all inthe facts and circumstances of the case. He relies for this proposition onCalcutta High Courts judgement reported in 1986 (23) ELT 74Cal. in the case ofAmerican Refrigeration Co. Ltd. The learned Judge of the Calcutta High Court hasobserved therein that "the Tribunal in granting exemption is bound to take intoconsideration the prima facie case made out by the petitioner as also theinterest of the Revenue..". He also relies on an order of the Tribunal ofSpecial BenchB, reported in 1986 (23) ELT 234 (Tribunal) in the case of BataIndia Ltd. v. Collector of Central Excise, Calcutta. In this order, Tribunalafter considering the prima facie case as well as other factors, fixed theamount of prior deposit.

3. Shri P.K. Ajwani, learned SDR, opposing the application has submitted that

admittedly financial position being very sound, there is no question ofdispensing with the prior deposit of duty. Ambit of the appellate authorityspower is governed by the provisions of Section 35F of the Act. This ambit isnarrower than the power for granting stay within the scope of inherentincidental and ancillary powers of an appellate authority. The provisions inSection 35F make it incumbent that before the appeal is heard, the amount ofduty or penalty determined in the order under appeal has to be deposited unlessthe appellate authority dispenses with the same considering that such a depositwould "cause undue hardship to such person". Learned SDR has further stressedthat the expression undue hardship has been interpreted by the Tribunal in anumber of decisions as "financial hardship" only. He relies for this propositionupon 1985 (21) ELT 558 (Tribunal) in the case of Modi Gas & Chemicals Ltd. andalso on 1985 (22) ELT 582 in the case of Sonodyne Television Company. He hasalso placed reliance on Tribunals Order No. 59/1986A dated 3111986 inTELCOs case and Order No. 365 to 368/1986A dated 1731986 in Indo Asahi GlassCo.s case. If the prima facie nature of the case is to be considered, thenevery order under appeal can be considered to be a hardship to the appellant,otherwise he would not have appealed against the order.

4. Learned SDR has further submitted that the Supreme Court in its judgementin the case of Asstt. Collector of Central Excise, Chandernagar v. Dunlop IndiaLtd. 1985 (19) ELT 22 has also stressed that primafacie nature of case alone isnot sufficient to call for an interim stay to a petitioner; other factors shouldalso be looked into. The Honble Court has gone to the extent of saying that noGovernment can run on bank guarantees. When the Supreme Court in its extraordinary power i.e. writ power has observed in the foregoing manner regardingstay/interim orders, Appellate Tribunal should be more restrictive in itsapproach because it is to be guided by Section 35F of the Act alone. Learned SDRhas also cited Supreme Courts observation in the case of Empire Industries 1985(20) ELT 1979 to the effect that interim orders should not be passed ifincidence of taxation has been passed on to the customer. On a query from the

Indian Kanoon http://indiankanoon.org/doc/1860494/


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Bench, Shri Ajwani could not, however, satisfy that incidence of taxation hasbeen passed on to the customer in the instant case.

5. Replying to the points raised by the respondents representative, learnedcounsel has submitted that Supreme Court itself has observed (in para 5) in

Dunlop Indias aforementioned case that interim order would be justified wherethere has been "gross violation of law". Instant case, he pointed out, comeswithin the aforesaid observation of the Supreme Court inasmuch as duty ispurported to be charged on the value of an article which is purchased from themarket and which is not an integral part of the product manufactured by him. Theimpugned order is against the wellsettled law of excise levy. He has alsorelied upon Allahabad High Courts observation in 1985 (20) ELT 243 (Allahabad)Para 5.

6. We have carefully considered the pleas advanced on both sides. Firstly, weobserve that the expression undue hardship occurring in Section 35F cannot betaken to mean financial hardship alone. Had that been the intention, nothingprevented the legislature to use that expression. Undue hardship can be

considered in contrast with due hardship or legal hardship. This expression inSection 35F should, therefore, embrance hardship caused by a primafacie illegalor untenable order as well. This construction flows from the meanings,interalia, "not lawful" in New Websters Dictionary Deluxe EncyclopaediaEdition) or "illegal" in the Shorter Oxford English dictionary (Third Edition)for the word undue.

7. Having regard to the citations relied upon by both sides, we observe thatin coming to the conclusion whether undue hardship would be caused by priordeposit of the duty or penalty demanded in the .impugned order, appellateauthority would be guided by not one individual factor but a number of factorssuch as financial hardship, primafacie strength of an appellants case, amountof demand, balance of convenience or nondispensation of prior deposit may lead

to grave irreparable injury, or shake a citizens faith .in the partiality ofthe administration as narrated in Supreme Courts judgement in Dunlop Indiascase mentioned supra Tribunal has observed in TELCOs case that the "presentmatter is an arguable one". Similarly, the Tribunal has gone into totality ofcircumstances in Indo Asahi Glass Co.s case. To say that liquidity positionalone of an appellant would be the only relevant factor for consideration underSection 35F of the Act would be going not only against the observation ofHonble Supreme Court in Dunlop Indias case but also their observation in thecase of Spencer & Co. Ltd. v. Collector of Central Excise vide Application No.332/84 in Appeal Nol 693/84 :

"We are in agreement with the contention of the counsel for the petitionerthat the expression undue hardship occurring in the proviso to Section 35F ofthe Central Excises & Salt Act, 1944, would include consideration, inter alia ofthe aspect of liquidity possessed by the assessee. We are not inclined to takethe view that the impugned order gives any indication that aspect has beencompletely ignored as was contended by counsel. With these observations, thespecial leave petition is dismissed".

8. It is to be noted here that the Honble Supreme Court has used theexpression "inter alia" while agreeing with the petitioners counsel thatliquidity position of an assessee has also to be looked into. This is a directauthority of the Supreme Court on the scope of Section 35F of the Act and aplain meaning has to be given to these observations.

9. Even otherwise looked at from purely rational and logical point of view,it does not appeal to common sense that while various factors are to be takeninto consideration for deciding the question of stay of an order under appealwithin the scope of inherent incidental and ancillary powers of an appellateauthority, it has to consider the factor of only financial hardship in respectof dispensing prior deposit visavis maintainability of the appeal under the



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Act. Repercussions of not granting a "stay" are not as farreaching as that ofnot dispensing with the prior deposit in an appropriate case. In the formerevent, an appeal would be heard and decided on merits and the appellant has achance of vindicating his stand; in the latter case he is debarred at thethreshold and the very appellate remedy gets extinguished.

10. Accordingly, we consider that all relevant factors have to be taken intoconsideration in coming to a conclusion of "undue hardship in terms of theproviso to Section 35F.

11. Applying the above general observations to the facts and circumstances ofthis case including its primafacie strength and the liquidity position of theappellant, (and without commenting in particular on any single fact since thematter is subjudice before us) we dispense with the prior deposit of dutydemanded subject to furnishing of bank guarantee for the full amount to thesatisfaction of the departmental authorities within six weeks of the date ofreceipt of this order.

M. Gouri Shankar Murthy, Member (J)

I regret that I have, perforce, to dissent from the order of our learnedbrother, much against my will, in view of several decisions of the Tribunalitself in

(a) the Stay Petition in Appeal No. 133/83 Tribhuvandas Bhimji Zaveri v.Collector of Customs & Central Excise a decision of a Bench of two Members;

(b) 1985 (20) ELT 384 (Brima Sugar Ltd. v. Collector of Central Excises adecision by a bench of three Members);

(c) 1985 (21) ELT 558 (Modi Gas and Chemicals v. Collector of Central

Excise, Meerut a decision by a bench of three Members);

(d) 1985 (21) ELT 704 (Parasmal Solanki v. Collector of Customs, Bombay again a decision by a bench of three Members);

(e) 1986 (24) ELT 400 (R.K. Containers & Steel Fabricators v. Collector ofCentral Excise & Customs, Baroda a decision by a bench of three Members);

(f) decisions of our brother Harishchandra in a third Member reference on adifference between me and brother Bhatnagar in :

(i) Exquisite Impex Pvt. Ltd. v. Collector of Customs, Calcutta [StayPetition No. 15/85Cal. in Appeal No. 26 of 1985 (Cal.)] and

(ii) Siemens India Ltd. v. Collector of Central Excise, Calcutta (StayPetition No. 45/85Cal. in Appeal No. E/72/85Cal.).

2. We are bound by all the aforesaid decisions as well as the decision of theHonble Supreme Court in an S.L.P. filed by Spencer Sc. Co. Ltd. [S.L.P. (Civil)No. 7762 of 1984] against our order refusing to dispose with the deposit,notwithstanding that it was. contended before us that the applicant therein hada good case, prima facie, in the appeal.

3. It will be unnecessary to recapitulate all the reasons set forth in theaforesaid decisions. Suffice it to say, however, at the risk of repetition that

(a) the essential distinction between an ordinary stay petition ) in anappeal otherwise maintainable and an application for dispensing with a depositas a condition precedant for maintainability of the appeal itself in terms ofS.35F of the Central Excises and Salt Act, 1944 (= Section 129E of the Customs



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Act, 1962) [An appeal could even be rejected for failure to make the deposit,where it is not dispensed with AIR 1971 S.C. 2280 Navin Chandra Choteylal v.the Central Board of Excise and Customs];

(b) the different criteria that have to be adopted in the grant of stay

ordinarily and dispensation of the mandatory prerequisite of a dep9sit, inconsequence of the distinction between the two;

(c) the intent of the legislature in providing for a deposit mandatorilyand dispensing with such requirement for "undue hardship";

(d) the consequences of construing "undue hardship" to mean and imply allsuch criteria as are applicable to the grant of stay ordinarily. A legislativeprovision cannot be a mere supererogation and no construction is to be adoptedthat may render it so. There need be no provision for a mere stay which could,even otherwise, be ordered on such considerations as may be germane, like e.g.existence of prima facie case, in exercise of the incidental or ancillary powersof the Tribunal. Is the expression "undue hardship" to be construed to mean and

imply all those criteria which may be germane for the grant of stay?

(e) the necessity to interpret the order of the Honble Supreme Court inthe Spencer case aforesaid in the context of the pleadings facts on record inthat case. If it were the intent of the Supreme Court, by the use of theexpression "inter alia" that the existence of a prima facie case was a relevantfactor, the. S.L.P. should have been allowed, seeing that we refused to take itinto consideration and that was made a grievance of in the S.L.P,;

(f) the irrelevance of our notions of propriety in the construction of astatutory provision which has to be given effect to, cannot be overlooked.

4. Nor am I clear in my mind what prima facie case the appellant has. We need

not restrain ourselves from discussing if a prima facie case exists merelybecause the ultimate decision in the appeal is still be rendered or subjudice.Indeed, we have to spell out what exactly, is the case, prima facie, in favourof the applicant.

5. That the question of furnishing a security to safeguard the interests ofthe Revenue by way of a Bank guarantee, I presume, will arise only if we decidethe issue in favour of the applicant and hold that the deposit, if insistedupon, will cause "undue hardship1.

6. In view of the difference between the two of us, the papers may be placedbefore the Honble President for resolving the difference and deciding theissue.

S. Venkatesan, President

1. This order has reference to an application by Messrs. Jayashree InsulatorsLtd., arising out of an orderinappeal dated 30985 passed by the Collector ofCentral Excise (Appeals), Calcutta. Six showcausecumdemand notices had beenissued to the applicants, calling on them to show cause why Central Excise dutyalleged to have been shortlevied as a result of the wrong determination of thevalue of electrical insulators manufactured by them should not be demanded fromthem. After considering their submissions, the Assistant Collector set aside thesix demand notices. An application in terms of Section 35F, Central Excises andSalt Act was filed to the Collector (Appeals), that authority set aside theorderinoriginal of the Assistant Collector and confirmed the demands for dutyunder the six showcause notices. The total duty demanded from the appellants isRs. 6,61,385.26.

2. The applicants came up in appeal to the Tribunal against the order of theCollector (Appeals). They also filed what they termed an "application for stay



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from the operation of the

orderinappeal...passed by the Collector of Central Excise (Appeals),Calcutta". The "prayer" at the end of the appeal read as follows :

"Since the amount is not payable, it is prayed that the recovery may kindlybe stayed and the appeal is posted for hearing very early as recurring demandsare being issued".

3. It may be mentioned that no specific reference has been made in theapplication to Section 35F, Central Excises and Salt Act, or to waiver of thepredeposit required in terms of that Section. Nevertheless, before the SpecialBench (consisting of learned Brothers S/Shri M. Gouri Shankar Murthy and P.C.Jain) which heard the application, the question of waiver of predeposit notonly appears to have been mentioned but also to have been given predominance.This would be seen from the first para in the order of Member, Shri P.C. Jain,which reads as under :

"Short question involved in this stay application is whether in consideringdispensation of prior deposit of duty and/or penalty in terms of Section 35F ofthe Central Excises and Salt Act, 1944 (hereinafter referred to as the Act)question of financial hardship alone is to be considered by the Tribunal, whiledispensing with the prior deposit or other factors such as prima facie strengthof the case are also to be looked into."

In framing the points of difference of opinion, the two learned Members havespecifically referred to the provisions of Section 35F, and the arguments beforeme also were with reference to the interpretation of that Section.

4. Since the two learned Members differed in their opinions, the case wasreferred to me as President, in accordance with the provisions of Section

129C(5) of the Customs Act, 1962 (as amended), also applicable to Central Excisematters, which reads as follows :

"If the Members of a Bench differ in opinion on any point, the point shallbe decided according to the opinion of the majority, if there is a majority butif the Members are equally divided, they shall state the point or points onwhich they differ and the case shall be referred by the President for hearing onsuch point or points by one or more of the other Members of the AppellateTribunal, and such point or points shall be decided according to the opinion ofthe majority of the Members of the Appellate Tribunal who have heard the caseincluding those who first heard it:

Provided that where the Members of a Special Bench are equally divided, thepoint or points on which they differ shall be decided by the President."

5. The formulations of the points of difference by the two Members wereslightly different. Since they could not agree upon the formulations, notice wasissued to the parties of the hearing by the President for deciding the followingquestion, which appeared to represent the basic point of difference :

"Whether the expression undue hardship in the proviso to Section 35F,Central Excises and Salt Act, 1944, should be taken as referring only tofinancial hardship, or as covering also other factors such as the existence of aprima facie case in favour of the applicant."

6. When the matter came up for hearing before the two parties, on the 3rdDecember, 1986, Shri P.K. Ajwani, SDR, representing the respondent, raised anumber of preliminary issues.

7. His first submission was that under Section 129C(5), Customs Act, wherethe Members of a Bench differed in opinion, they were required to state the



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points of difference. In the present case, it was not clear whether the questionas communicated to the parties represented the point of difference as framed bythe two Members. If this was not so, and it was proposed to have the hearing onthe basis of a point or points different from those formulated by the twoMembers, the two parties should be apprised of the points as formulated by the

Members and given an opportunity to make their submissions thereon.

8. Shri Ajwani was informed that it had become necessary for the President toformulate the point of difference because the two learned Members could notagree on a common formulation. At the instance of the Bench, Shri R.P. Sharma,JDR, read out the views of the two learned Members as to what the points ofdifference were. Shri Ajwani then accepted that the question as framed by thePresident and communicated to the two parties covered the basic point ofdifference between the two learned Members as expressed by them.

9. Shri Ajwani then made a further submission that the two learned Membersshould have included another point of difference which according to him wouldrun somewhat as follows :

"Whether decisions of other Benches would not be binding on another Benchhaving concurrent and identical jurisdiction."

10. On being invited for his views, Shri Agarwal submitted that the questionwhether waiver of predeposit should be granted was not a legal question butdepended on the facts of the case, as held by the Honble Supreme Court in theDunlop India case (referred to later). Therefore, the question of bindingprecedents would not arise. He has of the view that inclusion of this furtherpoint would not be "worthwhile".

11. Shri Ajwani was informed that no new point which has not been included bythe learned Members themselves could be added at the stage of hearing by a third

Member or by the President. The reasons for so holding were not spelt out at thehearing. Briefly, they are as follows :

(a) Basically, it is the learned Members who have to decide a case as aBench. Therefore, it is they who can say what are the points on which theydiffer;

(b) It rests entirely in the judicial discretion of each Member how heshould word his order and what points of fact or law he should refer to. Whatcan be termed as "points of difference" would not be however every observationof one Member with which the other Member does not see eye to eye; rather theywould be in the nature of the ratio decidendi on which the ultimate decisionwould turn;

(c) In the somewhat similar case of references to the High Courts or to theSupreme Court, the Supreme Court itself has held that even that Honble Courthas no jurisdiction to give its opinion on a question not referred to it butwhich could have been, or on a different question. (See "Datta on the IncometaxLaw, First Edition, p. 1091 and the references at footnote 9 thereunder). Evenif the above rulings do not apply, their analogy would certainly do so.

12. On a practical plane, it is quite unnecessary to seek the inclusion ofany additional points, because these would be material only in so far as theywould affect the decision or decisions on the main question actually posed. Onthat basis, these points could be raised and argued by either side. In fact, theparticular point which Shri Ajwani wished to be added would be relevant to thequestion before the Bench, and both sides did address the Bench with referenceto this point.

13. Thereafter, Shri Ajwani submitted that certain of the orders of theTribunal referred to by the two Members had not been published and were not



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available for reference. Order dated 251084 of the Honble Supreme Court inthe case of Messrs. Spencer & Co. Ltd., amended on 301084 on SLP No. 7762 of1984 had similarly not been reported. He was informed that with this point inmind the Registry had been directed to make a compilation of copies of suchunreported judgements/orders, of which there were six. Copies of the compilation

were given by the Court Master to learned representatives of both sides. ShriAjwani filed copies of the Tribunals order No. 368/1984A dated 29584 in thecase of Messrs. Spencer & Co. Ltd., leading to the abovementioned order of theHonble Supreme Court. These were also taken on record. The hearing of theapplication was then proceeded with.

14. At the outset, it may be made clear that the present Bench is notrequired to reach any decision with reference to the facts of the particularcase. As regards financial hardship, the applicants have frankly admitted (andthis was confirmed by Shri Agarwal) that they are not taking this plea. As towhether the applicants deserved relief on the basis of a prima facie case,balance of convenience, etc., no specific finding has been given by Member, ShriMurthy, having regard to his view that such considerations are not relevant. Nor

have the two learned Members included this as a point of difference.Accordingly, both parties were informed that this aspect would have to beconsidered by the original Bench if the occasion arose, and that the presentBench would go only into the general question as communicated to them.

15. Addressing the Bench on this question, the learned advocate for theapplicants supported the view expressed by Member, Shri P.C. Jain. He addressedhis arguments under the following heads :

(i) meaning of the term "hardship";

(ii) relevance of a prima facie case in favour of the applicants, in thelight of decisions of the Courts and the Tribunal; and

(iii) the right of appeal being a statutory right, it should not befettered by enforcing the onerous condition of predeposit.

16. In support of his first argument, Shri Agarwal cited a number ofpronouncements of the Honble Supreme Court to the effect that where a term isnot defined in the statute it must be construed in its popular sense meaning"that sense which people conversant with the subject matter with which thestatute is dealing would attribute to it." He relied on the following judicialdecisions :

(1) AIR 1961 SC 1325 (Ramavtar Budhaiprasad v. Assistant Sales TaxOfficer);

(2) AIR 1967 SC 1454 (Commissioner of Sales Tax, Madhya Pradesh v. Messrs.Jaswant Singh Charan Singh);

(3) 1985 (22) ELT 402 (P&H) Lavkursh Hosiery v. State of Punjab.

These are all cases relating to sales tax, dealing respectively with themeanings to be attributed to the terms "vegetables", "coal" and "cottonfabrics"/"woollen fabrics".

17. Shri Agarwal referred to "Maxwell on the Interpretation of Statutes",Twelfth Edition (p. 141) wherein it has been observed that "the language used isnot to be stretched in favour of the Crown or narrowed in favour of the taxpayer". Shri Agarwal submitted that in the light of the above definitions of"hardship" and "undue hardship", and the principle enunciated in Maxwell,consideration of the question of waiver of predeposit should not be confined tothe financial aspect only, but should include any other aspects placed beforethe Bench.



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18. Shri Agarwal went on to quote a number of legal dictionaries forinterpretation of the term "hardship". He cited "Words and Phrases LegallyDefined" edited by John B. Saunders, 2nd Edition (Vol.11, p.347). Therein thereis reference to a judgment of an overseas court to the effect that "The word

hardship is capable of being descriptive of adverse repercussions of everykind.... It may be physical or mental...". He also cited AIR 1975 SC 415(Sterling General Insurance Co. Ltd. v. Planters Airways Pvt. Ltd.) wherein itwas held, in interpreting the expression "undue hardship", that "undue" mustmean something which is not merited by the conduct of the claimant, or is verymuch disproportionate to it". This had reference to the question of extension oftime to refer a, matter to arbitration. Shri Agarwal also referred to LawLexicon by T.P. Mukherjee, wherein a similar definition has been given. He alsoreferred to Strouds Judicial.Dictionary (4th Edition, p.1210) and Law Lexiconby Venkataramaiya (2nd Edition, p.994), wherein it has been stated that the term"hardship" includes any matter of appreciable detriment, whetherfinancial,personal or otherwise.

19. Shri Agarwal thereafter took up certain judicial and other decisionsrelating to the question of stay or waiver of predeposit. The Calcutta HighCourt, in 1986 (23) ELT 74 (Cal.), relating to American Refrigeration Co. Ltd.,had set aside an order of the Tribunal refusing to waive predeposit of the dutyamount. The learned Single Judge had observed" that the Tribunal in grantingexemption (sic) was bound to take into consideration the prima facie case madeout by the petitioner as also the interests of the revenue.

20. The Andhra Pradesh High Court also had occasion to deal with the questionof stay of enforcement of the lower authoritys order pending consideration ofthe assessees revision petition, in 1983 ECR 2100 (AP) in the case of Messrs.Srinivasa Cement Works. The Honble High Court had observed that substantialquestions of law and fact had been raised by the petitioners, that the amount

demanded was heavy, and that the revisional authority, which had not passed anyorders on the assessees stay application, should have exercised itsjurisdiction one way or the other. The High Court stayed the proceedings forrecovery of duty and penalty pending disposal of the revision petition. (Thiswas a case before the provisions relating to the Tribunal came into operation,and had reference to the grant of stay and not the operation of Section 35F asstated in the report of the case).

21. The West Regional Bench of the Tribunal, in the case of Atic IndustriesLtd., reported in 1983 ELT 620, had granted stay of the order of the lowerauthority directing repayment of excise duty alleged to have been erroneouslyrefunded to them. The Bench expressed the view that Section 35F, Central Excisesand Salt Act, did not cover refund of duty erroneously paid, and granted theinterim stay sought.

22. Shri Agarwal then referred to the order of the Honble Supreme Court inthe case of Assistant Collector of Central Excise v. Dunlop India Ltd., reportedin 1985 (19) ELT 22 (SC), in which the Supreme Court had at length examined thecriteria to be followed by the High Courts in the making of stay orders. In para7 of that order, the Honble Supreme Court had observed as follows :

"All this is not to say that interim orders may never be made againstpublic authorities. There are, of course, cases which demand that interim ordersshould be made in the interests of justice. Where gross violations of the lawand injustices are perpetrated or are about to be perpetrated, it is the boundenduty of the court to intervene and give appropriate interim relief. In caseswhere denial of interim relief may lead to public mischief, grave irreparableprivate injury or shake a citizens faith in the impartiality of publicadministration, a Court may well be justified in granting interim relief againstpublic authority."



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It followed from this that each and every fact of the case before the Benchhad to be gone into. Further, unlawful deprivation of money was by itself ahardship. Therefore, whenever a prima facie .case was shown to exist, stayshould be granted without going into the financial position of the applicant.

23. Shri Agarwal also cited the decision of the Allahabad High Court in thecase of U.P. Lamination, reported in 1985 (20) ELT 243 (All.), where thedecision of the Honble Supreme Court in the case of Dunlop India Ltd., had beenreferred to. In para 5 of its order, the Honble High Court had observed that"the only declaration of law [arising from the Dunlop India case] which can besaid to be binding in respect of interim order is that it is not only the primafacie case on which an interim order should be granted in taxation matters butthe Court must further consider if there was balance of convenience in favour ofpetitioner."

24. Shri Agarwal referred to para 9 of the order of Member, Shri Jain,wherein reference has been made to the farreaching repercussions of notdispensing with prior deposit in an appropriate case. He submitted that the

right of appeal was a statutory right, as held by the Honble Supreme Court inthe case of Hoosein Kasam Dada (AIR 1953 SC 221). This right should not befettered by the condition of requiring an appellant to deposit an amount not duefrom him.

25. Referring to the proviso to Section 35F, which requires the appellateauthority to impose conditions to safeguard the interests of revenue, ShriAgarwal submitted that "revenue" in this context could only mean the amount ofrevenue actually due from the appellant.

26. Shri Agarwal concluded his arguments by saying that there was nojudgement of the Supreme Court or a High Court against the view advanced by him.There were judgements of the Tribunal itself in his favour. Accordingly, the

present application should be decided taking into account that the applicantshad a prima facie case in their favour.

27. Two questions were put to Shri Agarwal from the Bench, namely :

(i) In the various orders passed by Member, Shri Murthy (e.g. at p.18 ofhis order in the case of Messrs. Exquisite Impex Pvt. Ltd. (Order in StayPetition No. 15/85Cal: relating to Customs. Appeal No. 26 of 1985/Cal.), he hada drawn a distinction between the grant of stay of operation of the order underappeal and waiver of predeposit. In his abovementioned order he had observed asfollows :

"While, therefore, the existence of a prima facie case is relevant for thegrant of stay of operation of the order under appeal, it is not so for thepurposes of S.35F of the Central Excises and Salt Act, 1944 (= Section 128E ofthe Act)".

Shri Agarwal was asked whether he would subscribe to this distinction;

(ii) It was also pointed out to Shri Agarwal that according to the viewadvanced by him, namely that each and every fact of a case should be gone intoon an application for waiver of predeposit, the hearing and disposal of suchapplication would practically become a fulldress rehearsal for the hearing anddisposal of the main appeal. Would he say that this was the intention behind theproviso to Section 35F?

28. On the first question, Shri Agarwal stated that he agreed with the viewof Member, Shri Murthy, but went on to say that in most cases there wereparallel applications for stay and waiver of predeposit, and the same criteriashould apply to both. (He had already referred to similar observations in para 9of the order of Member, Shri Jain).



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29. As regards the second question, Shri Agarwal replied that in theinterests of justice such detailed examination should be made even whiledisposing of applications for waiver of predeposit.

30. Replying on behalf of the Collector, Shri P.K. Ajwani raised a number ofpreliminary issues. He submitted that there were a number of decisions ofBenches of the Tribunal, including Special Bench A, to the effect that only thefinancial position should be considered for purposes of Section 35F. Hesubmitted that the decision of other Benches having concurrent or identicaljurisdiction would be binding on the present Bench. In the present case, thePresident should be considered as being a Member of a threeMember SpecialBench. In this view he, as well as the entire Bench, would be bound by thedecisions of previous threeMember Benches.

31. It was pointed out to Shri Ajwani that there were also decisions to thecontrary, such as the decision of a threeMember Special Bench in the case ofBata India 1986 (23) ELT 234. Shri Ajwani submitted that in that case the proper

course would be to set up a Larger Bench which could prevail over the decisionsof threeMember Special Benches.

32. It was then pointed out to Shri Ajwani that the provisions of Section129C(5) (as amended) were very clear. The proviso contained the direction thatwhere the Members of a Special Bench were equally divided "the point or pointson which they differ shall be decided by the President". This appeared to makeit obligatory for the President to decide such points, and did not leave anyscope for reference to a Larger Bench. Shri Ajwani reiterated his submission. Hewas then asked to proceed with his arguments on the point for decision.

33. Shri Ajwani referred to the order of the Supreme Court in the case ofSpencer & Co. Ltd. (vide para 13 supra). In that case, the Honble Supreme Court

had observed as follows :

"We are in agreement with the contention of the Counsel for the petitionerthat the expression undue hardship occurring in the proviso to Section 35F ofthe Central Excises Salt Act, 1944 would include consideration, inter alia, ofthe aspect of liquidity possessed by the assessee".

This order did not specifically indicate the arguments advanced before theSupreme Court. However, it could be safely presumed that before the SupremeCourt, the applicants must have urged the points regarding a prima facie caseand their readiness to execute a bank guarantee. Despite this the Supreme Courtin its order and referred only to the aspect of liquidity. This would show thatliquidity or financial position was the only relevant consideration. Thejudgement of the Supreme Court was binding on the Tribunal.

34. It was pointed out by the Bench that the Supreme Court in its order hadused the words "include" and "inter alia". This would indicate that otherconsiderations were also relevant. Shri Ajwani submitted that since there was nospecific inclusion of "prima facie case", it could not be said to be relevant.

35. Shri Ajwani submitted that there was no other judgement of the SupremeCourt on the interpretation of Section 35F. In fairness, he wished to statethat in the case of Tata Engineering & Locomotive Co. Ltd., (TELCO), where theTribunal had rejected a stay application (sic), on the basis of a satisfactoryliquidity position, the Supreme Court had subsequently given a direction to theTribunal to decide the appeal within a specified time limit, without priordeposit of the duty demanded.

36. He submitted however that the Honble Supreme Court in its order did notmention a "prima facie case", or interpret the expression "undue hardship".



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37. Referring to the wording of Section 35F Shri Ajwani pointed out that therequirement was of deposit of duty or penalty. In other words, the burden on theappellant was financial in nature. The expression "undue hardship" should beread in its context, to mean that the grounds for waiver of the deposit shouldalso be financial in nature. Shri Ajwani then referred to the Tribunals order

in the case of R.K. Containers & Steel Fabricators, reported in 1986 (24) ELT400. In that case a threeMember Special Branch had held that the expression"undue hardship" has to be related to the pecuniary difficulties in making thedeposit, and that the existence of a prima facie case would not be aconsideration. In reaching this decision, the Bench had taken into account thedecision of the Honble Supreme Court in the case of Dunlop India Ltd., and ofthe Honble Allahabad High Court in the case of U.P. Lamination (paras 22 and 23supra).

38. Again, in the case of Messrs. Exquisite Impex Pvt. Ltd. (para 27 supra),there was disagreement between two Members. The third Member, to whom the matterwas referred, had taken the view which the Department was urging now.

39. In the case of Gonterman Peipers (India) Limited 1986 (26) ELT 471(Cal.), the Honble Calcutta High Court had observed that the Tribunal was not acourt and therefore its earlier decisions could not be res judicata. However, anearlier decision was an important factor to be seriously taken intoconsideration. Only if fresh facts came to light would the Tribunal be justifiedin corning to a conclusion different from the one previously reached.Accordingly, the Tribunal should not now depart from the view which had beenfollowed by it in a number of previous cases.

40. The Bench pointed out to Shri Ajwani that he was proceeding on the basisthat the Tribunal had consistently taken the view that only the financialposition or liquidity was the determining factor. However, the Tribunal hadtaken a different view in a number of cases, such as the case of Bata India. He

was asked why the decision of the threeMember Bench in the Bata India casecould not equally be considered as binding. Shri Ajwani replied that the otherdecisions were subsequent to that in the case of Bata India.

41. Shri Ajwani referred to the order of the Calcutta High Court in the caseof American Refrigeration Co. Ltd. (vide para 19 supra), which had been cited byShri Agarwal. He submitted that the order clearly showed that this was a case ofevident financial hardship. It was in the light of this that the High Court setaside the Tribunals order.

42. Shri Ajwani then referred to the judgement of the Allahabad High Court inthe case of Hari Fertilizers, reported in 1985 (22) ELT 301 (All.), which waswith reference to Section 35F. The entire judgement reads as under :

"This writ petition has been filed against the order of the Collector,Central Excise (Appeals). Four appeals are pending against the orders of theAssistant Collector, Central Excise, Varanasi in which stay applications Werefiled. The Collector rejected all the stay applications except one which hasbeen allowed in part. Under the proviso to Section 35F, the appellate authoritymay grant stay if the demand levied would cause undue hardship to the personappealing. The Collector should pass a speaking order taking into account thisaspect of the matter. He may also consider whether any part of the demand isprima facie barred by time before passing appropriate orders. With theseobservations the writ petition is dismissed.

Shri Ajwani submitted that this was a very brief order. The High Court hadonly said that a prima facie case may also be considered, but there was nodirection to the Collector to this effect.

43. Shri Ajwani then referred to the order of the Andhra Pradesh High Courtin the case of Srinivasa Cement Works (para 20 supra). He submitted that the



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question there was of grant of a stay and not waiver of predeposit underSection 35F. That decision would, therefore, not be relevant to the presentquestion.

44. Referring to the order of the Tribunal in the case of Bata India (para 31

supra), Shri Ajwani submitted that the order there was dated 2221985. Sincethere were later decisions of the Tribunal to the contrary, those decisionsshould be taken to prevail over the earlier decision. Alternatively, a LargerBench should be asked to consider the question, as already submitted by him.

45. With reference to the case Bata India itself, Shri Ajwani submitted thatin that case a prima facie case had actually been made out, and this had alsobeen conceded by Shri Lakshmikumaran, appearing for the Department/Accordingly,that case was. distinguishable from the present case.

46. Shri Ajwani also referred to the order of the Tribunal in the case ofAtic Industries Ltd., reported in 1983 ELT 620. The Bench had held that theprovisions of Section 35F did not apply to the circumstances of that case,

however, the question of grant of stay did arise and the Bench had granted thestay. Shri Ajwani submitted that this decision was not relevant to the presentquestion since it did not relate to the waiver of predeposit under Section 33F.

47. Shri Ajwani was asked whether he accepted the distinction made by Member,Shri Murthy in his order in the case of Exquisite Impex Pvt. Ltd. [para 27(i)supra]. Shri Ajwani replied that he accepted the distinction.

48. Shri Ajwani then referred to the observations of the Supreme Court in thecase of Assistant Collector of Central Excise v. Dunlop India Ltd. (para 22supra). He submitted that the observations of the Honble Supreme Court hadreference to the pwoer of stay exercisable by Courts. They did not refer to thequestion of waiver of predeposit under Section 35F. Accordingly, the

observations of the Supreme Court in that order were not at all applicable tothe present question. In support of his contention he pointed out that theSupreme Court had referred to "interim orders". An order passed under theproviso to Section 35F would not be an interim order but an order under aspecific statutory position. Shri Ajwani submitted that the judgement in theDunlop India case was a whole in favour of the Departments stand, since itsthrust was to discourage the making of interim orders.

49. Shri Ajwani then referred to the judgement of the Allahabad High Court inthe case of U.P. Lamination (para 23 supra). In that case the Tribunal hadpassed an order under 35F granting some relief. However, the appellant went backto the Tribunal seeking further indulgence, which was refused. It was againstthis background that the High Court passed its order staying the Tribunalssearlier order. The judgement contained an interpretation of the observations ofthe Supreme Court in the Dunlop India case, relating to the making of interimorders. There was no question of a prima facie case being taken intoconsideration.

50. Dealing with the argument of Shri Agarwal that the right of appeal was astatutory right, Shri Ajwani stated that he had no quarrel with thisproposition. However, that statutory right was circumscribed by the provisionsof Section 35F. He cited the decision of the Supreme Court in the case of NavinChandra Chhotelal, reported in AIR 1971 SC 2280. In that case the Supreme Courthad held that where the predeposit was not made the appeal could be dismissed.

51. As regards the interpretation of the expression "undue hardship", ShriAgarwal had referred to various dictionaries, etc., with special reference tothe meaning of "hardship". Shri Ajwani submitted that he had no quarrel with theproposition that the expression "undue hardship" should be understood in thepopular sense, however, what was to be understood was not just the one word"hardship". The entire provision should be interpreted, wherein the "undue



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hardship" was linked to the making of a deposit.

52. As regards the definitions of "hardship" relied upon by Shri Agarwal,Shri Ajwani submitted that the context in which the interpretations had beenmade was not clear. As regards "undue hardship", Shri Agarwal had quoted T.P.

Mukherjees Law Lexicon. It had been observed that ""undue" must mean somethingwhich is not merited by the conduct of the claimant, or is very muchdisproportionate to it." Those observations had reference to a differentprovision of law and a different situation, namely a question of lamitation. Inthe present case there had been orders by two lower authorities, and the conductof the claimant had been fully taken into consideration in arriving at adecision.

53. Summing up his stand, Shri Ajwani submitted that "at worst", the primafacie case should be considered only when financial hardship had beenestablished. When it was pointed out to Shri Ajwani that this amounted tobegging the question, he returned to his basic submission that only financialhardship was relevant.

54. Shri Ajwani was asked whether he would maintain this proposition even ina case where the applicant had an overwhelmingly strong case, which was obviousat sight. An example would be where there was clearly an arithmetical error incalculation, as a result of which the duty due on the basis of the Departmentsstand had been wrongly shown as 10 times the correct amount. Was it ShriAjwanis contention that even in such a case waiver of predeposit should beonly on the basis of the appellants financial position?

55. Shri Ajwani replied that where the case was overwhelmingly strong andobvious, and this was conceded by the Department, there would be justificationfor applying the proviso to Section 35F without going by the financial position.This would not, however, apply where the applicant had only an arguable case,

say 50 50, or 60 40.

56. Shri Ajwani wished to submit that in this case the appellants did not infact have a prima facie case. However, the Bench clarified that it would not gointo the question whether the appellants in fact had a prima facie case. Thatwould be left to the original Bench to decide, if the occasion arose.

57. In reply, Shri Agarwal stated that he had not advanced his arguments onthe basis of distinguishing one case from another. He relied on the authoritiescited by him.

58. On Shri Ajwanis argument that orders passed by the same Bench should bethe same, Shri Agarwal referred to the judgement of the Supreme Court in thecase of Empire Industries Ltd., reported in 1985 (20) ELT 179. He read from para53 of that judgement wherein the Supreme Court had observed as follows :

"Every Bench hearing a matter on the facts and circumstances of each caseshould have the right to grant interim orders on such terms as it considers fitand proper and if it had granted interim order at one stage, it should haveright to vary or alter such interim orders." (Shri Ajwani intervened to say thatthe Supreme Court was referring to interim orders and not orders under Section35F).

59. As regards the definition of "undue hardship", Shri Agarwal stated thatno doubt this was with reference to the making of a deposit. He had howevertried to explain what was meant by "undue hardship", and he relied on theauthorities which he had cited.

60. I have carefully considered the orders recorded by the two learnedMembers of the original Bench, the submissions made before me by therepresentatives of the two parties, and the various authorities cited by the



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learned Members and the representatives. In the first instance, I shall dealwith the preliminary submissions made by Shri Ajwani. One of these was that thetwo learned Members should have included another point of difference. Thissubmission has been dealt with in paras 9 to 11 supra.

61. Shri Ajwani had also made other preliminary submissions, all to theeffect that the President on hearing the reference from the two learned Membersshould not .independently decide the points of difference. He wished that, inview of a number of earlier decisions of the Tribunal to the effect thatfinancial hardship was the only relevant consideration, I should consider myselfas sitting in a threeMember Bench, and follow the earlier decisions.Alternatively, he wished that the matter should be referred to a Larger Bench.

62. As pointed out to Shri Ajwani during the hearing, the reference to thePresident in this case is under a specific provision of law. This is the provisoto Subsection (5) of Section 129C, which has been reproduced at para 4 supra.This proviso was inserted by the Customs (Amendment) Act, 1985. By the same Act,the words "three Members" originally occurring in Subsection (3) ibid had been

replaced by the words "two Members". In other words, instead of the previousrequirement that a Special Bench for dealing with Customs appeals should consistof not less than three Members, the requirement was reduced to two Members. Asimilar amendment to Section 35D of the Central Excises and Salt Act was madethrough the Central Excises and Salt (Amendment) Act, 1985. Before theseamendments, the likelihood of an equal division of Members of a Special Benchwas very small, since a Special Bench would ordinarily consist of three Members.If a Larger Bench was set up, it .would in practice always have an odd number ofMembers. However, as a result of the amendments, Special Bench cases could beheard by a Bench of two Members, leading to the possibility of an equaldivision. In those circumstances Parliament had provided that the points ofdifference "shall be decided by the President". This is a special provision todeal with a special situation. Its effect is quite clear. The reference has to

be to the President and the points of difference have to be decided by him. Inview of this clear wording there would be no scope for the President to referthe matter to a Larger Bench.

63. Again, it may be noted that the phraseology used in the proviso isdifferent from that in the main clause. The main clause states that the point orpoints of difference shall be decided according to the opinion of the majorityof the Members including those who first heard it. In other words, the Memberswho make the reference and the Member or Members who hear it form a singleBench. However, the wording of the proviso is significantly different. It statesthat the points of difference shall be decided by the President. It is clearfrom this that the President has been entrusted with a specific responsibilityto reach a decision on the points of difference. No doubt, in doing so he wouldhave regard to all relevant aspects, including the precedents which may havebeen cited. The wording would not, however, in any way support the Argument ofShri Ajwani that the President should act as if the matter had been heard in thefirst instance by a threeMember Special Bench of which he happened to be one ofthe Members. Whereas the proviso as framed by the Legislature emphasizes theidentity and responsibility of the President, Shri Ajwani has sought to arguethat this should be effaced or diluted. Since the wisdom of the Legislature hasto prevail over the wishes of the learned SDR, I would prefer to go by the plainmeaning of the proviso, namely that the President should decide according to lawthe points referred to him.

64. In any event, as pointed out to Shri Ajwani, it is not as if only oneview had been taken by the Tribunal, the contrary view, where weight was givento factors other than the financial position has also been taken. A specificcase where this was done was the Bata India case (para 31 supra), which also wasdecision of a threeMember Special Bench. I can also take notice of the factthat a similar view has been taken in other cases as well although reference tothese may not be readily available. In view of this position, the above



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submission of the learned SDR has very little force, apart from the fact that itproceeds from a wrong view of the proviso to Section 129C(5).

65. A number of judgements of the Supreme Court and of High Courts have beenrelied upon by the applicants, in this as well as in some of the previous cases.

Shri Ajwani argued that some of those judgements were concenred with thequestion of stay of the orders of the lower authorities, as distinct from.waiver of the requirement of predeposit of duty or penalty under Section 35F,Central Excises and Salt Act or the corresponding Section 129E, Customs Act.Emphasis has been placed on this distinction by Member, Shri Murthy in his orderas well as in some of his previous orders. A specific enunciation of his view inthis regard is to be found in Member, Shri Murthys order in the case ofExquisite Impex Pvt. Ltd. [vide para 27(i) supra].

66. Since the applicability or otherwise of a number of judicial decisionsdepends on whether or not such a distinction is accepted, it would be useful toconsider this question in the first instance. There can be no quarrel with theproposition that in law the waiver of predeposit and the grant of stay are two

distinct matters. The former is in terms of the specific provisions of Section35F or Section 129E, as the case may be. The latter is in the exercise of theincidental and ancillary powers of the appellate authority [vide the decision ofthe Supreme Court in the Incometax case of ITO v. Mohammed Kunhi, reported inAIR 1969 SC 430, which has been followed by the Andhra Pradesh High Court in theCentral Excise case of K.V.N. Prasad and Ors. v. the C.B.E.C., reported in 1978ELT (J 697).

67. based on the difference in law, Member, Shri Murthy has taken the viewthat the considerations applicable to the two questions are not identical.According to his observation in the Exquisite Impex case, the appellateauthority can take into account the existence of a prima facie case whileconsidering grant of stay, whereas for waiver of predeposit only the financial

position is relevant. Member, Shri Jain, in para 9 of his order under reference,has disagreed with this approach.

68. With great respect to my learned Brother Murthy, I am unable to agreewith him that in the matter of the criteria for granting relief there could beany appreciable difference between a stay application and an application forwaiver of predeposit. When this point was put to Shri Agarwal, he had submitted(vide para 28 supra) that in most cases there were parallel applications forstay and waiver of predeposit, and the same criteria should apply to both. Itis a matter of common knowledge, of which judicial notice can be taken, that inthe majority of "stay applications" both types of relief are sought that is,stay of enforcement as well as waiver of predeposit. (This is so even in thepresent case. In fact, as set out in paras 2 and 3 supra, the specific prayer ofthe applicants was for staying the recovery, although it was also implied thatpredeposit might be waived).

69. It is also a matter of common knowledge that wherever the Tribunal grantsrelief on a "stay application", the relief relates both to waiver of predepositand to stay of operation, subject of course to whatever conditions might beimposed.

70. Such being the case, the concept of having significantly differentcriteria for grant of stay and waiver of predeposit would lead to highlyanomalous situations. It is conceivable (though it would be very unusual) thatin a particular case the predeposit is waived but stay of operation is notordered. This could happen in a case where the applicant has established that hehas no assets at all from which he can make the predeposit; equally then, heneed have no fear of the order being enforced against him. However, let usconsider the contrary case where stay of operation is granted (taking intoaccount the existence of a prima facie case, etc.), but waiver of predeposit isnot granted (going by financial hardship alone). Such a case could arise, if the



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view taken by Member, Shri Murthy is logically applied. In effect, then, wewould be telling the applicant that the lower authority will not compel him tomeet the demand, till the appeal is decided: but the appeal will not be decidedso long as he does not deposit the amount demanded. The grant of stay in suchcircumstances, on the consideration of a prima facie case for grant of stay,

would for all practical purposes lose its meaning.

71. Thus, the adoption of a "softer" approach in regard to grant of stay thanin regard to waiver of predeposit would lead to an impasse, or what might becalled, a "Catch22" situation. I do not think the line of reasoning that leadsto such a situation would be sustainable. Incidentally, in two of the earlierorders recovered by Member, Shri Murthy and relied upon by him in his presentorder, namely his orders in the case of Parasmal Solanki and Modi Gas andChemicals, the learned Member had adopted a somewhat similar approach (thoughhis final conclusion is the same, viz., that a prima facie case is not relevantfor the waiver of predeposit). Thus, in para 5(f) of his order in the case ofParasmal Solanki 1985 (21) ELT 704, quoted in the case of Modi Gas andChemicals, he has recorded as follows :

"the reasons for prescribing a deposit statutorily as a condition precedentfor the hearing of the Appeal a deposit that could be dispensed with if itwould cause undue hardship are, presumably, identical with those that promptedthe Honble Supreme Court in 1985 (19) ELT 22 (SC) [Assistant Collector ofCentral Excise v. Dunlop India Ltd.] to deprecate the indiscriminate grant ofstay, ostensibly in exercise of the jurisdiction under Article 226 of theConstitution of India".

He had placed reliance on those observations to conclude that it is notsufficient to show that a prima facie case exists.

72. For the reasons set out above, I am of the view that the criteria for

waiver of predeposit should be broadly the same as for grant of stay. In thisview, the various judgements relating to the criteria for grant of stay wouldalso be relevant for considering waiver of predeposit. I shall not take upthese judgements, starting with those which are specifically with reference towaiver of predeposit.

73. The only judgement of the Supreme Court which specifically refers toSection 35F or the parallel Section 129F appears to be that in the case ofSpencer 6c Co. Ltd. (vide paras 3334 supra). As observed earlier, the words"include" and "inter alia" clearly indicate that liquidity (or financialhardship) would not be only_ consideration. Since, however, this is the onlycriterion specifically mentioned by the Supreme Court, one would be justified inconcluding that it is a very important one.

74. In the TELCO case (vide para 35 supra) the Supreme Court had, accordingto Shri Ajwani, directed the Tribunal (in effect) to decide the appeal withoutprior deposit under Section 35F. From the Tribunals order (which is notreported) it is seen that the duty demand was for about Rs. 80 lakhs. Messrs.TELCO had not placed before the Tribunal their liquidity position, but had onlycontended that they had stocks of unsold vehicles worth Rs. 80 crores. They hadalso pleaded a prima facie case and offered 100% bank guarantee. In the absenceof the order of the Supreme Court, we cannot derive any guideline from thisparticular judgement.

75. The judgement of the Calcutta High Court in the case of AmericanRefrigeration Co. Ltd., (vide para 19 supra) had dealt with a case relating towaiver of predeposit. In this judgement, of an Honble Single Judge, anobservation had been made that the Tribunal was bound to take into considerationthe prima facie case as also the interests of the revenue. There is howeverforce in Shri Ajwanis submission that what had weighed with the High Court inthis case was the financial hardship to the applicants.



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76. Shri Agarwal had cited the decision of the Andhra Pradesh High Court inthe case of Messrs. Srinivasa Cement Works (para 20 supra). Shri Ajwani hadsubmitted (vide para 43 supra) that the question there was of grant of a stayand not waiver of predeposit. This by itself would not affect the relevance of

the judgement, for the reasons given above. However, the context there was thatthe petitioners had filed a revision petition to the Central Government and alsoapplied for stay. The Central Government did not pass any orders on the stayapplication. The Honble High Court observed that the revisional authority oughtto have exercised its jurisdiction one way or the other. Instead of referringthe case back to the revisional authority, the High Court gave relief to theextent it thought just and necessary. This decision would not be of much help inconsidering the question before us.

77. Shri Ajwani had referred to the judgement of the Allahabad High Court inthe case of Hari Fertilizers (para 42 supra). In its brief order in this case,the High Court had observed that the Collector "may also consider whether anypart of the demand is prima facie barred by time before passing appropriate

orders". Shri Ajwani had sought to argue from the use of the word "may" thatthere was no direction to the Collector that the prima facie case should beconsidered. This is a somewhat surprising argument. When a High Court in such acontext uses the word "may", it has to be presumed that it desired that aspectto be considered. In fact, if it appeared that any part of the demand was timebarred on the face of it, it is hardly to be thought that the High Court wouldhave still expected the Collector to ignore that fact.

78. We may now come to the judgement of the Honble Supreme Court in the caseof Dunlop India Ltd. (para 22 supra). That case was no doubt with reference tothe question of grant of stay orders, and that also by the High Courts. I havealready taken the view that the considerations for grant of stay cannot besubstantially different from those for waiver of predeposit. Again, in the

Dunlop India case, the Supreme Court was dealing with the question of grant ofstay by the High Courts. However, since the stay order issued by the High Courtin that case was one where the application might also have been made to theTribunal or other appellate authority under the Central Excises and Salt Act,the observations of the Honble Supreme Court as to the criteria to be adoptedby the High Courts would also be relevant to the question of grant of stay orwaiver of predeposit by the appellate authority. The observations of theHonble Supreme Court, which would be relevant to the question before us, arereproduced below :

"7... All this is not to say that interim orders may never be made againstpublic authorities. There are, of course, cases which demand that interim ordersshould be made in the interests of justice. Where gross violations of the lawand injustices are perpetrated or are about to be perpetrated, it is the boundenduty of the court to intervene and give appropriate interim relief. In caseswhere denial of interim relief may lead to public mischief, grave irreparableprivate injury or shake a citizens faith in the impartiality of publicadministration, a Court may .well be justified in granting interim reliefagainst public authority....There can be and there are no hard and fast rules.But prudence, discretion and circumspection are called for. There are severalother vital considerations apart from the existence of a prima facie case. Thereis the question of balance of convenience. There is the question of irreparableinjury. There is the question of the public interest. There are many suchfactors worthy of consideration. We often wonder why in the case of indirecttaxation where the burden has already been passed on to the consumer, anyinterim relief should at all be given to the manufacturer, dealer and the like".

"13... We consider that where matters of public revenue are concerned, itis of utmost importance to realise that interim orders ought not to be grantedmerely because a prima facie case has been shown. More is required. The balanceof convenience must be clearly in favour of the making of an interim order and



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there should not be the slightest indication of a likelihood of prejudice to theinterest (sic)."

79. The above judgement of the Supreme Court has been referred to in thejudgement of the Allahabad High Court in the case of U.P. Lamination (para 23

supra), the Ailhabad High Court had observed that the only declaration of law(arising from the Dunlop India case) was that in respect of interim orders intaxation matters it is not only the prima facie case on which an interim ordershould be granted but the Court must further consider if there was balance ofconvenience in favour of the petitioner.

80. It would therefore appear that out of the various judgements cited, themost important ones for deriving guidance on the present issues are those of theSupreme Court in the cases of Spencer & Co. Ltd., and Dunlop India Ltd., andthat of the Allahabad High Court in the case of U.P. Lamination. From theSpencer & Co. judgement the relevance of liquidity or financial position isclear. The other two judgements refer to other factors, including the existenceof a prima facie case. It is to be noted, however, that neither judgement

proceeds on the basis that it is enough for the applicant to show that he has aprima facie case in his favour.

81. Thus, in the Supreme Courts judgement in the Dunlop India case, fourfactors have been specifically mentioned. One is the prima facie case, it beingemphatically stated that this by itself is not enough. Others are the balance ofconvenience, the possibility of irreparable injury, and safeguarding the publicinterest. The Allahabad High Court has reduced the remaining criteria to one,namely the balance of convenience. This expression, though in general use, hasnot been defined in the Standard dictionaries of English or of legal terms. Butit can be broadly taken as denoting that arrangement which leads to "thegreatest good of the greatest number", or, in the present context, "the leastharm to the least number". With this broad meaning it would be found that the

expression "balance of convenience" would also cover the aspects of irreparableinjury and safeguarding of public interest. Thus, if by not granting reliefthere would be irreparable injury to the applicant which cannot be undone evenif he ultimately wins the appeal, then the balance of convenience cannot be saidto be in favour of refusal. Similarly, if by granting the relief there is agreat likelihood of prejudice to the public interest, the balance of conveniencecannot be said to be in favour of grant of relief. However, the criterion ofsafeguarding the public interest should not lead to rejecting an applicationfrom a person who is demonstrably unable to pay, on the ground that waiver wouldmean a risk to the revenue. If the financial position of the applicant isprecarious and it is not possible for him to make the predeposit, or if he cando so only by suffering irreparable loss, it cannot be said that the balance ofconvenience is against the grant of relief. Thus, the concept of balance ofconvenience would cover most of the criteria relevant to the question.

82. A note of caution is necessary in interpreting the observations of theSupreme Court or the High Courts made in a different context. In the DunlopIndia case the Supreme Court felt it necessary to give guidance to Courts in thematter of making interim orders. In particular, the Supreme Court referred (videpara 7 of the judgement) to various interim orders by Courts which had farreaching dimensions. It was in that context that the Supreme Court had stressedthe need for circumspection and examination of all relevant considerations.Although, as I have observed earlier, the guidelines would be generallyapplicable in the case of stay orders or orders for waiver of predeposit passedby excise and customs authorities, this does not mean that in every case beforethem the appellate authorities should embark on a very detailed and minuteexamination of all the facts, circumstances and merits of the case. When thiswas put to Shri Agarwal (vide paras 27 to 29 supra), his reply was that in theinterests of justice such a detailed examination should be made. In my view,this does not flow from the judgements cited. If Shri Agarwals view were to beaccepted, then every hearing of an application for stay or waiver of predeposit



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would become a kind of fulldress rehearsal of the main hearing itself and wouldbe practically indistinguishable from it. This could never be the intention ofthe Legislature. In fact, if Section 35F is read closely, it would be seen thatthe deposit is to be made by "the person desirous of appealing against suchdecision or order". Literally construed, this would mean that even before filing

an appeal, a person who desires to do so should deposit the amounts demanded. Inpractice, and taking into account the proviso, the question waiver of predeposit is considered after the appeal has already been filed. Nevertheless, itremains essentially a preliminary question and it would not be reasonable tohold that this preliminary question should receive very extensive considerationon a scale approaching that of the appeal itself.

83. In this context it would be useful to recall the observations made manyyears ago by the Privy Council, in the case of Ford Motor Co. of India Ltd., v.Secretary of State [ECR C 8 (PRIVY COUNCIL)]. In para 7 of their decision, theirLordships made the following observation :

"That the Legislature intended to exclude postimportation expenses need

not be doubted, but it had to do this in a practicable manner without unduerefinement, and it must be taken to have regarded the phrases which it employedas sufficient for the purpose if taken in a reasonable sense."

This observation was made with reference to a different question. However, itset out the very valid principle that when the Legislature made a provision ithad to be implemented "in a practicable manner without undue refinement". Soalso, in considering "undue hardship", we should not be led into "unduerefinement", but should deal with each case in a practicable manner.

84. After very careful consideration it appears to me that a practicablemanner of applying the guidelines given by the Supreme Court and the High Courtswould be to consider that where financial hardship has been established, that

should suffice for (whole or partial) waiver of predeposit, subject to.whatever conditions the appellate authority may deem fit to impose. Wherefinancial hardship is not established or not pleaded, it would still be open tothe applicant to justify waiver on other adequate grounds. These grounds wouldbe the existence of a prima facie case in his favour, plus balance ofconvenience. This would normally happen where the applicant has shown that evenon the face of it he has a case which is not merely a prima facie case asordinarily understood, but something much stronger. One example, which was putto Shri Ajwani (vide para 54 supra), would be where there has been an evidenterror in calculation of the penalty amount. Another would be as in the casewhich was before the Allahabad High Court in the case of Hari Fertilizers (para42 supra), where the demand is obviously barred by limitation. (Where questionsarise as to whether there has been suppression, collusion, etc., and as towhether the normal time limit or the extended time limit would apply, the timebar may not be accepted as "obvious"). Other cases would be where there is adecision of the Courts, or of the Tribunal itself, clearly in favour of theapplicant. In all these cases it could be said that the balance of convenienceis clearly in granting waiver of predeposit. Where on the very face of it, itis clear that an amount is not due from the applicant, the balance ofconvenience would not appear to lie in requiring him to deposit that amount,only so that it may be refunded to him a week or a month later. Therefore, wherethe applicants case is so strong that it is apparent without labouredexposition, it may well be a case where the balance of convenience, over andabove a mere prima facie case, calls for the waiver of predeposit,notwithstanding that financial hardship is not established or has not beenpleaded.

85. When this point was put to Shri Ajwani (vide paras 54 and 55 supra), heaccepted it to the extent that where the applicants case was overwhelminglystrong and obvious, and this was conceded by the Department, there would bejustification for applying the proviso to Section 35F without going by the



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financial position. But on the question whether the applicants case is on theface of it overwhelmingly strong and obvious, the Bench can certainly form itsopinion, after hearing the representative of the Department. The opinion of theBench in terms of the proviso to Section 35F should not have to depend on aconcession by the Department.

86. It would mw be apropriate to deal with a few other points which wereraised by one side or the other. One of these was the reference by Shri Ajwanito the judgement of the Calcutta High Court in the case of Gonterman Peipers(India) Limited (vide para 39 supra). Basing himself on this judgement, ShriAjwani sought to argue that an earlier decision should not be departed fromunless fresh facts came to light. Consequently, the President hearing a caseunder the proviso to Section 129C (5) should not depart from the earlierdecisions of the Tribunal.

87. This argument in a slightly different form has already been dealt with inparagraphs 61 to 64 above. It has been pointed out therein that there is aconflict of decisions even within the Tribunal. It may be relevant to mention

here that in the Larger Bench decision in the case of Atma Steels 1984 (17) ELT331, the Tribunal had held that where there were conflicting decisions of HighCourts it has the judicial freedom to adopt the one which it considers moreappropriate. In a case where the President is required to decide a particularpoint, and where conficting decisions of the Tribunal itself are placed beforehim, the same principle should apply.

88. Shri Agarwal had cited a number of judgements in connection with theinterpretation of the term "hardship". He contended that where a term is notdefined in the statute it must be construed in its popular sense, that is, thatsense which people conversant with the subject matter with which the statute isdealing would attribute to it. He cited a number of cases where this principlehad been applied. These deal with the meanings to be attributed to such terms as

"vegetables", "coal" and "cotton fabrics". It need hardly be said thatinterpretation of common nouns like the above is quite different from theinterpretation of abstract qualities like "hardship" "truth" or "democracy".Widely varying meanings could be given to such abstract terms by equallyintelligent persons, with equal confidence and vehemence. However, even if theprinciple of the above decisions is accepted, the question would be what classof people would be conversant with the subject of "hardship". Possibly the classof persons most conversant with this term would be the legal profession. Wewould then have to refer to judicial interpretations.

89. As pointed out by Shri Ajwani, we are not concerned with the term"hardship" in isolation. As regards the expression "undue hardship", I wouldagain agree with Shri Ajwani that the decisions cited by Shri Agarwal hadreference to other situations, such as the application of limitation, and do notprovide much guidance on the question before me. It is therefore better to go bythe interpretation which the provision in which this expression occurs has beengiven by the Supreme Court and the High Courts. This is what has been attemptedabove. The decisions of the Tribunal on this issue have not been discussed atlength, since the judicial decisions from which they would derive weight havealready been discussed.

90. A similar consideration applies to the point made in a number of theTribunal decisions that since the requirement of predeposit is financial innature, the considerations of waiving that requirement should also beexclusively financial in nature. This proposition would have limited validity inthe light of the judicial decisions which have been considered above.

91. In the light of the above discussion, I would answer the point ofdifference to the effect that the expression "undue hardship" in the proviso toSection 35F, Central Excises and Salt Act, 1944, should not be taken asreferring only to financial hardship. It should be taken as covering other



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factors also, such as the existence of a prima facie case in favour of theappliant. This is subject to the considerations set out in paragraph 84 supra,and the above answer should be read along with the contents of that paragraph.

92. The case should now go back to the original Bench for orders in the light

of the above decision.

[Order No. 62/87A]. In the light of Honble Presidents Order, request ofthe applicant/appeallant for staying the recovery of duty made in the impugnedorder has been considered. Taking into account all the relevant factorsincluding the prima facie, strength of the appellants case, liquidity positionof the applicant/appeallant, prior deposit of duty demanded in the impugnedorder is waived subject to furnishing of Bank guarantee to the satisfaction ofthe Asstt. Collector of Central Excise concerned for the full amount of dutydemanded. Recovery of duty by the local officers shall also stand stayed subjectto the above condition. Compliance of this direction should be reported within 8weeks of this order.

Jayashree Insulators Limited vs Collector of Central Excise on 31 December, 1986

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Transcript of Jayashree Insulators Limited vs Collector of Central Excise on 31 December, 1986