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05/08/2015

Provisions of mandatory Pre-deposit under Section 35 of the Central Excise Act, 1944

Recently, the Allahabad High Court in the case of Ganesh Yadav Vs. Union of India, Allahabad, 2015 (39) S.T.R. 177 (All.) has distinguished the Kerala High Court decision in the case of Muthoot Finance Ltd. v Union Of India (2015 (320) E.L.T. 51 (Ker.)) and Andhra Pradesh High Court decision in the case of K. Rama Mohanarao v Union Of India (2015-TIOL-511-HC-AP-CX) on the issue of mandatory pre-deposit under section 35F for the appeals filed after 6 August, 2014 pertaining to cases initiated prior to the said date.
 
The Hon’ble Allahabad High Court in this case has dealt with the two issues which have been tabulated as under:
 
Issues raised by the Petitioner in the Writ
Decision held by Hon’ble Allahabad High Court
The Petitioner sought the High Court to declare the amendment to the provisions of Section 35F as ultra vires and unconstitutional.
As a first principle of law, a right of appeal is a statutory right and it is open to the legislature which confers a remedy of an appeal to condition the appeal subject to compliance with conditions. Parliament has stepped in by providing a requirement of a deposit of 7.5% in the case of a First Appellate remedy before the Commissioner (Appeals) or to the Tribunal. The requirement of a deposit of 10% is in the case of an appeal to the Tribunal against an order of the Commissioner (Appeals). This requirement cannot be regarded or held as being arbitrary or as violative of Article 14.
That the amended provisions of Section 35 of the Act are not applicable, as the Show Cause Notice was issued prior to the amendment of the Section.
Parliament while substituting the provisions of Section 35F of the Central Excise Act, 1944 by Finance Act (No.2) of 2014, has laid down that the Tribunal or the Commissioner (Appeals) "shall not entertain any appeal" unless the appellant has deposited the duty or, as the case may be, a penalty to the stipulated extent. These words in Section 35F of the Act would indicate that on and after the enforcement of the provision of Section 35F of the Act, as amended, an appellant has to deposit the duty and penalty as stipulated and unless the appellant were to do so, the Tribunal shall not entertain any appeal. This provision would, therefore, indicate that it would apply to all appeals which would be filed on and from the date of the enforcement of Section 35F of the Act.
The second proviso is a clear indicator that Parliament has exempted the requirement of complying with the pre-deposit as mandated by Section 35F(1) of the Act as amended only in the case of those stay applications and appeals which were pending before any appellate authority prior to the commencement of Finance (No.2) Act 2014. Consequently, both by virtue of the opening words of Section 35F(1) of the Act as well as by the second proviso to the provision, it is clear that appeals which are filed on and after the enforcement of the amended provision on 6 August 2014 shall be governed by the requirement of pre-deposit as stipulated therein.
 
The High Court has relied on the decision of the Supreme Court in Shyam Kishore (supra) which states that the High Court has the power to dispense with the requirement of pre-deposit in an appropriate case under Article 226 of the Constitution. Further, it is pertinent to mention that this power of the High Court under Article 226 is not taken away by the Finance (No. 2) Act, 2014.

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