CBEC Circular: Unlawful, Illegal, Arbitrary?

Andhra Pradesh High Court, Bombay High Court, Punjab and Haryana High Court and now the Bangalore bench of the CESTAT have called it arbitrary, unreasonable and illegal. But that’s hasn’t stopped or slowed down the Excise Department from implementing the January 1st  Circular that gives it powers to continue recovery proceedings against an assessee even in the face of a pending stay application. Payaswini Upadhyay has more. 

Tata Motors, Tata Steel, Tata Teleservices, L&T, Ultratech Cements and many more - CBEC’s New Year circular has become a nightmare for corporate India.
 
On January 1st this year, CBEC issued a circular on recovery proceedings for all excise and customs related tax demands. The circular allows revenue to proceed with the tax recovery process even if a stay application by the tax payer is pending. The Circular says in cases of appeals with stay applications, recovery is to be initiated 30 days after the appeal is filed and no stay is granted or if stay petition disposed off. Before this new circular was notified revenue was obliged to wait till a stay application had been dealt with. Now, in a judicial system plagued with delays, the assessee has just 30 days to get a stay…or else recovery proceedings will start. Lawyers say this makes the appeal process ineffectual. Bishwajit Bhattacharyya
Former ASG- Indirect Tax
”In 3 out of these 5 clauses, a period of 30 days has been mentioned- within 30 days, if you cannot get a stay, even during the pendency of the stay, the department will recover the money. And in the last two clauses- clause 10 & 11- when appeal is filed in High court or Supreme Court, even that 30 day period has not been granted. That means a HC passes an order and you appeal before the SC or CESTAT passes an order and you appeal before the HC- the day you file an appeal before the HC or SC, that very day revenue can take coercive measures to recover the money. I have not seen a more narrow, pedantic and lexicographic approach on the part of the government.”
 
Revenue has based the Circular on the Supreme Court judgment in the Krishna Sales case - where the court had ruled that mere filing of an appeal does not operate as stay or suspension of the order. Krishna Sales Case, 1994
SC: Mere filing of an appeal does not operate as a stay or suspension of the Order appealed against
 
Rajeev Dimri
Partner-Indirect Tax, BMR Advisors
”While they are quoting this 1994 judgment of Krishna Sales, there is a 2005 judgment of SC in Kumar Cotton which very clearly on the exact point says that if there is a delay in getting a disposal of a stay of demand which is not because of the actions or inactions of the taxpayer, then that delay cannot be used to hurt the taxpayer and demand cannot be proceeded against and that ratio was continuing until the end of last year and effective January, the authorities are now going after all cases even if a demand application is pending with the Court.”
 
The circular prompted several recovery proceedings and companies have questioned this in different courts. The Andhra Pradesh High Court granted Ultratech Cement an interim stay against the recovery of demand pending a stay application.  In the case of L&T and 7 other companies, the Bombay HC ruled that if a taxpayer has filed an appeal for stay and it is pending for reasons beyond his control, the circular will not be applicable. But if an application for stay is pending for reasons attributable to the taxpayer, the department can initiate recovery proceedings. In the PML Industries case, the Punjab and Haryana high court ruled the Circular to be untenable, misconceived, wholly illegal and arbitrary but allowed the department to seek a vacation of stay on proof that the delay in the final decision is because of the taxpayer. And just last week, a Bangalore Bench of CESTAT observed that continuing notices by the department are adding to the already grim pendency situation. It passed a general order and ruled that the department should not resort to coercive action during pendency of stay applications unless service tax or central excise duty has been collected but not paid, OR if an admitted service tax liability is yet to be discharged OR if the appeal has been rejected by the Commissioner of Appeals on grounds of time limit. In saying so, the Bench has provided relief to taxpayers in Kerala, Karnataka and Andhra Pradesh. Bishwajit Bhattacharyya
Former ASG- Indirect Tax
“The verdict is crystal clear. Clauses 3, 6, 9, 10 & 11 have not withstood judicial scrutiny. So the Circular has to be read down and it has to be construed as the operation of these clauses cannot stand as on date until and unless it is varied, modified, or altered by a higher forum and that is the Supreme Court.” Rajeev Dimri
Partner-Indirect Tax, BMR Advisors
“The notices have been pending and as a taxpayer, even if I have access to this order of the HC, I still have to respond to the authorities that in view of this order, please hold back on the recovery proceedings. So the dispute has not ended; although at least in these 3 States, the taxpayers have a better protection but in other States, taxpayers still have to respond and prevent the authorities from any coercive action like attaching the bank accounts etc but those threats are still there; the department is still moving ahead with the recovery proceedings, they haven’t backed off.” And it seems Revenue will not back off unless the Supreme Court strikes down the Circular as unlawful. But no chances of that happening any time soon as this issue has not yet made its way to the apex court. In Mumbai, Payaswini Upadhyay