CBEC Circular that demand should be recovered even if stay application is not disposed of for no fault of assessee is arbitrary, unjustified & unlawful

Larsen & Toubro Limited vs. UOI (Bombay High Court)

The Central Board of Excise and Customs (CBEC) issued Circular No. 967/01/ 2013 – CX dated 01.01.2013 to deal with recovery of demand. The Circular provided that (i) even if a stay application is pending, steps for recovery must be initiated thirty days after the filing of the appeal if no stay is granted, (ii) if the Commissioner (Appeals) has confirmed a demand, recovery has to be initiated immediately despite s. 35F permitting the assessee to move the Tribunal for a dispensation of the requirement of deposit and (iii) if the Tribunal has confirmed the demand, recovery should be initiated immediately despite the statute providing a time period for filing an appeal to the High Court. The Circular was challenged by the assessees on the ground that recovery of the demand even when the assessee is not responsible for the delay in disposal of the stay application/ appeal and during the pendency of the time period for filing an appeal was arbitrary and violative of Article 14 of the Constitution. HELD by the High Court upholding the plea:



(i) Though in Krishna Sales (73) ELT 519 (SC) it was held that the mere filing of an appeal does not operate as a stay or suspension of the order appealed against, where the delay in the disposal of an appeal or a stay application arises due to a failure of the Appellate Authority to dispose of the appeal or the stay application and the assessee is not at fault, there is no reason or justification to penalize the assessee by recovering the demand in the meantime. Administrative reasons for non-disposal of the stay application may include lack of adequate infrastructure, unavailability of the officer concerned before whom the stay application has been filed, absence of a Bench before the CESTAT for the decision of an application for stay or the sheer volume of work. In such a situation, where an assessee has done everything within his control by moving an application for stay and which remains pending because of the inability of the Commissioner (Appeals) or the CESTAT to dispose of the application within thirty days, it would be a travesty of justice if recovery proceedings are allowed to be initiated in the meantime. The protection of the revenue has to be necessarily balanced with fairness to the assessee. That was why, even though a specific statutory provision came to be introduced by Parliament in s. 35C(2A) to the effect that an order of stay would stand vacated where the appeal before the Tribunal was not disposed of within 180 days, the Supreme Court held in Kumar Cotton Mills 180 ELT 434 (SC) that this would not apply to a situation where the appeal had remained pending for reasons not attributable to the assessee.



(ii) Also initiation of recovery proceedings without allowing the assessee, the time which is allowed by the statute for filing an appeal and for applying for a waiver of pre-deposit or for filing an appeal to the High Court is not justified. The circular is in terrorem and its plain effect and consequence is to deprive the assessee of the remedy which is provided under the law of moving, as the case may be, the CESTAT, the High Court or the Supreme Court against an order of adjudication of the competent appellate forum. There is no justification to commence recovery immediately following an order in appeal where the limitation period for challenging the decision of the Appellate Authority has not expired. The Circular is to that extent patently arbitrary and violative of Article 14 of the Constitution. The Department’s argument that the field officers who initiate recovery action have no means of verifying the status of the stay application is not justified. The Ministry of Finance should take steps to ensure that proceedings before all the authorities are recorded in the electronic form. This will provide transparency and accountability in the functioning of all authorities. However, if the failure to dispose of the stay application is because of the conduct of the assessee, the revenue would be justified in commencing recovery action.

See also Treatise On The Law & Practice Of Stay & Recovery Of Tax Arrears & Important case laws on the law of recovery & the controversy over the ITAT’s power to grant unlimited stay