Judgment:
ORDER
1. The petitioner manufacturer of valves and valve cores was availing modvat credit on the inputs namely copper, zinc lead etc. as contemplated in Rule 57A of the Rules framed under Central Excises and Salt Act. In the course of manufacture of final products, utilising in the said inputs certain end bits, turnings, borings of brass was obtained which is categorised as scrap/waste and which were once again recycled by melting and converting into brass rods. Brass scrap by itself is one of the items, specified in the Central Excise Tariff Act in sub-heading 74.04 of the Act. According to the petitioner, it has no facility in its factory for converting scrap/waste into brass rods and therefore, such scrap generated was being sent to a job worker for conversion once again into rods which is used as an input in the manufacture of the declared final products by the petitioner.
2. The petitioner was permitted by the Excise authorities to remove the scrap/waste without payment of duty - such permission having been granted under Rule 57F(2) of the Central Excise Rules. The permission so granted was withdrawn on 10-1-1994 and an appeal preferred against that order for withdrawal was allowed by the Collector of Appeals on 21-4-1994. No fresh order has been passed by the Asst. Collector of Excise, thereafter.
3. The Excise Authorities issued series of show cause notices between 24-4-1989 and 10-6-1993 claiming a total sum of Rs. 95,12,779/- as payable by the petitioner in respect of the scrap/waste removed by it as waste without payment of duty and in accordance with the permission granted under 57F(2) of the Rules, the department basing its claim for such duty under the provision of Rule 57F(4). The petitioner disputed the liability. The Assistant Collector as also the Collector of Excise (Appeals) having confirmed the demand for payment of duty and rejected the objections, the petitioner has filed an appeal before the Central Customs, Excise, Gold (Control) Appellate Tribunal, Madras-17. In the appeal preferred, the petitioner also applied for waiver of pre-deposit by invoking Sec. 35F of the Act. The Tribunal by its order dated 16-4-1994 rejected the petitioner's prayer for waiver and directed the petitioner to deposit a sum of Rs. 50,00,000/- on or before 30-9-1994. The petitioner has filed this Writ Petition against the said order the Tribunal.
4. It was submitted by the learned counsel for the petitioner that the Tribunal has failed to exercise its discretion vested in it under S. 35F of the Act and has not properly taken into account the factors relevant in considering the question of waiver of pre-deposit. It was also submitted that the Tribunal itself having noticed in the course of its order that there are contrary rulings of the Tribunal as to whether waste is to be brought to duty or is exempted, and the Tribunal that the petitioner did not have a prima facie case to urge, even before the Tribunal considered the merits of the appeal finally. It was submitted that this erroneous assumption on the part of the Tribunal that the petitioner's case is already covered against the petitioner on account of the earlier ruling rendered by a Bench of the Tribunal, notwithstanding the fact that a different view had been taken by the Western Regional Bench of the same Tribunal has influenced the decision of the Tribunal to a great extent in the matter of waiver of pre-deposit.
5. It was further submitted that the considerations relevant to waiver of predeposit are undue hardship to the petitioner as also the interest of the revenue and while considering this, the Tribunal has adopted a wholly unjudicial approach to the question of hardship caused to the petitioner and the Tribunal has wrongly held that no great hardship would be caused by relying on the fact that a sum of Rs. 2 crore is due to the petitioner from its sundry debtors, the fact that the petitioner had set apart Rs. 2 crores towards depreciation and the fact that petitioner had earned a net profit of Rs. 54 lakhs in the previous year. It was submitted that the Tribunal failed to consider the great prejudice caused to the petitioner by having to deposit a sum which is nearly one and half times the petitioner's paid up capital of 32 lakhs and is equal to a whole year's profit by way pre-deposit even before the final adjudication of the petitioner's liability.
6. For the respondents, it was submitted, by the learned Standing Counsel for the Central Government that the order made by the Tribunal is a discretionary order and the order does not call for any interference by this Court as the Tribunal has only directed to pre-deposit half of the amount which is just a little over 50 % of the demand.
7. Learned counsel for the petitioner is support of his submission relied on several decisions of this Court as also the other High Courts and submitted that power under Article 226 of the Constitution has been consistently exercised by the High Court to interfere with the orders made under S. 35F in appropriate cases and that the Court, if circumstances so warranted, could modify the orders of the Tribunal. It was submitted that on the facts of this case, the order of the Tribunal in fact has caused undue hardship to the petitioner without any corresponding immediate benefit to the revenue, and that the order needs to be interfered with.
8. Learned counsel referred to a decision of this Court in the case of Sulochana Beverages P. Ltd. v. Asst. Collector of C. Ex., 1991 53 E.L.T. 532 (Mad.) wherein Kanakaraj J. emphasised that the order made under S. 35F though discretionary, being a judicial discretion, the same has to be exercised with due care and mere capacity to pay was not the determinative consideration. On the facts of that case, the Court directed deposit of Rs. 1,00,000/- as against a demand of Rs. 2,67,577-90. The same learned Judge in the case of Eacland Combines v. Collector of C. Ex. : 1991(56)ELT21(Mad) again emphasised that the order made by the Tribunal under S. 35F should not operate harshly on the petitioner while considering the question of pre-deposit. The Court on the facts of that case, having considered that the interests of justice so required, directed pre-deposit of Rs. 1.5 lacs against the demand of Rs. 7.59 lacs.
9. Another learned single Judge of this Court, Bakthavatsalam, J. in the case of Andhra Civil Construction Company v. CEGAT : 1994ECR145(Madras) held that the financial position of the appellant should be considered by the Tribunal in its proper perspective, in addition to the question of legality and the question of prima facie case. It was also held that the Tribunal's consideration of the outstandings payable to the petitioner with a view to determine its financial capacity was not a proper approach in deciding the financial position. On the facts of that case, the Court considered it just and proper to direct deposit of Rs. 3 lacs as against the demand of Rs. 14,58,530/-.
10. In the case of Aurelac Trust v. Superintendent of C. Ex. : 1993(63)ELT57(Mad) Mishra J. held that Pre-deposit is the rule and dispensing with such deposit is the exception that even if there are materials to show that insistence on such pre-deposit would cause hardship, waiver cannot be granted without taking note of the interests of the revenue and imposing conditions that would protect the interests of revenue. Petitioners therein were directed to deposit half the duty demanded and furnish bank guarantee for the other half.
11. A Division Bench of this Court in the case of P. Francis v. Customs Excise and Gold (Control) Appellate Tribunal, Madras, 17 and Another. W.A. No. 1439/1994 decided on 25-11-1994 held that it is not so much the merits of the case that would be relevant, but the hardship that would be caused to the appellant in depositing the amount that was relevant, while considering the question of waiver of pre-deposit under S. 35F of the Act., and the facts of that case, the Court considered it just to direct deposit of Rs. 50,000/- as against the demand of Rs. 1.32 lacs.
12. In the case of Asha Rubber Industries, Bangalore v. Collector of Central Excise, Bangalore 1988 34 E.L.T. 428 (Karnataka) , a learned single Judge of Karnataka High Court held that while considering the application for waiver of pre-deposit prima facie case as seen from the records was an important and relevant consideration. On the facts of that case, the Court considered to just direct the deposit of Rs. 7 lacs as against the demand for Rs. 13.24 lacs.
13. In the case of Bongaigaon Refinery & Petrochem. Ltd. v. Collector of C.E. (A), Calcutta : 1994(69)ELT193(Cal) a learned single Judge of the High Court at Calcutta emphasised that undue hardship caused to the petitioner is the major consideration and strong prima facie case is one of the factors to be taken into consideration in deciding the question of undue hardship to the petitioner. It was also emphasised that if the interest of the revenue is not in jeopardy the question of waiver of pre-deposit should be considered primarily with regard to the undue hardship caused to the petitioner by reason of not awarding pre-deposit.
Section 35F of the Act reads as follows :-
'Where in any appeal under this Chapter the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of Central Excise authorities or any penalty levied under this Act the person desirous of appealing against such decision or order shall, pending the appeal deposit with the adjudicating authority the duty demanded or the penalty levied;
Provided that where in any particular case, the Collector (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person the Collector (Appeals), or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue.'
14. While considering the case of the petitioner who seeks waiver of pre-deposit, it is necessary to keep in view the fact that at that stage there is no final adjudication of the liability of the petitioner and it cannot be said with certainty that the demand made by the department would be finally upheld, and it cannot therefore be presumed that interest of the revenue will always suffer if the pre-deposit is not made. While considering the interest of the revenue, the likelihood of the department being in a position to recover the amount in the event of the demand being upheld, is a relevant factor. Total exemption from making the pre-deposit, where the amounts demanded are substantial would deprive the State of the use of the funds required by it for its immediate purposes.
15. In matters relating to excise duty in particular the hardship caused to the appellant by having to pre-deposit large sums and its adverse impact on the efficient functioning of the unit as also the fact that the manufacturer is possessed of assets from which recovery can be made in the event of the dismissal of the appeal, are relevant factors to be taken note of while considering the hardship of the appellant/manufacturer on the one hand, and the interests of the revenue on the other.
16. The object of levy of duty is not to cause hardship to the industry or prevent manufacturing activities being carried on, or to cause hinderance for the manufacturing operations. When the duty is finally adjudicated after due consideration, the question of hardship is not of relevance, but during the pendency of the proceedings prior to Final determination it is of relevance as the possibility of the industry having to shut down or being severely or adversely affected before a final determination of its liability which can possibly be in favour of the petitioner, should certainly be avoided.
17. The question of undue hardship has to be considered in relation to the facts of each case and no uniform formula can be applied as is evident from the cases referred to earlier in the course of this order. The amount directed to be paid by the appellants has been determined taking into consideration the facts of particular case and it has ranged from low of 20 per cent to a high of 100 per cent of the amount demanded.
18. It is now necessary to refer to the financial position of the petitioner. Its paid up capital is Rs. 32 lacs and as noticed by the Tribunal, its net profit for the year ended 31-3-1993 was Rs. 50 lacs. The amount of duty demanded is Rs. 95,12,779/- out of which, the Tribunal has directed pre-deposit of Rs. 50 lacs. The amount directed to be deposited is nearly one and half times of its paid-up capital and is almost equal to the profits earned for the whole year. A plea had been made before the Tribunal that the petitioners' liquidity position will be severely affected if it is compelled to make this deposit even before the final adjudication of the matter. The impact of having to secure and deposit this large amount at this stage on the efficient manufacturing operations of the petitioner is a factor of relevance in considering the question of hardship.
19. Though the Tribunal has mentioned some figures relating to financial position of the company towards the end of its order, after holding that the case of the company is apparently covered by earlier judgment of the Bench, even though another Bench of the same Tribunal has taken a contrary view - the Tribunal has not adverted to the adverse impact of the requirement of pre-deposit on the operations of the company. The Tribunal, on the other hand, relied upon the amount due to the petitioner and the amount of depreciation reserve. The debts due to the company are no index of its present capacity to make a large deposit of half crore rupees as the money owed to the company is not in the hands of the company, and there is nothing on record to show that these sums will be realised by the company in the immediate future. The impugned order is therefore set aside.
20. Taking into consideration the hardship that will be caused to the petitioner by requiring it to pre-deposit the whole of the amount demanded as duty, and also keeping in view the interest of the revenue, I consider it just to direct the petitioner to deposit a sum of Rs. 10,00,000/- within a period of four weeks and to furnish bank guarantee for a sum of Rs. 20,00,000/- also within a period of four weeks from today. The guarantee shall provide for immediate payment to the respondents in the event of the petitioner's appeal being dismissed.
21. The short point that has been raised in the appeal now pending before the Tribunal is as to which of the two Rules 57F(2) or 57F(4) is attracted to brass waste obtained during the course of manufacture and recycled. The facts are not in dispute.
22. The petitioner shall appear before the Tribunal on 18-1-1995 and shall co-operate with the Tribunal in ensuring the expeditious disposal of the appeal. The Tribunal shall endeavour to decide the appeal on merits before 28-2-1995.
23. This petition is allowed on the terms set out above. Parties shall bear their respective costs.