Holding

Undue hardship must be proved with concrete evidence; a mere claim of financial sickness does not justify dispensing with the pre‑deposit, and the order directing a Rs 2 crore deposit is valid.

Summary

Indu Nissan OXO Chemicals imported certain products and disputed their classification, leading the Customs authorities to levy a penalty of Rs 10 crore under Section 112(a) of the Customs Act, 1962. The company appealed to CESTAT, which conditioned the hearing on a pre‑deposit of Rs 2 crore under Section 129E, a requirement the company sought to waive on the ground of financial sickness. The High Court dismissed the writ petition challenging the pre‑deposit, and the matter reached the Supreme Court. The Court examined the meaning of "undue hardship" in Section 129E, holding that the applicant must substantiate the claim with evidence and that a mere assertion of financial distress is insufficient. Consequently, the order directing the Rs 2 crore pre‑deposit was upheld, and the appellant was given three months to comply, with the appeal disposed of without costs.

Issues considered

Whether the appellant can be dispensed from the pre‑deposit requirement under Section 129E on the ground of undue hardship.
What constitutes "undue hardship" under the Customs Act, 1962.
Whether the order directing a Rs 2 crore pre‑deposit is valid in view of the appellant's claim of financial sickness.

Legislation cited

Customs Act, 1962s. 112(a), s. 129E
Sick Industrial Companies (Special Provisions) Act, 1985s. 22

Subjects

Customs ActSection 129Epre‑depositundue hardshippenaltystay of proceedingsfinancial sicknessclassification disputeCESTAT

Judgment

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INDU NISSAN OXO CHEMICALS IND. LTD. A
~
v.
UNION OF INDIA AND ORS.
DECEMBER 11, 2007
(DR. ARIJIT PASAYAT AND AFTAB ALAM, JJ.) B

Customs Act, 1962 -s. J29E -Stay/dispensation ofpre-deposit
- Consideration of "undue hardship" aspect- Imposition ofpenalty
of Rs. I 0 crores by Commissioner of Customs - Appeal - Tribunal
directing pre-deposit ofRs. 2 crores as condition precedentfor hearing c
appeal - Plea ofassessee for dispensation ofpre-deposit on ground
offinancial sickness -- Tenability of - Held: Not tenable - Mere
assertion about financial I undue hardship not sufficient.
Words and Phrases - "undue" and "undue hardship"- D
Meaning of - Jn context to s. l 29E of Customs Act, 1962.
' A dispute arose relating to classification of the product
imported by assessee-company and the consequential benefits
claimed by it under various Notifications issued by the Director
General of Foreign Trade. The customs authorities did not accept E
the stand of the asses~ee about its classification. Subsequently,
the Commissioner of Customs imposed penalty of Rs.I 0 crores.
Assessee challenged the levy of penalty by filing appeal before
the CESTAT which directed pre-deposit of Rupees 2 crores as
condition precedent for hearing the appeal. Assessee filed writ F
petition thereagainst which was dismissed.
In the instant appeal, the assessee-company contended that
it was financially sick and, therefore, insistence on pre-deposit,
would deprive it of the statutory right of appeal. G
Disposing of the appeal, the Court
~
HELD: 1.1. In matters relating to grant of stay pending
disposal of the appeal, though discretion is available, the same
'-'! 173 H
174 SUPREME COURT REPORTS [2007)13 (Addi.) S.C.R.

A has to be exercised judicially. [Para 10] [179-C]
1.2. On merely establishing a prima facie case, interim order
of protection should not be passed. But if on a cursory glance it
appears that the demand raised has no leg to stand, it would be
B undesirable to require the assessee to pay full or substantive part
of the demand. Petitions for stay should not be disposed of in a
routine matter unmindful of the consequences flowing from the
order requiring the assessee to deposit full or part of the demand.
There can be no rule of universal application in such matters and
C the order has to be passed keeping in view the factual scenario
involved. Merely because this Court has indicated the principles
that does not give a license to the forum/authority to pass an
order which cannot be sustained on the touchstone of fairness,
legality and public interest. Where denial of interim relief may
D lead to public mischief, grave irreparable private injury or shake
a citizens' faith in the impartiality of public administration, interim
re,ief can be given. [Para 12] [179 E-G]
Metal Box fl:zdia Ltd,. v. Commissioner of Central Excise,
. Mumbai (2003) lSS EtT '13 {S.C.); Silliguri Municipality and Ors.
E v. Amalendu Das and Ors. AIR (1984) SC 653; Mis Samarias Trading
Co. Pvt. Ltd. v. S. Samuel and Ors. AIR (1985) SC 61 and Assistant
Collector of Central Excise v. Dunlop India Ltd. AIR (1985) SC
330 - relied on.
F 2. Two significant expressions used in Section 129E of the
Customs Act, 1962 are "undue hardship to such person" and
"safeguard the interests of revenue". Therefore, while dealing
with the application twin requirements of considerations i.e.
consideration of undue hardship aspect and imposition of conditions
G to safeguard the interest of Revenue have to be kept in view.
[Para 14] [180-E]]
3. Undue hardship is a matter within the special knowledge
of the applicant for waiver and has to be established by him. A
mere assertion about undue hardship would not be sufficient.
H
~,
INDU NISSAN OXO CHEMICALS IND. LTD. v. 175
UNION OF INDIAAND ORS. [PASAYAT, J.]
Under Indian conditions expression "undue hardship" is normally A
-j related to economic hardship. "Undue" means something which
is not merited by the conduct of the claimant, or is very much
disproportionate to it. Undue hardship is caused when the hardship
is not warranted by the circumstances. For a hardship to be 'undue'
it must be shown that the particular burden to perform the B
requirement, is out of proportion to the nature of the requirement
itself, and the benefit which the applicant would derive from
compliance with it. [Paras 15, 16] [180 F-H; 181-A]
S. Vasudeva v. State of Karnataka and Ors. AIR (1994) SC c
923 and Mis Benara Valves Ltd. and Ors. v. Commissioner ofCentral
Excise and Anr. (2006) 12 SCALE 303 - relied on.
4. Ther.e is no infirmity in the order directing deposit of
Rupees two crores as affirmed by the High Court. The appellant
is granted three months time to deposit the amount fixed by the D
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CESTAT. [Para 18] [181-C]
CIVILAPPELLATE JURISDICTION : Civil Appeal No. 5795
of2007
From the Judgment and Order dated 10.07.2006 and 6.2.2007,of E
the High Court of Gujarat atAhmedabad in Special Civil Application
No. 5540 of2006 and Civil Misc. Application for Review No. 2772 of
2006 in Special Civil Application No. 5540 of2006 respectively.

... Shyam Divan, S. UdayaKumar Sagar, Bina Madhavan and Hema! F
K. Sheth (for Mis. Lawyers 's Knit & Co.) for the Appellant.
Vikas Singh, ASG. L.N. Shukla, Rashmi Malhotra, RC. Kathia
and B. Krishna Prasad for the Respondents.
The Judgment of the Court was delivered by G
Dr. ARIJIT PASAYAT, J. 1. Leave granted.
2. Challenge in this appeal is to the order passed by the High
Court of Gujarat dismissing the writ petitions filed by the appellant.
H
176 SUPREME COURT REPORTS [2007] 13 (Addi.) S.C.R.

A 3. Challenge before the High Court was to the order dated
10.1.2006 passed by the Customs, Excise & Service Tax Appellate r
Tribunal (in short 'CESTAT') directing deposit of rupees two crores as
a condition precedent for entertaining the appeal. It is to be noted that
the total amount of penalty imposed was Rs. I 0,00,00,000/-. The dispute
B relates to classification of the product imported by the appellant and
consequential benefits claimed by it under various Notifications issued
by the Director General of Foreign Trade. The customs authorities did
not accept the stand of the appellant about its classification. The levy of
penalty was challenged by way of appeal before the CESTAT. It was
c acc<?mpanied by an application seeking waiver of the penalty imposed
by the Commissioner of Customs (in short the 'Commissioner').
4. After hearing the parties, the CESTAT inter alia noted as follows:
"The learned Advocate for the applicants contends in one
D hand that a letter of Ms. Indian Oil Corporation Ltd. written by
its Assistant Manager, was on the record of the Commissioner in
these proceedings and was not considered in spite of the directions
in remand to consider all materials. It was also submitted that the
directions ofthe DGFT dated 17.12.1997 have not been complied,
E with even though certificates showing the use of the return stream
were on record in parallel proceedings before the department. It
was also submitted by the learned advocate that if these certificates
were considered, then they should be granted the benefit ofDGFT ,
waiver of condition of the resale of the return stream, vide their
F letter dated 17.12.1997 and they were not so liable to any penalty.
The Learned advocate took us through the Balance Sheet of the
applicant company which discloses that as on 31.3.2005, they
have a loss ofRs.12.20 crores and in the earlier year the said loss
was Rs.17. 74 crores. He submits that they are a BIFR company
G and pleads for full waiver of the pre-deposit requirement under
Section l 29E ofthe Customs Act to hear this appeal.
The Learned SDR on the other hand takes us through the '
letter dated 17.12.1997 of DGFT and submits that this letter
H exempts and is applicable only to import of naphtha and return

"'
••
INDU NISSAN OXO CHEMICALS IND. LTD. v. 177
UNION OF INDIAAND ORS. [PASAYAT, J.]
~
stream of such naphtha. He submits that the letter relied upon by A
1
the advocate of Indian Oil Corporation, which he is making a
grievance about, it stating that heptene is not known and understood
~ as naphtha. The certificates of consumption of the return stream
are also certifying the utilization and the return stream of nonene
and heptene and not to naphtha. B

Considering the submission in this matter, pQma facie we are
--· of the view that the waiver granted of the condition by the DGFT
is not applicable to the subject imports in this case. The other
issues raised will have to be gone into in detail at the regular c
hearing. At this prima facie stage considering the merits and the
financial position as also the fact that this is the second round, we
would consider this case to be appropriate to direct the applicants
to terms of pre-deposit requirement to be effected under Section
129E of the Customs Act, 1962. We would, therefore, direct the D
applicants to deposit Rs.2,00,00,000/- (rupees two crores only)
and report compliance thereof within 12 (twelve) weeks i.e. on
17.4.2006. On such compliance, being reported, the matter would
be listed for regular hearing. Failure to deposit and meet the
requirement of Section 129E calls for dismissal of the appeal E
without any further notice."
5. The penalty, it is to be noted, has been imposed under Section
I I2 (a) of the Customs Act, I962 (in short the 'Act'). A specific finding
was recorded by the Commissioner that in respect of the goods the
assessee was required to obtain a licence for clearance. However, the F
-~.

value of the goods which could have been confiscated was in the
neighbourhood of Rs.66.57 crores. As it was not possible to direct
confiscation since they were released to the appellant for use in the
factory premises, the Commissioner imposed penalty of
G
Rs. I 0,00,00,000/-.
~
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6. The matter was earlier before the Tribunal and at that stage
matter had been remitted for fresh adjudication. By order dated 11.4.1998
the Commissioner passed a fresh order and the levy of penalty of
Rs. I 0,00,00, 0001- was re-affirmed. H
1
178 SUPREME COURT REPORTS [2007] 13 (Addl.) S.C.R.

A 7. Learned counsel for the appellant submitted that the bona fide
r
of the appellant is writ large. The company has become a sick company
and, therefore, insistence on pre deposit even of a part which is in this .....
case a huge sum of rupees two crores would deprive the appellant of \

the statutory right of appeal. It is pointed out that from the financial
B statements it is clear that the appellant has suffered huge losses. For the
assessment years 31st March, 2004, 31st March, 2005 and 31st March,
2006 respectively the figures oflosses are Rs.17. 74 crores, Rs.12.20
crores and Rs.8.28 crores. It is stated that the financial position has
become dismal and insistence on pre-deposit is by overlooking the
c financial sickness of the company. The imports in question were made
during the period 1992 to 1997. There was lot ofconfusion and because
of that dispute has arisen. Reference is made to certain communications
of the DGFT and Indian Oil Corporation (in short 'IOC').

D 8. Learned counsel for the respondents on the other hand has
submitted that there is no prima facie case and even if it is conceded for
the sake of arguments that there is financial hardship, that cannot be a
ground to dispense with pre deposit and in any event the balance of
convenience is not in favour of the appellant.
E 9. We shall deal with first the issue relating to the question of stay/
dispensation of pre deposit in respect of sick industry. In Metal Box
India Ltd. v.. Commissioner ofCentral Excise, Mumbai (2003 (155)
ELI 13 (S.C.), this Court had clearly observed as follows:

F "Mr. Rana Mukherjee, the learned counsel for the appellants ,
submits that in view of Section 22 ofthe Sick Industrial Companies
(Special Provisions) Act, 1985 (for short 'the Sick Industries
Act'), the appellant need not deposit the amount, as ordered by
the Tribunal, as protection is available to the appellant under the
G said provision. We are afraid, we cannot accept the contention of
the learned counsel for reasons more than one. First, this aspect
was not the subject matter of the order under challenge and, >-
secondly, Section 22 of the Sick Industries Act provides reliefin
regard to the proceedings which relate to (a) winding up of the
H
~
INDU NISSAN OXO CHEMICALS IND. LTD. v. 179
UNION OF INDIAAND ORS. [PASAYAT, J.]
industrial company; (b) execution distress or the like against any A
of the properties of the industrial company; (c) the appointment of
a receiver in respect thereof, and (d) proceeding in regard to suit
for recovery of money or for the enforcement of any security
against the industrial company or of any guarantee in respect of
any loans or advance granted to the industrial company. Payment B
of pre-deposit covered under Section 3SF of the Central Excise
-~
Tax Act, 1944 does not fall under any of the above-mentioned
categories in Section 22 of the Sick Industries Act."
10. Principles relating to grant of stay pending disposal of the c
matters before the concerned forums have been considered in several
cases. It is to be noted that in such matters though discretion is available,
the same has to be exercised judicially.
11. The applicable principles have been set out succinctly in Silliguri
Municipality and Ors. v.. Amalendu Das and Ors. (AIR 1984 SC D
653), Mis Samarias Trading Co. Pvt. Ltd v. S Samuel and Ors.
(AIR 1985 SC 61) and Assistant Collector of Central Excise v.
Dunlop India Ltd. (AIR 1985 SC 330).
12. It is true that on merely establishing a prima facie case, interim E
order of protection s_hould not be passed. But if on a cursory glance it
appears that the demand raised has no leg to stand, it would be undesirable
to require the assessee to pay full or substantive part of the demand.
Petitions for stay should not be disposed of in a routine matter unmindful
of the consequences flowing from the order requiring the assessee to F
deposit full or part of the demand. There can be no rule of universal
application in such matters and the order has to be passed keeping in
view the factual scenario involved. Merely because this Court has
indicated the principles that does not give a license to the forum/authority
to pass an order which cannot be sustained on the touchstone of fairness, G
legality and public interest. Where denial of interim relief may lead to
,J
public mischief, grave irreparable private iajury or shake a citizens' faith
in the impartiality of public administration, interim relief can be given.
,.. 13. Section 129-E of the Act reads as follows: ,T
180 SUPREMECOURTREPORTS [2007] 13(Addl.)S.C.R.

A "129E. DEPOSIT, PENDING APPEAL, OF DUTY AND
INTEREST DEMANDED OR PENALTY LE VIED. - Where
in any appeal under this Chapter, the decision or order appealed
against relates to any duty and interest demanded in respect of
goods which are not under the control of the customs authorities
B or any penalty levied under this Act, the person desirous of
appealing against such decision or order shall, pending the appeal,
deposit with the proper officer the duty and interest demanded or
the penalty levied.
C Provided that where in any particular case, the Commissioner
(Appeals) or the Appellate Tribunal is ofopinion that the deposit
of duty and interest demanded or penalty levied would cause
undue hardship to such person, the Commissioner (Appeals) or,
as the case may be, the Appellate Tribunal may dispense with such
D deposit subject to such conditions as he or it may deem fit to
impose so as to safeguard the interests of revenue."
14. Two significant expressions used in the provisions are "undue
hardship to such person" and "safeguard the interests of revenue".
Therefore, while dealing with the application twin requirements of
E considerations i.e. consideration ofundue hardship aspect and imposition
of conditions to safeguard the interest of Revenue have to be kept in
_view.
15. As noted above there are two important expressions in Section
F 129-E. One is undue hardship. This is a matter within the special
knowledge of the applicant for waiver and has to be established by him.
A mere assertion about undue hardship would not be sufficient. It was
noted by this Court in S. Vasudeva v. State of Karnataka and Ors.
(AIR 1994 SC 923) that under Indian conditions expression "Undue
G hardship" is normally related to economic hardship. "Undue" which
means something which is not merited by the conduct of the claimant,
or is very much disproportionate to it. Undue hardship is caused when
the hardship is not warranted by the circumstances. ~

16. Fora hardship to be 'undue' it must be shown that the particular
H
INDUNISSAN OXO CHEMICALS IND. LTD. v. 181
UNION OF INDIAAND ORS. [PASAYAT, J.]
burden to have to observe or perfonn the requirement is out ofproportion A
to the nature of the requirement itself, and the benefit which the applicant
would derive from compliance with it.
17. The above position has been highlighted in Mis Benara Valves
Ltd. and Ors. v. Commissioner of Central Excise and Anr. (2006 B
(12) SCALE 303). Though the said case related to dispute under the
Customs Excise Act, 1944 (in short the 'Excise Act') the parameters are
the same.
18. We do not find any infirmity in the order directing deposit of
Rupees two crores as affirmed by the High Court. The appellant is C
granted three months time to deposit the amount fixed by the CESTAT.
If it is not deposited within the aforesaid time, the appeal before the
CESTAT shall stand dismissed.
19. The appeal is disposed of accordingly with no order as to D
costs.
B.B.B. Appeal disposed of.