Holding

The Supreme Court held that, where the appellant has already deposited substantial sums and can demonstrate undue hardship, the appeal may be heard without further pre‑deposit, subject to the appellant furnishing security to safeguard the revenue.

Summary

The Central Excise Department levied large duty and penalty demands on Mis. Benara Automotives Pvt. Ltd. (BAPL) and Mis. Benara Valves Ltd. (BVL) for alleged clandestine removal of excisable goods. The appellants appealed before the Customs Excise and Service Tax Appellate Tribunal and sought a stay of the pre‑deposit of duty/penalty under Section 35‑F of the Central Excise Act. The Tribunal directed a pre‑deposit of 25% of the demanded amounts; the High Court extended the time for payment but rejected the stay. On appeal, the Supreme Court examined the principles governing stays, the meaning of "undue hardship" and the requirement to "safeguard the interest of revenue" under Section 35‑F. It held that the appellants had already deposited substantial sums and, given the difficulties they highlighted, the appeals could be heard without further deposit, provided they furnish security to protect revenue. The Court disposed of the appeals without costs.

Issues considered

Whether the Tribunal's order directing a 25% pre‑deposit of duty and penalty under Section 35‑F is justified.
What constitutes "undue hardship" for the purpose of dispensing with pre‑deposit under Section 35‑F.
Whether the appellants should be required to make further pre‑deposit pending the appeal.
What conditions may be imposed to safeguard the interest of revenue while granting a stay.

Legislation cited

Subjects

Section 35-Fpre‑depositstay of demandundue hardshiprevenue safeguardcentral exciseinterim reliefappellate tribunal

Judgment

MIS. BENARA VALVES LTD. AND ORS. A
v.
COMMISSIONER OF CENTRAL EXCISE AND ANR.

NOVEMBER 23, 2006

[ARIJITPASAYAT ANDLOKESHWARSINGHPANTA,JJ.] B

Central Excises and Salt Act, 1944-s.35-F-Stay/Dispensation of pre-
deposit of duty and penalty-Demand of huge sum of duty and penalty-
Direction of Tribunal to pay 25% of duty demanded/penalty-Application for C
stay ofpre-deposit of duty and penalty-Rejected-On appeal, Held: Assessee
already deposited Rs.34 lacs-Considering the difficulties highlighted by
assessee, appeal be heard without further deposit, however assessee directed
to furnish security to safeguard the interest of revenue.

Interim order-Principles governing grant of stay pending disposal of D
matter before concerned forums-Discussed.

Words and Phrases-Expression 'undue hardship'-Meaning of-
Discussed.

The Central Excise Department found that appellants (BAPL and BVL) E
had been removing excisable goods from its factory clandestinely. Department
raised demand of duty of Rs. 2 crores in respect of BAPL and also imposed
penalty of same amount. Department also confirmed demand of Rs.24 lacs in
respect of BVL and imposed penalty of equal amount. Additional penalties were
imposed on several other persons. Aggrieved appellants filed appeals before
Tribunal and also application for stay of demand of duty/penalty till disposal F
of appeals in terms of Section 35-F of Central Excises Act, 1944. Tribunal
directed the appellants to pre-deposit 25% of duty demanded/penalty. On writ
petition, High Court directed the extension of time to deposit the amount
however, rejected the prayer for stay/dispensation of pre-deposit. Hence these
appeals.
G
Disposing of the appeals, the Court

HELD: 1. In matters relating to grant of stay pending disposal of the
matters before the concerned forums though discretion is available, the same
341 H
342 SUPREME COURT .REPORTS [2006) SUPP. 9 S.C.R.

A has to be exercised judicially. {344-H; 345-A)
SilliguriMunicipality and Ors. 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.
B
2. It is true that 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 undesirable to require the
assessee to pay full or substantive part of the demand. Petitions for stay should
C 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 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 tot.he forum/
authority to pass an order which cannot be sustained on the touchstone of
D fairness, legality and public interest. Where denial of interim relief may lead
to public mischief, grave irreparable private injury or shake a citizens' faith
in the impartiality of public administration, interim relief can be given.

3.1. The two significant expressions used in Section 35F of the Central
Excis~s Act, 1944 are "undue hardship to such person" and "safeguard the
E interests of revenue". (346-C)

3.2. For a hardship to be 'undue' it must be shown that the particular
burden to have to observe or perform the requirement is out of proportion to
the nature of the requirement itself, and the benefit which the applicant would
derive from compliance with it. The word "undue" adds something more than
F just hardship. It means an excessive hardship or a hardship greater than the
circumstances warrant. 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. (346-D-G)

G 3.3. The other aspect relates to imposition of condition to safeguard the
interest of revenue. This is an aspect which the Tribunal has to bring into
focus. It is for the Tribunal to impose such conditions as are deemed proper
to safeguard the interest of revenue. Therefore, the Tribunal while dealing
with the application has to consider materials to be placed by the assessee
relating to undue hardship and also to stipulate condition as required to
H
BENARA VALVES LTD. v.COMMR.OFCENTRALEXCISE [PASAYAT,J.] 343
safeguard the interest of revenue. (346-H; 347-A) A
S. Vasudeva v. State of Karnataka and Ors., AIR (1994) SC 923, referred
to.

4. The question that needs to be examined is whether any reduction of
the amounts to be deposited as directed by the Tribunal is called for. It appears B
that pursuant to the direction given by this Court, the appellants have paid
Rs.4 lakhs and Rs.30 lakhs within the time stipulated. Considering the nature
of dispute and difficulties highlighted by the appellants seeking dispensation
of pre-deposit, appeals be heard without requiring the appellant to further
deposit. However, for the balance of the amount demanded, with a view to
safeguard interest of the Revenue, the appellants shall furnish such security C
as may be stipulated by the Tribunal. [347-B-D)

CIVIL APPELLATE JURISDICTION: Civil Appeal No.5166 of2006.

From the Judgment and Order dated 13-7-2006 of the High Court of D
Judicature at Allahabad in C.M.W.P. No.1095/2006.

WlTH

C.A. Nos. 5167 of 2006.

Sushi! Kumar Jain, Pratibha Jain, Puneet Jain and U.N. Goyal for the E
Appellants.

The Judgment of the Court was delivered by

ARIJIT PASAYAT, J. Leave granted.
F
Challenge in these appeals is to the order passed by the Allahabad High
Court dismissing the writ petitions filed by the appellants who had filed the
writ petitions questioning correctness of the order passed by the Customs
Excise and Service Tax Appellate Tribunal, New Delhi (in short the 'Tribunal')
dealing with the applications filed for staying recovery of duty and penalty
imposed pending disposal of the appeals before the Tribunal. Allegations G
against the appellants were to the effect that they were removing excisable
goods clandestinely without payment of duty and without raising Central
·Excise invoices/bills under the guise of estimates/rough estimates to their
front trading firms which they called 'houses' and consequently to the ultimate
customer. Searches were conducted at the premises of manufacturing units H
344 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A and other connected concerns, through whom the goods were allegedly sold.
During the search, incriminating documents were allegedly recovered from
various premises and statements of the concerned persons have also been
recorded.

After issuing notice under Central Excise Act, 1944 (in short the 'Act'),
B Central Excise Rules, 1944 (in short the 'Rules') and Central Excise Rules, 2001
(in short the '2001 Rules') the Commissioner of Central Excise, Kanpur
demanded Rs.2,05,3 I, 762/- from Mis Benara Automotives Pvt. Ltd. (in short
'BAPL') and penalty of equal amount was imposed under Section II AC of
the Act. Additionally, penalties were imposed on six other persons. The
C Commissioner also confirmed the demand of Rs.24, 24,813/- in respect of M/
s Benara Valves Ltd. (in short 'BVL') and imposed penalty of equal amount.
Additionally, Rs.1,00,000/- each was imposed on several other persons. Appeals
were preferred before the Tribunal challenging the determination. Prayer for
stay of realisation of demands raised till disposal of the appeals in terms of
Section 35 F of the Act was made. The Tribunal directed as follows:
D
"Therefore, considering the facts and circumstances of all these
cases, we direct the applicant to pre-deposit the following amounts
within eight weeks under Section 35F of the Central Excise Act:

(I) M/s. BAPL and M/s. BVL are c!irected to pre-deposit twenty-
E five percent of the duty demanded from them:

(2) The other applicants are directed to pre-deposit twenty-five
percent of the penalties imposed on them".
Questioning correctness of the order passed by the Tribunal, writ petitions
were filed: By the impugned orders, the High Court directed extension of time to
comply with the Tribunal's order. However, the prayer for dispensation of de-
F
posit was rejected.
Learned counsel for the appellants submitted that demands raised will
not stand the test of appeal as correct legal and factual position were not kept
in view while adjudicating the issues. Mr. B. Dutta, learned Additional Solicitor
G General for the respondents submitted that demands have been raised after
detection of large scale manipulations and evasions and no relief should be
extended to such dishonest manufacturers. According to him, neither any
prima facie case has been established, nor any case of irreparable loss or
balance of convenience has been made out.

H Principles relating to grant of stay pending disposal of the matters
....
BENARA VALVES LTD. 1·. COMMR. OF CENTRAL EXCISE [PASA YAT,J.] 34 5
. before the concerned forums have been considered in several cases. It is to A
be noted that in such matters though discretion is available, the same has to
be exercised judicially.

The applicable principles have been set out succinctly in Silliguri
Municipality and Ors. v. Amalendu Das and Ors., AIR (1984) SC 653 and
Mis Samarias Trading Co. Pvt. Ltd. v. S. Samuel and Ors., AIR (I 985) SC 6I B
and Assistant Collector of Central Excise v. Dunlop India Ltd., AIR ( 1985)
SC330.

It is true that 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 undesirable to require the C
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
the order has to be passed keeping in view the factual scenario involved. D
Merely because this Court has indicated the pri;iciples 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 lead to public mischief, grave irreparable private injury or
shake a citizens' faith in the impartiality of public administration, interim relief
can be given. E
It has become an unfortunate trend to casually dispose of stay
applications by referring to decisions in Siliguri Municipality and Dunlop
India cases (supra) without analysing factual scenario involved in a particular
case.
F
Section 35-F of the Act reads as follows:

"35F. Deposit, pending appeal, of duty demanded or penalty levied.-

Where in any appeal under this Chapter, the decision or order appealed
against relates to any duty demanded in respect of goods which are G
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 Commissioner (Appeals) H
346 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A or the Appellate Tribunal is of opinion that the deposit of duty
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 deposit subject to such
conditions as he or it may deem fit to impose so as to safeguard the
interest of revenue:
B
Provided further that where an application is filed before the
Commissioner (Appeals) for dispensing with the deposit of duty
demanded or penalty levied under the first proviso, the Commissioner
(Appeals) shall, where it is possible to do so, decide such application
within thirty days from the date of its filing."
c
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 considerations i.e.
consideration of undue hardship aspect and imposition of conditions to
.D safeguard the interest of Revenue have to be kept in view.

As noted above there are two important expressions in Section 35(F).
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.
E Vasudeva v. State of Karnataka and Ors. AIR (1994) SC 923) that under
Indian conditions expression "Undue 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 har~ship is not warranted by the circumstances.

F For a hardship to be 'undue' it must be shown that the particular
burden to have to observe or perform the requirement is out of proportion
to the nature of th.e requirement itself, and the benefit which the applicant
would derive from compliance with it.

The word "undue" adds something more than just. hardship. It means
G an excessive hardship or a hardship greater than the circumstances warrant.
The other aspect relates to imposition of condition to safeguard the
interest of revenue. This is an aspect which the Tribunal has to bring into
focus. It is for the Tribunal to impose such conditions as are deemed proper
H to safeguard the interest of revenue. Therefore, the Tribunal while dealing
BENARA VALVESLTD.v.COMMR.OFCENTRALEXCISE [PASAYAT,J.] 347

with the application has to consider materials to be placed by the assessee A
relating to undue hardship and also to stipulate condition as required to
safeguard the interest of revenue.

In the instant case Tribunal has rightly observed that the rival stands
have to be examined in detail with reference to material on record ..
B
The only other question that needs to be examined is whether any
reduction of the amounts to be deposited as directed by the Tribunal is called
-j for.

It appears that pursuant to the direction given by this Court on 18.8.2006,
the appellants have paid Rs.4 lakhs and Rs.30 lakhs within the time stipulated. C
Considering the nature of the dispute and the difficulties highlighted by the
appellants seeking dispensation of deposit, we direct that the appeals shall
now be heard without requiring further deposit, if the appeals are free from
other defects in accordance with law. However, for the balance of the amount
demanded, with a view to safeguard interest of the Revenue, the appellants D
shall furnish such security as may be stipulated by the Tribunal.

The appeals are accordingly disposed of. No costs.

D.G. Appeals disposed of.