Supreme Court Upholds Pre-Deposit Requirement Under Amended Customs Act: Chandra Sekhar Jha vs. Union of India (28 February 2022)

Introduction

Date of the Judgment: 28th February, 2022
Citation: 2022 INSC 170
Judges: K.M. Joseph, J. and Hrishikesh Roy, J.
Can an appellant avoid the mandatory pre-deposit requirement under the amended Customs Act, 1962, by claiming the incident occurred before the amendment? The Supreme Court of India addressed this question in a recent case concerning a penalty imposed for alleged gold smuggling. The Court clarified that the amended pre-deposit rules apply, even if the underlying incident occurred before the amendment. This judgment was delivered by a two-judge bench comprising Justice K.M. Joseph and Justice Hrishikesh Roy, with the opinion authored by Justice K.M. Joseph.

Case Background

The appellant, Chandra Sekhar Jha, was intercepted while traveling on a train. He was found to be allegedly carrying smuggled gold from Bangladesh. The Commissioner of Customs (Preventive), West Bengal, Kolkata, imposed a penalty of Rs. 75 lakhs on the appellant. The appellant, along with another person who was also penalized, filed appeals before the Customs, Excise and Service Tax Appellate Tribunal, Kolkata in 2017. The Tribunal dismissed the appeals because the appellant had not complied with the pre-deposit requirements under Section 129E of the Customs Act, 1962. The High Court upheld the Tribunal’s order, leading to the present appeal before the Supreme Court.

Timeline

Course of Proceedings

The Customs, Excise and Service Tax Appellate Tribunal, Kolkata, dismissed the appellant’s appeal for non-compliance with the pre-deposit requirement under Section 129E of the Customs Act, 1962. The High Court upheld the Tribunal’s order. The appellant then appealed to the Supreme Court, arguing that the pre-deposit requirement should not apply to him as the incident occurred before the amendment of Section 129E.

Legal Framework

The core of this case revolves around Section 129E of the Customs Act, 1962. The Supreme Court examined both the original and amended versions of the provision. The original Section 129E, prior to its substitution by Act 25 of 2014, stated:

“129E. Deposit, pending appeal, of duty and interest, demanded or penalty levied. – Where in any appeal under this Chapter, the decision or order appealed against relates to any duty any interest demanded in respect of goods which are not under the control of the customs authorities or any penalty levied of goods which are not under the control of the customs 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 proper officer duty and interest demanded or the penalty levied: Provided that where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of the opinion that the deposit of duty and interest demanded or penalty levied would cause under 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 interests of revenue: Provided further that where an application is filed before the Commissioner (Appeals) for dispensing with the deposit of duty and interest 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.”

The amended Section 129E, which came into effect on 06.08.2014, reads:

“129-E. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal.—The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal, — (i) under sub -section (1) of Section 128, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of customs lower in rank than the Principal Commissioner of Customs or Commissioner of Customs; (ii) against the decision or order referred to in clause ( a) of sub -section (1) of Section 129 -A, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against; (iii) against the decision or order referred to in clause ( b) of sub -section (1) of Section 129 -A, unless the appellant has deposited ten per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against: Provided that the amount required to be deposited under this section shall not exceed Rupees Ten crores: Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No. 2) Act, 2014.]”

The key difference lies in the pre-deposit requirement. The original provision required the appellant to deposit the full amount of duty, interest, or penalty, but allowed for a waiver in cases of undue hardship. The amended provision mandates a pre-deposit of a fixed percentage (7.5% or 10%) of the disputed amount, with no discretion for waiver, but caps the maximum pre-deposit at Rupees Ten crores. The amended provision also specifies that it does not apply to stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No. 2) Act, 2014.

Arguments

Appellant’s Arguments:

• The appellant argued that since the incident occurred on 28.02.2013, before the amendment of Section 129E, the original provision should apply.
• Under the original Section 129E, the Appellate Authority had the power to waive the pre-deposit requirement in cases of undue hardship.
• The appellant contended that the pre-deposit amount was harsh and onerous, and he should be entitled to seek a waiver under the old provision.

Respondent’s Arguments:

• The respondent argued that the amended Section 129E is applicable as it was in force when the order was passed by the Commissioner of Customs on 23.11.2015 and when the appeal was filed in 2017.
• The amended provision mandates a fixed percentage of pre-deposit, and the discretion to waive the pre-deposit has been removed.
• The substitution of Section 129E resulted in the repeal of the earlier provision, and the new provision is applicable to all appeals filed after the amendment.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether the amended Section 129E of the Customs Act, 1962, applies to appeals arising from incidents that occurred before the amendment came into force.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court cited Benara Valves Ltd. and others vs. Commissioner of Central Excise and another, (2006) 13 SCC 347* to define “undue hardship,” emphasizing that the burden must be disproportionate to the requirement and benefit.
• The Court referred to Justice G. P. Singh, Principles on Statutory Interpretation (12th Edition) page No.676 to support its view that substitution of a provision results in repeal of the earlier provision.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the principle of statutory interpretation. The Court emphasized that the substitution of Section 129E by Act 25 of 2014 resulted in the repeal of the old provision and the enactment of a new one. This new provision, which mandates a fixed percentage of pre-deposit, was deemed applicable to all appeals filed after its enactment, regardless of when the underlying incident occurred. The Court also highlighted that the legislative intent was to move away from the discretionary power of waiving pre-deposit and to introduce a more uniform and predictable system. The court also observed that the appellant was not being asked to pay the full amount under the old provision, but only the fixed percentage under the new provision, which was a lesser amount. The court did not find any merit in the appellant’s contention that he should be given the benefit of the proviso which was available under the old provision, as he was not being asked to pay the full amount under the old provision.

Fact:Law Ratio

Logical Reasoning:

The Court rejected the appellant’s argument that the old provision should apply, stating that the substitution of a provision results in the repeal of the earlier provision and its replacement by the new provision. The Court clarified that the appellant was not being asked to pay the full amount under the old provision, but only the fixed percentage under the new provision.

The Court stated, “The substitution has effected a repeal and it has re-enacted the provision as it is contained in Section 129 E.”

The Court further observed, “What the appellant is called upon to pay is the amount in terms of Section 129E after the substitution , namely, the far lesser amount in terms of the fixed percentage as provided in section 129E.”

The Court concluded, “We would think that the legislative intention would clearly be to not to allow the appellant to avail the benefit of the discretionary power available under the proviso to the substituted provision under Section 129E.”

Key Takeaways

• The amended Section 129E of the Customs Act, 1962, applies to all appeals filed after the amendment, regardless of when the underlying incident occurred.
• The substitution of a provision results in the repeal of the old provision and its replacement by the new provision.
• The discretion to waive the pre-deposit requirement has been removed by the amended provision.
• Appellants are required to deposit a fixed percentage of the disputed amount to maintain an appeal.

Directions

The Supreme Court extended the period for complying with Section 129E by two months from the date of the judgment. Subject to this, the appeal was dismissed.

Development of Law

The ratio decidendi of this case is that the amended Section 129E of the Customs Act, 1962, applies to all appeals filed after the amendment, irrespective of when the incident occurred. This judgment clarifies that the substitution of a provision results in the repeal of the old provision and its replacement by the new provision. There is no change in the previous position of law, but the court has clarified the applicability of the amended provision.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision. The Court held that the amended Section 129E of the Customs Act, 1962, applies to all appeals filed after the amendment, regardless of when the incident occurred. The Court emphasized the legislative intent behind the amendment, which was to remove the discretionary power of waiving the pre-deposit and to introduce a more uniform system. The appellant was given two months to comply with the pre-deposit requirement.