The Punjab and Haryana High Court has upheld a Customs, Excise and Service Tax Appellate Tribunal (CESTAT) order requiring an assessee to deposit ₹60 lakh as a condition for hearing its appeal against a central excise duty demand of ₹2.31 crore, an equal penalty, interest and a redemption fine of ₹3 crore.

The bench of Acting Chief Justice Ashwani Kumar Mishra and Justice Yashvir Singh Rathor observed that, considering the overall financial exposure of the assessee, the pre-deposit directed by the Tribunal could not be regarded as either exorbitant or unreasonable.

The dispute arose from an interim order passed by the New Delhi Bench of CESTAT on an application seeking stay and waiver of pre-deposit. The Tribunal had directed the company to deposit ₹50 lakh towards the disputed duty and another ₹10 lakh towards penalty.

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Subject to compliance with this requirement, CESTAT had waived the pre-deposit of the remaining duty and penalty imposed upon the company. The Tribunal had also waived the penalties imposed upon the other appellants, including the managing director and certain buyers, and stayed recovery during the pendency of their appeals.

The High Court noted that the Tribunal’s order was passed in July 2014. Because of the interim protection granted in the proceedings before the High Court, the substantive appeal before CESTAT remained pending for more than 12 years.

The proceedings originated from allegations of clandestine removal and clearance of goods without payment of central excise duty. The department also alleged suppression of material information by the company.

The adjudicating authority confirmed a central excise duty demand of ₹2,31,20,708 against the assessee. In addition, it imposed an equal amount as penalty, ordered payment of applicable interest and levied a redemption fine of ₹3 crore.

At the stage of issuance of the show cause notice, the assessee had approached the High Court by filing a writ petition. That petition was dismissed by a Division Bench, while leaving the substantive issues open to be examined at the appropriate stage of the proceedings.

While deciding the stay and waiver application, CESTAT observed that the entire evidence relied upon by both sides could properly be scrutinised only during the final hearing of the appeals.

At the interim stage, however, the Tribunal found that the balance of convenience tilted in favour of the Revenue. It particularly referred to the company’s failure to provide a justifiable explanation regarding the presence of “kachcha slips” in its factory.

At the same time, CESTAT recorded that the assessee might have a good case concerning the demand of approximately ₹1.58 crore relating to the alleged clearance of ingots under the guise of moulds. The Tribunal noticed material indicating that the assessee was also manufacturing moulds that were captively consumed.

After considering the overall facts, the company’s financial position and the nature of the allegations, the Tribunal concluded that a combined deposit of ₹60 lakh would meet the requirements of justice.

Before the High Court, the Revenue contended that CESTAT had not expressed any final opinion on the merits of the controversy. Therefore, it argued, the High Court should not undertake an independent factual examination when the substantive issues were yet to be adjudicated by the Tribunal.

Accepting the submission, the High Court examined the operative paragraphs of the Tribunal’s order and found that CESTAT had deliberately left the merits of the dispute open for consideration during the final hearing.

The Bench held that it would not be justified in embarking upon a factual inquiry into the assessee’s claims when the issues had yet to be adjudicated by CESTAT in the first instance.

The High Court considered the scale of the demand while examining the reasonableness of the pre-deposit condition. It noted that the adjudicating authority had imposed: Central excise duty of ₹2,31,20,708; An equal amount as penalty; Applicable interest; and a redemption fine of ₹3 crore.

The Tribunal had directed the assessee to deposit ₹60 lakh for its appeal to be heard on merits.

“In such circumstances,” the Court observed, the pre-deposit direction could not be described as exorbitant or unreasonable. The Bench found no ground to interfere with the Tribunal’s discretionary interim order.

During the pendency of the appeal, the assessee also filed applications alleging that a false affidavit had been submitted before the High Court. It sought initiation of proceedings against departmental officers under Section 340 of the Code of Criminal Procedure.

The High Court, however, declined to pass any order on these applications. It clarified that it had not examined or expressed any view on the merits of the underlying excise dispute and, in the facts of the case, found no occasion to act upon the applications seeking proceedings under Section 340 CrPC.

Accordingly, the Court dismissed the appeal and left the substantive dispute to be adjudicated by CESTAT.

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