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CASE NO.: Appeal (civil)  3281 of 2007

PETITIONER: M/s Swan Mills Ltd

RESPONDENT: Union of India and Ors

DATE OF JUDGMENT: 26/07/2007

BENCH: Dr. ARIJIT PASAYAT & D.K. JAIN

JUDGMENT: J U D G M E N T  

CIVIL APPEAL NO.      3281          OF 2007 (Arising out of SLP (C) No. 11432 of 2006)

Dr. ARIJIT PASAYAT, J

1.      Leave granted.  

2.      Challenge in this appeal is to the order passed by a  Division Bench of the Bombay High Court dismissing the  Writ Petition filed by the appellant.  

3.      The background facts in a nutshell are as follows:                  The appellant is a composite Textile Mill engaged in  manufacture of cotton yarn, man-made yarn, cotton fabrics  and man-made fabrics as well as the processing amongst  other activities. For the period from October, 1994 to  February, 1997, the appellant was served with 14 Show  Cause Notices for recovery of differential duty of  approximately Rs.50 lakhs. The said show cause notices  were adjudicated by the Assistant Commissioner of Central  Excise, Mumbai-II vide Order-in-original No.781/398/97 to  794/411/97 dated 12th November, 1997, confirming the  demands covered thereunder along with interest. The  Assistant Commissioner of Central Excise also imposed  penalty of Rs.5,000/-. There being incorrect computation,  he directed the Range Superintendent to verify figures and  work out the fresh demand. The Range Superintendent re- worked the duty amount of Rs.9,40,753/- and issued a  demand notice on 18th May, 1998 requiring the appellant   to pay the said amount along with penalty of Rs.5,000/-.  

       Dissatisfied with the order-in-original dated 12th  November, 1997 passed by the Assistant Commissioner of  Central Excise and the order of Range Superintendent dated  18th May, 1998, the appellant preferred appeal before the  Commissioner of Central Excise (Appeals) on 2nd  September, 1998 along with stay application. The  Commissioner of Central Excise (Appeals) vide order dated  28th December, 1998 asked the appellant to deposit the  entire amount of duty and penalty within four weeks from  the date of the order.

Finance (No.2) Act, 1998, came out with Scheme  known as "Kar Vivad Samadhan Scheme, 1998" (for short,

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’KVSS’). The said scheme provided for settling the tax  arrear by paying 50% of the disputed tax arrear. Under the  KVSS, the Commissioner of Central Excise was appointed  as Designated Authority. The scheme was operative from  1st September, 1998 to 31st January, 1999. The appellant  filed declaration under Section 89 of the Finance Act, 1998  before the Commissioner of Central Excise on 31st  December, 1998.

       The aforesaid declaration filed by the appellant came  to be rejected by the Designated Authority vide his order  dated 25th February, 1999 on the ground that appeal was  filed by the appellant before the Commissioner of Central  Excise (Appeals) after the limitation for filing the appeal had  already expired and that delay in filing the appeal was not  condoned by the Commissioner of Central Excise (Appeals).

               Aggrieved by the order in appeal dated 25 February,  1999, the appellant preferred appeal before the Customs,  Excise and Gold (Control) Appellate Tribunal, West Regional  Bench, Mumbai (for short, ’the Tribunal’).

4.      The Tribunal vide its order dated 29th November, 1999  held that the appeal preferred by the appellant before the  Commissioner (Appeals) was within time and, accordingly,  set aside the order of the Commissioner (Appeals) and  remanded the matter back to him for fresh disposal in  accordance with law.

5.      On remand, the Commissioner (Appeals) vide order  dated 29th June, 2001 upheld the order-in-original dated  12th November, 1997.

6.      After the Tribunal passed the order on 29th November,  1999 holding that the appeal preferred by the appellant  before the Commissioner (Appeals) was within time, the  appellant approached the Designated Authority vide its  letter dated 24th April, 2001 for reconsideration of the  earlier order dated 25th February, 1999 and give the  appellant the benefit of KVSS in the matter of the  application filed under Section 89 of the KVSS on 28th  January, 1999.

7.      The Superintendent of Central Excise, Range II on  18th January, 2002 informed the appellant that the  Application under Section 89 of the KVSS was re-examined  by the Chief Commissioner’s office, Mumbai and since the  KVSS no longer exists, the question of accepting the  application does not arise.  

8.      The appellant then made an application dated 5th  February, 2002 to the Chief Commissioner of Central Excise  with a request for direction to the Commissioner concerned  to look into the appellant’s request for  KVSS.

9.      As the order-in-original dated 12th November  1997/18th May, 1998 had attained finality on dismissal of  the appellant’s appeal by the Commissioner (Appeals) on  29th June, 2001, the order was enforced and the appellant  deposited the entire duty and penalty on 7th October, 2004.

10.     The Office of Superintendent of Central Excise vide  letter 3rd November, 2004 asked the appellant to pay the  interest of Rs.11,58,647/- under Section 11AA of the  Central Excise Act, 1944 for delayed payment of duty. By

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subsequent letter dated 22nd November, 2004 the appellant  was again called upon to pay the interest of Rs.11,58,647/-  failing which it was informed that recovery of Government  dues shall be made under Section 142 of the Customs Act,  1962.

11.     Despite repeated letters when the appellant failed to  pay interest amount of Rs.11,58,647/-, the Superintendent  of Central  Excise vide letter dated 29th September, 2005  again called upon the appellant to pay the interest  (Government dues) immediately. It was thereafter that the  appellant on 10th October, 2005 sent a letter to the  Commissioner of Central Excise for reconsideration of the  matter.

12.    The Commissioner of Central Excise vide letter dated  19th October, 2005 informed the appellant that benefit of  KVSS cannot be extended to it as the scheme is no longer in  existence. It is then that the appellant approached the  Bombay High Court by filing a writ petition. The appellant  challenged principally the order dated 25th February, 1999  passed by the Designated Authority. It  prayed for direction  to the respondents to accept the appellant’s declaration  dated 31st December, 1998 made under Section 89 of  Finance Act, 1998 in respect of KVSS and restrain the  respondents from recovery of interest amount of  Rs.11,58,647/- as per the final demand dated 7th  December, 2005.

13.     Analysing the various provisions of the KVSS the High  Court held that since the appeal was filed after the  limitation and delay was not condoned, the appellant is not  entitled to get the benefit of KVSS.  

14.     According to the High Court the crucial word was  "pending" and, therefore, the decision in Commissioner of  Income Tax, Rajkot v. Shatrusailya Digvijaysingh Jadeja  (2005 (7) SCC 294) relied upon by the appellant was not  applicable.  

15.     In support of the appeal, learned counsel for the  appellant submitted that the Designated Authority erred in  rejecting the declaration made under KVSS on the ground  that the appeal preferred by the appellant on 2.9.1998  before the Commissioner (Appeals) was  time barred and,  therefore, it cannot be said that any  appeal was pending  under Section 95(ii)(c) of KVSS. The appeal dated 2nd  September, 1998 in respect of order-in-original dated 12th  November, 1997/15th May, 1998    was in time and it has  been so held ultimately by the Tribunal. Therefore, the  Designated Authority ought to have considered the matter.  The High Court noted that the appellant kept quite and did  not take steps in challenging the order dated 25th February,  1999 passed by the Designated Authority rejecting the  declaration made by the appellant under KVSS for some  time but filed an appeal against the order dated 25th  February, 1999 passed by the Commissioner of Central  Excise (Appeals) rejecting the appellant’s appeal as time  barred by filing an appeal before the Tribunal. By order  dated 29th November, 1999 the Tribunal allowed the appeal  setting aside the order passed by the Commissioner of  Central Excise (Appeals) and remanded the matter to the  Commissioner (Appeals).  

16.     Learned counsel for the respondents supported the

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order of the High Court.  

17.     Undisputedly, the Tribunal held that the appeal was  within time. That being so, for the purpose of KVSS the  appeal was to be treated as  pending. In Shatrusailya’s case  (supra) this Court has held as follows:

"10. The basic point which we are required  to consider in this case is the meaning of  the word "pending" in Section 95(i)(c) of the  said Scheme.  

11. The object of the Scheme was to make  an offer by the Government to settle tax  arrears locked in litigation at a substantial  discount. It provided that any tax arrears  could be settled by declaring them and  paying the prescribed amount of tax  arrears, and it offered benefits and  immunities from penalty and prosecution.  In several matters, the Government found  that a large number of cases were pending  at the recovery stage and, therefore, the  Government came out with the said Scheme  under which it was able to unlock the frozen  assets and recover the tax arrears.

12. In our view, the Scheme was in  substance a recovery scheme though it was  nomenclatured as a "litigation settlement  scheme" and was not similar to the earlier  Voluntary Disclosure Scheme. As stated  above, the said Scheme was a complete code  by itself. Its object was to put an end to all  pending  matters in the form of appeals,  references, revisions and writ petitions  under the IT Act/WT Act. Keeping in mind  the above object, we have to examine  Section 95(i)(c) of the Scheme, which was  different from appeals under Section 246,  revisions under Section 264, appeals under  Section 260-A, etc. of the IT Act and similar  provisions under the WT Act. Under the IT  Act, there is a difference between appeals,  revisions and references. However, those  differences were obliterated and appeals,  revisions and references were put on par  under Section 95(i)(c) of the Scheme. The  object behind Section 95(i)(c) in putting on  par appeals, references and revisions was to  put an end to litigation in various forms and  at various stages under the IT Act/Wealth  Tax Act and, therefore, the rulings on the  scope of appeals and revisions under the IT  Act or on Voluntary Disclosure Scheme, will  not apply to this case.

13. One more aspect needs to be looked  into. The Finance (2) Act, 1998 introduced a  scheme called the Kar Vivad Samadhan  Scheme, 1998. It was a recovery scheme.  Under the Scheme, the tax arrears had to be  outstanding as on 31-3-1998. Under  Section 87(f), "disputed tax" was defined to  mean total tax determined and payable

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under the IT Act/Wealth Tax Act in respect  of an assessment year but which remained  unpaid as on the date of making of the  declaration from which TDS, self-assessed  tax, advance tax paid, if any, had to be  deducted under Section 90; the DA had to  determine the amount payable and for that  purpose, he had to determine the tax arrear  as well as the disputed amount as defined  under Section 87(f).  Thus, the DA had to  make an assessment of tax arrears,  disputed amount and amount payable for  each year of assessment; that the appeal  was barred against the order under Section  90 (see Section 92); that such determination  had to be done within 60 days from the  receipt of the declaration and based thereon  the DA had to issue a certificate. In other  words, till the completion of the afore-stated  exercise, the appellants could not have paid  the amount of tax and, therefore, the  appellants was not liable to pay interest as  his liability accrued only after the  ascertainment of the amount payable under  Section 90. In the present matter that  exercise has been completed; that taxes  have been recovered by the sale of lands;  that amounts have been paid pursuant to  the determination by the DA, may be under  the orders of the High Court and, therefore,  we do not wish to reopen the matter.

14. In the case of Dr Renuka Datla this  Court has held on interpretation of Section  95(i)(c) that if the appeal or revision is  pending on the date of the filing of the  declaration under Section 88 of the Scheme,  it is not for the DA to hold that the  appeal/revision was "sham", "ineffective" or  "infructuous" as it has.

15. In the case of Raja Kulkarni v. State of  Bombay this Court laid down that when a  section contemplates pendency of an  appeal, what is required for its application  is that an appeal should be pending and in  such a case there is no need to introduce  the qualification that it should be valid or  competent. Whether an appeal is valid or  competent is a question entirely for the  appellate court before whom the appeal is  filed to decide and this determination is  possible only after the appeal is heard but  there is nothing to prevent a party from  filing an appeal which may ultimately be  found to be incompetent e.g. when it is held  to be barred by limitation. From the mere  fact that such an appeal is held to be  unmaintainable on any ground whatsoever,  it does not follow that there was no appeal  pending before the Court.

16. To the same effect is the law laid down  by the judgment of this Court in the case of  Tirupati Balaji Developers (P) Ltd. v. State of

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Bihar (2004 (5) SCC 1) in which it has been  held that an appeal does not cease to be an  appeal though irregular and incompetent.

18.     The ratio in Shatrusailya’s case (supra) is clearly  applicable. In the instant case the appeal is to be treated as  pending. The High Court was not justified in dismissing the  writ petition. The impugned order of the High Court is set  aside. Orders of the Designated Authority rejecting the  declaration filed by the appellant are quashed. The appeal is  allowed with no order as to costs.