High Court Holds Board Circular Cannot Mandate Recovery During Pending Stay Applications Where Delay Is Beyond Assessee's Control

A Division Bench of Justices Dr. D.Y. Chandrachud and A.A. Sayed heard a batch of writ petitions on 1 February 2013 challenging a Central Board of Excise and Customs circular dated 1 January 2013. The petitions, led by Larsen & Toubro Limited, questioned directions that field formations should initiate recovery of confirmed demands within fixed periods even where an appeal accompanied by an application for stay remained pending before the Commissioner (Appeals), the CESTAT, the High Court or the Supreme Court.

The Court summarised its holding that the impugned circular could not be applied to an assessee who had filed a stay application which remained pending for reasons beyond the assessee's control, and issued interim protection in the lead matter. The Court, in its reasoning, observed: "For these reasons, we have come to the conclusion that the provisions contained in the impugned circular dated 1 January 2013 mandating the initiation of recovery proceedings thirty days after the filing of an appeal, if no stay is granted, cannot be applied to an assessee who has filed an application for stay, which has remained pending for reasons beyond the control of the assessee. Where however, an application for stay has remained pending for more than a reasonable period, for reasons having a bearing on the default or the improper conduct of an assessee, recovery proceedings can well be initiated as explained in the earlier part of the judgment." The Court further observed that "the protection of the revenue has to be necessarily balanced with fairness to the assessee."

Background The lead petition arose from two show-cause notices issued to Larsen & Toubro (L&T) in 2005 for alleged non-payment of service tax; the Commissioner (Central Excise), Thane-I, confirmed demands by order dated 10 October 2011. L&T filed appeals and stay applications before the CESTAT on 10 October 2011; the stay application was repeatedly adjourned for administrative reasons and was listed next on 5 February 2013. Meanwhile the Department issued summons and threatened coercive recovery pursuant to the Board circular of 1 January 2013, which rescinded earlier instructions and prescribed a tabulated regime for initiating recovery across various appellate scenarios (including initiation 30 days after filing of an appeal where no stay was granted).

The petitioners contended that the circular was arbitrary and violative of Article 14 insofar as it mandated recovery even where stay applications were pending through no fault of the assessee. The Revenue relied on precedents such as Collector of Customs v. Krishna Sales (P) Ltd. and statutory provisions (Sections 35, 35A, 35B, 35C and 35F of the Central Excise Act, and corresponding Customs Act provisions), and argued that pending appeal did not automatically stay recovery and that policy permitted the Board to prescribe time-lines.

The Bench reviewed earlier Board circulars (1988, 1990, 1992, 1994, 1998 and 2004) and Supreme Court authority including Commissioner of Customs & Central Excise, Ahmedabad v. Kumar Cotton Mills Pvt. Ltd., which cautioned that penal provisions should not be applied to assessees for delays beyond their control. The Court held that where delay in disposal of stay applications arose from administrative inability—lack of infrastructure, non-availability of judicial benches or other reasons beyond the assessee’s control—initiation of coercive recovery pursuant to the new circular would be arbitrary. Conversely, where delay was attributable to the assessee’s dilatory conduct, recovery could be justified.

The Court directed that in the lead petition the CESTAT should take up the stay application for early disposal, preferably within eight weeks of production of an authenticated copy of this order, and ordered that in the meantime no coercive steps for recovery shall be initiated. The batch of petitions was disposed of in terms of these directions; there was no order as to costs.

Case Details: Case No.: Civil Writ Petition No. 878 of 2013 (lead; part of a batch including WPs 380/2013, 420/2013, 696/2013, 698/2013, 810-814/2013) Case Title: Larsen & Toubro Limited v. The Union of India and others Appearances: For the Petitioner(s): Mr. V. Sridharan, Senior Advocate with Mr. Prakash Shah and Mr. Jas Sanghavi i/b PDS Legal (for petitioners in WPs 698/2013, 810/2013–814/2013); Mr. Prakash Shah with Mr. Prasad Paranjape and Mr. Durgaprasad Poojary i/b PDS Legal (for petitioners in WPs 380/2013, 878/2013 and 420/2013). For the Respondent(s): Mr. Pradeep S. Jetly with Ms. Suchitra Kamble (for respondents in WPs 380/2013, 420/2013, 698/2013 and 878/2013); Mr. Jitendra B. Mishra (for respondents in WP 696/2013); Mr. Pradeep S. Jetly with Mr. S.D. Bhosale (for respondents in WPs 810/2013 to 814/2013).