SC Upholds Constitutional Validity Of Sec. 35F Of Central Excise Act

The Supreme Court has dismissed a special leave petition (SLP) filed in the matter of Satya Nand Jha vs Union of India challenging the constitutional validity of Section 35F of the Central Excise Act, 1944.

A bench comprising Justice Madan B Lokur and Justice Adarsh Kumar Goel dismissed the SLP and upheld the constitutional validity of Section 35F as held by the Jharkhand High Court.

In the instant matter, a writ petition was filed by the appellant-petitioner, who is a manufacturer and was liable to make payment of the excise duty under the Central Excise Duty Act.

Show-cause notices were issued to these manufacturers and ultimately orders were passed against them.

These petitioners can either prefer an appeal before the commissioner or before the tribunal under the Act of 1944. An appeal can be preferred under Section 35F of the Act.

An amendment was introduced by the Finance Act, 2014, amending Section 35F which has been made effective from August 6, 2014.

Petitioners challenged this new amendment as unconstitutional because it violates Article 14 and Article 19 of the Constitution.

Counsels on behalf of the petitioner argued that by the virtue of this amendment, taxpayers preferring an appeal were classified into two categories, i.e., those who have preferred an appeal before August 6, 2014, and those who preferred an appeal after the amendment was enforced.

There was no reasonable nexus with object sought to be achieved by the amendment and, hence, the petitioners claimed that it violates Article 14.

The Jharkhand High Court held that there were no two classes created by the substitution of Section 35F. What should be the cut-off date and how it should be fixed is the absolute prerogative power of the legislature.

Earlier Section 35F of the Act prescribed that if any assessee wants to prefer an appeal, the duty demanded or levied penalty. As an exception, the assessee could prefer an application for dispensing with such deposit.

In the matters where the assessee was able to prove undue hardship, the authorities use to waive the deposit.

However, the new amended Section 35F requires the assessee to deposit only 7.5% or 10% of the duty demanded or the penalty levied. By the new amendment, the discretion of the authority has been done away with.

Whenever, any cut-off date is prescribed, there are bound to be few persons who will fall on the wrong side of the cut-off date. This fact neither makes the classification void nor the provision unconstitutional.

Further, the court, by relying on the ruling of the Supreme Court in the matter of Anant Mills Company Ltd vs State of Gujarat (1975) 2 SCC 175, held that the right to appeal is a statutory right.

Without statutory provision, the person aggrieved is not entitled to file an appeal.

Furthermore, it has been held that while granting right of appeal, legislature can always impose conditions for exercise of such a right.

The legislature has all power, jurisdiction and authority to make the right to prefer an appeal as a conditional one.

Finding no merits in the writ petition, it was dismissed with a total cost of Rs 1 lakh and the amended Section 35F was held to be constitutional.

Read the order here.