1. The petitioner-company manufactures T. V. sets, which they sell to the wholesale dealers. At the time of sale to these dealers, they recover the invoice price, but after the delivery is effected, they raised bills for comprehensive maintenance charges from these buyers.
Revenue considers that the comprehensive maintenance charges, which had been excluded from the assessable value formed a part thereof.
2. Two show-cause notices were issued by the Assistant Collector of Central Excise on 31st August and 31st December 1984, alleging that the petitioner-company had wilfully mis-stated and suppressed facts for mis-declaring the price of T.V. sets manufactured by them and had thereby contravened the provisions of the Central Excises and Salt Act and also of the Rules made thereunder. The demand raised in the first show cause notice, which pertained to the period 1-12-1979 to 31-12-1979 was for Rs. 74,160/-, while the demand in the second show cause notice, which covered the period 1-1-1980 to 31-5-1984 was for Rs. 21,16,030.75. The petitioner-company filed their replies to these notices and also produced evidence against the demands raised against them. After appraising the whole evidence, the Collector of Central Excise confirmed both the demands, which, when added, come to Rs. 21,90,190.75. The penalty imposed under 173Q was Rs. 10 lakhs.
3. The petitioner-company has challenged the order of the Collector before this Tribunal and along with the Memorandum of Appeal, an application has been made under Section 35F of the Central Excises and Salt Act for dispensing with the pre-deposit of the disputed amounts. A further prayer has been made that the recovery of the said amounts be also stayed till the disposal of the appeal.
4. Dr. L.M. Singhvi, the learned Counsel, appearing on behalf of the petitioner-company, has contended that both the demands in the show-cause notices and later confirmed in the adjudication order, were barred by limitation, as notices had been issued after the expiry of the statutory period of six months. He has further pointed out that on 8th July, 1982, his client had sent letter to the superintendent of Central Excise, in answer to a verbal enquiry made on 3rd July, 1982 and therein the pattern of sale had been fully described. It will be pertinent to reproduce here the relevant portions of the letter:- For our T.V. Sets which are very large in size (all models except Super Vu which sells at Rs. 1,800/- ex-factory), we also have Comprehensive Home Maintenance Scheme which is entirely optional.
Under this scheme, we charge Rs. 300/- per year for 3 models, i.e.
Videosonic Deluxe, Monochrome Deluxe and Coronation Deluxe and Rs. 400/- for Europe Deluxe.
A customer has a choice either to bring his T.V. set to our Service Department and get it repaired free of cost or to come under the Comprehensive Maintenance Scheme from any date after the purchase of the T.V. sets which entitles him to call our Technician to his residence also for repair and maintenance of T.V. Sets, Antenna, Voltage Stabiliser, etc. which forms part of a T.V. installation even though these are not products manufactured by us.
You may also kindly note that our Service Department is a separate establishment which is not connected with our factory." 5. The learned Counsel has submitted that the ground of limitation was urged before the lower authority but it was brushed aside without any cogent, reason. Thus instead of applying the ordinary period of limitation of 6 months the extended period of limitation of 5 years was applied. He has further, pleaded that there was no fraud or suppression of facts on the part of his clients as more than two years prior to the issue of the show-cause notices, the pattern of sale was intimated and it was clearly made known that maintenance charges were recovered after sale. Dr. Singhvi has further argued that in order to cover up their own neglect and dereliction of duty, the lower authorities had, without sufficient reason or cause applied the extended period of limitation.
6. He has further pointed out that different yardsticks have been applied by the same authority, issuing the notice, when an identical case of M/s. Jyoti Electronics was considered. (A copy of the adjudication order of this company is at page 46 of the paper book). In the said case for collecting same kind of maintenance charges, no differential duty was demanded by adding these charges to the assessable value. On the other hand, the proceedings initiated jaginst the jsaidj compay were dropped and the exclusion of these maintenance charfew was accepted.
7. Question of limitation is in indubitably a mixed question of law and fact. The arguments of both the sides will be duly considered at the time of final hearing. We feel that it will cause prejudice to the parties if we express any opinion on this issue at this stage. We, however, take note of the contentious point for considering the interim relif.
8. Dr. Singhavi has further argued that is would cause undue hardship to his clients if the differential duty and the penalty amounts are directed to be deposited and has stressed for their waiver in the circumstances of the case. His main thrust is that the petitioners has very small liquid Assets and that it will be well nigh impossible to raise funds for depositing the disputed amounts. The learned Counsel has further submitted that the cash-in-hand alone constitutes the liquid assets. We will presently see the force of this argument.
9. Dr. Singhavi has, however, admitted that the company had set up new unit of production and had also undertaken substantial expansion. He has further pointed out that the company enjoys a stock credit of Rs. 25 lakes in the bank, which has been fully drawn, and that the deposit of the duty and penalty amounts would bring the functioning the company to a grinding halt, which will obviously have serious repercussions on the employees. He has further started that the compay is prepared to give and undertaking not to dispose of its fixed assets during the pendecy of lathe appeal.
10. Accordidng to the learned Counsel, balance of convenience also swings in favour of his clients, as insisting on the deposit would casue ireeparable loss to them. To support his contntions, the learned Counsel has relied on a decision of the Supreme Court, reported as 1985(19)E.L.T 22(Assistant Collector of Central Excise, West Bengal V.Dunlop India Ltd.). In particular, he has referrd us to paragraph 7, which is in these terms:- "There can be and there are no hard and fast rules. But prudence, discreation and circmspection are called for. There are several other vital consideration apart from the exitence of a prima facie case. There is the question of irrepable injury. Their is the question of public interest." To support his submission further the learned Counsel has referred us to a decision of the Allahabd High Court, reported as 1985 (20)E.L.T 243(U.P.Lamination v. Union of India and Ors.). In this ruling the supreme court judgment given in Dunlop India case was also considered.
Our attention has been specially drawn to the following observastion made in U.P. Lamination cases:- "The only declaration of the law which can be said to be bindig in respect of interim order is that is not only the prima facie case on which an interim order should be granted in taxation matters, but the court must further consider if there was balance of convenience in favour of petitioner." To sum up Dr. Singavi has submitted that the liquidity position of the company is far from sound and that it would hamper its working and growth if the amounts, which according to him are unjustified, arbitrary and exorbitant are required to be diposited. According to leanred Counsel, the balance of convenience is also in favour of his clients.
10A. On the other hand, Shri Jain, the learned SDR, has contended that the applicants have to show undue hardship in the deposit of the amounts before any interim relief can be granted. He pointed out that the applicants had not disclosed in their price list about the collection of the CMS charges in any manner. It was in answer to a query that on 8th July, 1982, there was a letter from the applicants wherein they had referred to the CMS charges and collection of Rs. 300/- per unit per year. The show-cause notices were issued on the basis of suppression of material facts and wilful mis-statement.
According to him, the assessments subsequent to 1982 were provisional.
The learned SDR also drew our attention to the balance sheet filed by the applicants and stated that according to the Director's Report for the accounting year 30-4-1984, the company had earned a net profit of Rs. 7.07 lakhs, but had transferred Rs. 4.40 lakhs to the General Reserve. They had also declared a dividend of 12.5%. They had also not taken any loans from any other company, and were further considering the expansion of their activities, although one more unit had been started recently. The current assets of the company are to the tune of Rs. 1.58 crores and have also a reserve of about Rs. 10.28 lakhs. There had been accretion of assets during 1984 to the extent of Rs. 11.66 lakhs. They have a cash balance of Rs. 1.36 lakhs.
11. After stating all these facts, the learned SDR relied on the decision of the Supreme Court in the matter of Dunlop India Ltd., and stated that court must be circumspect in granting interim orders of far-reaching dimensions preventing collection of public revenue, even though a prima facie case may be made out. According to Shri Jain, the balance of convenience is in favour of the Revenue.
12. The question of balance of convenience will considerably depend on the liquidity position of the petitioner-company. Before proceeding further, we think it relevant to cite the following observations of the Supreme Court made in Application No. 332/84 in Appeal No. 693/84 (Spencers & Co. Ltd., Madras v. Collector of Central Excise) "We are in agreement with the contention of the counsel for the petitioner that the expression 'undue hardship' occurring in the proviso to Section 35F of the Central Excises and Salt Act, 1944, would include consideration, inter alia, of the aspect of liquidity possessed by the assessee. We are not inclined to take the view that the impugned order gives any indication that aspect has been completely ignored as was contended by counsel. With these observations, the special leave petition is dismissed." 13. According to Dr. Singhvi, the cash-in-hand only constitutes the liquid assets. This view is not accepted by the learned SDR as, according to him, the assets which can be converted into cash should also be considered as falling within the liquidity of any person.
14. To appreciate the contentions of both the sides, we first give below the dictionary meanings of the expressions 'liquidity' and 'liquid assets'. In Black's Law Dictionary (Fifth Edition), the term 'liquidity' has been defined as under :- "Liquidity : The status or condition of a person or a business in terms of his or its ability to convert assets into cash. In relationship to market, the capacity of the market in a particular security to withstand an amount of buying and selling at reasonable prices." In Thomson's Dictionary of Banking, "liquid assets" have been described as under :- "Liquid Assets. These, sometimes called floating assets, consist of cash and other assets continually undergoing conversion into cash, such as stock, sundry debtors, bills receivable. They are to be distinguished from fixed assets which are acquired for use in the business, such as premises, plant, and machinery. It is the function of an asset, not its nature, which determines into which category it goes, e.g. machinery is a fixed asset in a factory-it is what a business trades with ; in a business concerned with manufacture of machinery, it will be a liquid asset-it is what the business trades in." The expressions 'liquidity' or 'liquid assets' as understood in legal as well as in Banking and commercial sense have been very clearly explained in the two definitions extracted above. In the light of these expositions, the meaning of the expression as put forward by Dr.
Singhvi is very narrow. According to him liquidity or liquid assets means cash balance alone and exclude other assets, which can be converted into cash. If it be so, one can easily manipulate his bank balances to the minimum and thereby plead undue hardship. In our view, while considering the ambit of the two expressions it is necessary to take into account the cumulative effect of all the factors such as current assets, current liabilities, sundry debtors, finished goods, goods in transit, cash-in-hand, cash in bank, remittances in transit, etc. The liquidity of the applicants' firm has, therefore, be determined on the basis of an overall consideration emanating from all these factors and not from an isolated ground of cash in hand.
15. We have also to take into account the balance of convenience before a stay is granted. The amount of substantial mischief, which would be caused to the applicants, if stay is declined, has to be weighed with the injury as would be caused to the Revenue if the same is granted.
Section 35F of the Act embodies the general Rule that the disputed amount be deposited before an appeal is heard. However, a proviso has been added to this Section which is in the nature of an exception.
According to the proviso, pre-deposit can be dispensed with wholly or partly with such conditions as are deemed proper in a given case, but while passing such an order the interests of revenue are required to be safeguarded. Thus, such case depends on its own merits. In the present case, the ground of limitation is a factor which cannot be last sight of and at the same time the assets of the petitioners are also not as bad as is depicted.
16. After considering all aspects of the matter, we do not think it would be proper to ask the petitioner-company to deposit the entire duty and penalty amounts. It will be quite reasonable to direct that 25% of the disputed duty amount be deposited within six weeks. We, however, find that it is a fit case where we should dispense with the pre-deposit of the penalty amount.
17. In the result, we partly allow this application and direct the petitioner-company to deposit 25% of the duty amount as indicated above. In case the same is done, the deposit of the balance of the duty amount and also the penalty amount shall stand waived. Further, if the said duty is deposited, the recovery of the other amounts shall stand stayed till the disposal of the appeal.