IN HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on:19.05.2015 + W.P.(C) 1334/2015 & CM 2337/2015 PEPSI FOODS PVT. LTD. (NOW MERGED WITH PEPSICO INDIA HOLDING PVT. LTD . Petitioner versus ASSISTANT COMMISSIONER OF INCOME TAX & ANR ..Respondents + W.P.(C) 1934/2014 and CM 4053/2014 PEPSI FOODS LTD. (NOW PEPSICO INDIA HOLDINGS PVT. LTD. .Petitioner versus DEPUTY COMMISSIONER OF INCOME TAX&ORS .Respondents + W.P.(C) 1935/2014 and CM 4054/2014 PEPSI FOODS LTD. .Petitioner versus DEPUTY COMMISSIONER OF INCOME TAX &ORS ....Respondents + W.P.(C) 2326/2014 and CM 4885/2014 ERICSSON AB .Petitioner versus ADDL. DIRECTOR OF INCOME TAX, ORS .Respondents + W.P.(C) 2465/2014 and CM 5130/2014 ERICSSON AB .Petitioner versus ADDITIONAL DIRECTOR OF WP(C) 1334/2015 & ORS Page 1 of 37 INCOME TAX &ORS Respondents + W.P.(C) 3650/2014 and CM 7417/2014 PEPSI FOODS LTD. (NOW PEPSICO INDIA HOLDINGS Petitioner versus DEPUTY COMMISSIONER OF INCOME TAX &ANR Respondents + W.P.(C) 4280/2014 and CM 8604/2014 ASPECT SOFTWARE INC .Petitioner versus ASTT. DIRECTOR OF INTERNATIONAL TAXATION & ORS .Respondents Advocates who appeared in this case:- For Petitioner in Pepsi Foods Ltd. : Mr Deepak Chopra with Mr Piyush Singh, Mr Amit Shrivastava, Mr Harpreet Ajmani, Ms Rashi Khanna and Ms Ananya Kapoor For Petitioner in Ericsson Ab : Mr M.S. Syali, Sr. Adv.with Mr Mayank Nagi, Harkunal Singh and Mr Tarun Singh For Petitioner in WPC 4280/2014 : Ms Rashmi Chopra For Respondent/Revenue : Mr Rohit Madan, Mr N.P. Sahni, Mr Ruchir Bhatia & Mr Akash Vajpai For Respondent/UOI : Mr Vivek Goyal and Mr Rohan Khare CORAM: HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE SANJEEV SACHDEVA JUDGMENT BADAR DURREZ AHMED, J 1. These writ petitions are taken up together because they raise common issue and, that is, challenge to constitutional validity of WP(C) 1334/2015 & ORS Page 2 of 37 third proviso to Section 254(2A) of Income Tax Act, 1961 (hereinafter referred to as said Act ). alternative prayer has also been made to read down provisions of said proviso to Section 254 (2A) of said Act to mean that power of Income Tax Appellate Tribunal to grant interim relief is co-terminus with main power of disposal of appeal, as stipulated in Section 254(1) of said Act. In each of these petitions, initially stay was granted by Income Tax Appellate Tribunal. But, period of 365 days from grant of initial stay has elapsed and in view of provisions of Section 254(2A), as it stands now, Tribunal cannot grant any further extension of stay even though appeals filed by petitioners before Tribunal are pending. delay in disposal of appeals is also not on account of any conduct attributable to petitioners. 2. Constitutional validity of third proviso to Section 254(2A) and, particularly, to amendment introduced therein by virtue of Finance Act, 2008, with effect from 01.08.2008, which added words even if delay in disposing of appeal is not attributable to assessee is in question before us. case of petitioners is that prior to said amendment, in decision of Bombay High Court in case of WP(C) 1334/2015 & ORS Page 3 of 37 Narang Overseas Private Limited v. Income Tax Appellate Tribunal: 295 ITR 22 (Bombay), third proviso to Section 254(2A) had been read down in such manner that even if period of 365 days from initial grant of stay had expired, Tribunal could extend stay granted, provided delay was not attributable to assessee. amendment brought about by Finance Act, 2008 sought to nullify this reading of third proviso to Section 254(2A) of said Act by introducing words even if delay in disposing of appeal is not attributable to assessee . It was urged on part of petitioners that right of appeal is not inherent, but once it has been granted, it has to be construed as one which effectively redresses grievances. It was further contended that right to obtain stay of demand/ penalty was integral and cardinal to effective right of appeal. It was also contended that introduction of above mentioned words by virtue of amendment of 2008 has made right of appeal illusory and amendment is, therefore, clearly arbitrary and contrary to provisions of Article 14 of Constitution of India. It was also contended that said amendment introduces classification which has no nexus with object sought to be achieved. In first place, it clubs assessees belonging to two different categories as one class. It was WP(C) 1334/2015 & ORS Page 4 of 37 contended that assessees, who are not responsible for any delay in hearing of appeal, have been clubbed together with those assessees to whom delay was attributable. Therefore, persons belonging to different groups/ classes have been clubbed together in one category and this has caused hostile discrimination against those assessees who are law abiding and did not cause any delay in hearing of their respective appeals. This, in itself, was violative of Article 14 of Constitution of India and, therefore, amendment introduced by virtue of Finance Act, 2008 was liable to be struck down, as being invalid. 3. learned counsel for petitioners referred to several decisions in support of their contentions. They were:- (i) ITO v. M. K. Mohammed Kunhi: 71 ITR 815 (SC); (ii) Wire Netting Store, Delhi & Another v. Regional Provident Fund Commissioner & Others: (1984) 1 ILR 76 (Delhi) (DB); (iii) Mardia Chemicals Limited & Others v. Union of India and Another: (2004) 4 SCC 311; (iv) Narang Overseas Private Limited v. Income Tax Appellate Tribunal: (2007) 295 ITR 22 (Bombay) (DB) ; (v) PML Industries Limited v. CCE & Another: 2013 (30) STR 113 (Punjab and Haryana High Court) (DB); WP(C) 1334/2015 & ORS Page 5 of 37 (vi) CIT v. Maruti Suzuki (India) Limited: (2014) 362 ITR 215 (Delhi) (DB); and (vii) Dr Subramanian Swamy v. Director, CBI: (2014) 8 SCC 682(SC) 4. On other hand, learned counsel for revenue submitted that there was nothing wrong with amendment brought about in 2008 inasmuch as all it did was to clarify legislative intent and make it explicit. What was already provided under said Act in third proviso to Section 254(2A) has merely been clarified. It was contended that there has been no class treatment given by legislature and that said provision is not discriminatory. intention behind amendment was to clarify that period of stay cannot be extended beyond 365 days under any circumstances. reference was also made to this Court s decision in Maruti Suzuki (India) Limited (supra). Reliance was also placed on decision of Bombay High Court in case of Jethmal Faujimal Soni v. Income Tax Appellate Tribunal: (2011) 333 ITR 96 and V. M. Salgaocar and Brothers v. Board of Trustees of Port of Mormugao and Another: (2005) 4 SCC 613. 5. At this point, it would be relevant to set out provisions of Section 254 (2A), including its provisos, which reads as under:- WP(C) 1334/2015 & ORS Page 6 of 37 254. Orders of Appellate Tribunal. (1) xxxx xxxx xxxx xxxx (1A) xxxx xxxx xxxx xxxx (2) xxxx xxxx xxxx xxxx (2A) In every appeal, Appellate Tribunal, where it is possible, may hear and decide such appeal within period of four years from end of financial year in which such appeal is filed under sub-section (1) or sub-section (2) or sub- section (2A) of section 253: Provided that Appellate Tribunal may, after considering merits of application made by assessee, pass order of stay in any proceedings relating to appeal filed under sub- section (1) of section 253, for period not exceeding one hundred and eighty days from date of such order and Appellate Tribunal shall dispose of appeal within said period of stay specified in that order: Provided further that where such appeal is not so disposed of within said period of stay as specified in order of stay, Appellate Tribunal may, on application made in this behalf by assessee and on being satisfied that delay in disposing of appeal is not attributable to assessee, extend period of stay, or pass order of stay for further period or periods as it thinks fit; so, however, that aggregate of period originally allowed and period or periods so extended or allowed shall not, in any case, exceed three hundred and sixty-five days and Appellate Tribunal shall dispose of appeal within period or periods of stay so extended or allowed: Provided also that if such appeal is not so disposed of within period allowed under first proviso or period or periods extended or allowed under second proviso, which WP(C) 1334/2015 & ORS Page 7 of 37 shall not, in any case, exceed three hundred and sixty-five days, order of stay shall stand vacated after expiry of such period or periods, even if delay in disposing of appeal is not attributable to assessee. (2B) xxxx xxxx xxxx xxxx (3) xxxx xxxx xxxx xxxx (4) xxxx xxxx xxxx xxxx (underlining added) 6. Section 254 (2A) stipulates that Appellate Tribunal, where it is possible, may hear and decide appeal within period of four years from end of financial year in which such appeal is filed under Section 253(1), (2) or (2A). Initially, there was no proviso to Section 254(2A). provisos were added, for first time, by virtue of Finance Act, 2001. At that point of time, provisos inserted by Finance Act, 2001 read as under:- Provided that where order of stay is made in any proceedings relating to appeal filed under sub-section (1) of section 253, Appellate Tribunal shall dispose of appeal within period of one hundred and eighty days from date of such order: WP(C) 1334/2015 & ORS Page 8 of 37 Provided further that if such appeal is not so disposed of within period specified in first proviso, stay order shall stand vacated after expiry of said period. 7. It is clear from above that with effect from 01.06.2001, it was stipulated that where order of stay had been granted, Appellate Tribunal was required to dispose of appeal within period of 180 days from date of said order. It was further provided that if appeal was not disposed of within specified period of 180 days, stay order would stand vacated after expiry of said period. As pointed out by learned counsel for revenue, Courts, while interpreting said provisos, as they stood with effect from 01.06.2001, did not limit powers of Tribunal to pass fresh orders of stay on expiration of period of 180 days. Consequently, by virtue of Finance Act of 2007, with effect from 01.06.2007, three provisos, as they stand today, except last portion of third proviso, which reads as even if delay in disposing of appeal is not attributable to assessee , were substituted for provisos which had earlier been inserted by Finance Act of 2001. Thereafter, by virtue of Finance Act, 2008, third proviso was substituted by existing proviso with effect from 01.10.2008, difference being that WP(C) 1334/2015 & ORS Page 9 of 37 expression even if delay in disposing of appeal is not attributable to assessee was now added by virtue of amendment of 2008. 8. Prior to amendment of 2008, provisos clearly stipulated that, in first instance, stay order could be passed for period, not exceeding 180 days from date of said order, and that Tribunal was required to dispose of appeal within that period. second proviso stipulated that in case appeal was not so disposed of within period initially stipulated by Tribunal, Tribunal could, on application made on this behalf by assessee and on being satisfied that delay in disposing of appeal was not attributable to assessee, extend period of stay for period or periods, provided that aggregate of period originally allowed and period or periods so extended, would not, in any case, exceed 365 days. Tribunal was also required to dispose of appeal within period or periods of stay so extended or allowed. third proviso stipulated that if appeal had not been disposed of within period of 365 days, order of stay would stand vacated after expiry of such period. This provision came up for consideration before Bombay High Court in Narang Overseas (supra). exact question which was considered by Bombay WP(C) 1334/2015 & ORS Page 10 of 37 High Court was whether third proviso to Section 254(2A) of said Act had effect of denuding Tribunal of its incidental power to grant interim relief. Division Bench of Bombay High Court, after considering various provisions and decisions, observed as under:- 20. It would not be possible on one hand to hold that there is vested right of appeal and on other hand to hold that there is no power to continue grant of interim relief for no fault of assessee by divesting incidental power of Tribunal to continue interim relief. Such reading would result in such exercise being rendered unreasonable and vilative of Article 14 of Constitution. Courts must, therefore, construe and / or give construction consistent with constitutional mandate and principle to avoid provision being rendered unconstitutional. xxxx xxxx xxxx xxxx 23. We are of respectful view that law as enunciated in Kumar Cotton Mills (P) Ltd. (supra) should also apply to construction of third proviso as introduced in Section 254(2A) by Finance Act, 2007. power to grant stay or interim relief being inherent or incidental is not defeated by provisos to sub-section. third proviso has to be read as limitation on power of Tribunal to continue interim relief in case where hearing of appeal has been delayed for acts attributable to assessee. It cannot mean that construction be given that power to grant interim relief is denuded even if acts attributable are not of assessee but of revenue or of Tribunal itself. power of Tribunal, therefore, to continue interim relief is not overridden by language of third proviso to Section 254(2A). This would be in consonance with view taken in Kumar Cotton Mills (P) Ltd. (supra). There would be power in Tribunal to extend period of stay on good cause WP(C) 1334/2015 & ORS Page 11 of 37 being shown and on Tribunal being satisfied that matter could not be heard and disposed of for reasons not attributable to assessee. 9. From above extract, it is evident that Bombay High Court was of view that if it were to be held that Tribunal, while it had power to pass order in appeal, did not have power to continue grant of interim relief for no fault of assessee, result would be rendered unreasonable or violative of Article 14 of Constitution. In other words, Bombay High Court took view that Tribunal had power to extend stay beyond period of 365 days, provided delay in disposal of appeal was not attributable to assessee. Bombay High Court also took view that if third proviso to Section 254(2A) were not interpreted in such manner and it was to be held that Tribunal had no power to extend period of stay beyond period of 365 days even though delay was not attributable to assessee then, provision would run afoul of Article 14 of Constitution and would have to be struck down as such. While observing this, Bombay High Court was mindful that Courts are required to construe and/ or to give construction to provision which was consistent with constitutional mandate so as to avoid provision being rendered unconstitutional. It is in this light that Bombay WP(C) 1334/2015 & ORS Page 12 of 37 High Court read down and interpreted third proviso (prior to amendment of 2008) to not take away power of Tribunal to extend period of stay beyond 365 days, provided, of course, that delay in disposing of appeal was not attributable to assessee. 10. Notes on Clauses pertaining to Finance Bill, 2008, to extent relevant, read as under:- Clause 46 seeks to amend section 254 of Income-tax Act, relating to orders of Appellate Tribunal. Sub-section (2A) of said section provides that Income-tax Appellate Tribunal, where it is possible, may hear and decide appeal within period of four years from end of financial year in which such appeal is filed under sub- section (1) or sub-section (2) of section 253. first proviso to this sub-section provides that said Appellate Tribunal may, on merit, pass order of stay in any proceedings relating to appeal. However, such period of stay cannot exceed 180 days from date of such order and said Appellate Tribunal shall dispose of appeal within specified period of stay. second proviso to this sub-section provides that where appeal has not been disposed of within said specified period and delay in disposing of appeal is not attributable to assessee, Appellate Tribunal can further extend period of stay originally allowed. However, aggregate of period originally allowed and period so WP(C) 1334/2015 & ORS Page 13 of 37 extended should not exceed 365 days. Appellate Tribunal is required to dispose of appeal within extended period. third proviso to this sub-section provides that if such appeal is not decided within period allowed originally or period or periods so extended or allowed, order of stay shall stand vacated after expiry of such period or periods. intention behind these provisions have been very clear that Appellate Tribunal cannot grant stay either under original order or under any subsequent order, beyond period of 365 days in aggregate. To make this intention clear, it is proposed to amend section 254 of Income-tax Act and further provide that aggregate of period originally allowed and period or periods so extended or allowed shall not, in any case, exceed three hundred and sixty five days, even if delay in disposing of appeal is not attributable to assessee. This amendment will take effect from 1st October, 2008. From above, it is evident that object behind introduction of words even if delay in disposing of appeal is not attributable to assessee was to make it clear that aggregate of period originally allowed and period or periods so extended or allowed was not to, in any case, exceed 365 days, even if delay in disposing of appeal was not attributable to assessee. WP(C) 1334/2015 & ORS Page 14 of 37 11. It is evident that amendment introduced by virtue of Finance Act, 2008 had nullified effect of decision of Bombay High court in Narang Overseas (supra). said provision, after its amendment by virtue of Finance Act, 2008, came up for consideration before this Court in Maruti Suzuki (India) Limited (supra). following observations made by Division Bench of this Court in that case are relevant:- 26. In view of aforesaid discussion, we have reached following conclusion:- (i) In view of third proviso to Section 254(2A) of Act substituted by Finance Act, 2008 with effect from 1st October, 2008, tribunal cannot extend stay beyond period of 365 days from date of first order of stay. (ii) In case default and delay is due to lapse on part of Revenue, tribunal is at liberty to conclude hearing and decide appeal, if there is likelihood that third proviso to Section 254 (2A) would come into operation. (iii) Third proviso to Section 254 (2A) does not bar or prohibit Revenue or departmental representative from making statement that they would not take coercive steps to recover impugned demand and on such statement being made, it will be open to tribunal to adjourn matter at request of Revenue. (iv) assessee can file writ petition in High Court pleading and asking for stay and High Court has power and jurisdiction to grant stay and issue directions to tribunal as may be required. Section 254(2A) does not prohibit/bar WP(C) 1334/2015 & ORS Page 15 of 37 High Court from issuing appropriate directions, including granting stay of recovery. 27. We have not examined constitutional validity of provisos to Section 254 (2A) of Act and issue is left open. (underlining added) 12. From above extract, it is evident that Division Bench was not called upon and did not examine constitutional validity of provisos to Section 254(2A) of said Act and left issue open. It is only on plain reading of provisos, as they existed, that Division Bench came to conclusion that Tribunal had no power to extend stay beyond period of 365 days from date of first order of stay but that assessee could file writ petition in High Court asking for stay even beyond said period of 365 days and High Court had power and jurisdiction to grant stay and issue directions to Tribunal and that Section 254(2A) did not prohibit / bar High Court from issuing appropriate directions, including grant of stay of recovery. similar view was taken by Bombay High Court in Jethmal Faujimal Soni (supra). But that decision was also rendered on plain meaning of provisos, as they stood. There was no challenge to constitutional validity of third proviso to Section WP(C) 1334/2015 & ORS Page 16 of 37 254(2A) of said Act after amendment introduced by Finance Act, 2008. No decision of any High Court has been brought to our notice by learned counsel for parties, wherein constitutional validity of third proviso to Section 254(2A) of said Act has been examined. 13. At this point, we may also refer to certain other observations of Division Bench in Maruti Suzuki (India) Limited (supra). Court had examined various data with regard to filing of appeals, pendency of appeals and stay orders granted by Tribunal etc.. Paragraphs 21, 22 and 23 are of material importance and they are reproduced herein below:- 21. Information/data in this regard was received vide letter dated 30th January, 2014 written by Assistant Registrar, Tribunal. relevant portion of said letter reads as under:- a) Number of appeals filed before Tribunal by assessee and revenue is as under:- Year Assessee Revenue Total 2011 3359 3013 6372 2012 3593 3462 7055 2013 3975 3102 7077 Total 10927 9577 20504 b) No data is available with regard to average time taken for disposal of appeal before Tribunal. WP(C) 1334/2015 & ORS Page 17 of 37 c) (i) year-wise details of stay orders passed by Tribunal are as under:- Year Number of stay orders 2011 173 2012 278 2013 321 (ii) complete details in respect of each and every appeal where stay order was passed is annexed as Annexure-1, 2 & 3. d) year-wise details of cases/appeals which remained pending beyond 365 days of stay order are as under:- Year Number of appeals disposed-off after 365 days or pending for more than 365 days 2011 90 Appeals 2012 131 Appeals 2013 36 Appeals e) year-wise details of number of appeals disposed of within 365 days from date of grant of stay are as under:- Year Number of appeals disposed-off within 365 days or pending within 365 days 2011 83 Appeals 2012 147 Appeals 2013 285 Appeals WP(C) 1334/2015 & ORS Page 18 of 37 22. aforesaid data does not mention quantum of demand, which was subject matter of stay, but position is certainly not bleak and unpalatable. Most of appeals in which stay had/has been granted, were/are being disposed of within 365 days. Number of appeals, which were not disposed of within 365 days of grant of stay, have come down sharply in year 2013. Grant of stay by tribunal is not matter of right, but is decided by speaking order, recording prima facie view on merits. In case there is error or tribunal has erred in granting stay, Revenue is not without remedy and can approach High Court in accordance with law. 23. We do not have figures or data on whether demands raised, which was subject matter of stay, was sustained/upheld or were deleted by tribunal. Merits and justification of additions is examined by appellate forums and demands raised have relevance when they are sustained by tribunal/High Court and Supreme Court. 14. From above data, it is evident that number of stay orders granted by Tribunal in years 2011, 2012 and 2013 do not even amount to 10% of appeals filed by assessees before Tribunal. Furthermore, even fewer number of appeals, in which stay orders have been passed, remain pending beyond period of 365 days. It is in this light that Division Bench observed that most of appeals in which stay had/has been granted were/are being disposed of within 365 days. Division Bench also observed that grant of stay by Tribunal was not matter of right but was decided by speaking order, recording prima WP(C) 1334/2015 & ORS Page 19 of 37 facie view on merits. Furthermore, in case there was error, revenue was not without remedy and could approach High Court in accordance with law. From above figures, it is evident that there is very small percentage of appeals before Tribunal which remain pending beyond period of 365 days in which stay orders were granted. 15. We may also refer to paragraph 17 of decision in Maruti Suzuki (India) Limited (supra) which was relied upon by revenue. said paragraph reads as under:- 17. In these circumstances, we have examined whether we can read down third proviso, by applying principles of equity, justice and fair play and also principle that court should interpret provision in manner that it does not lead to arbitrary results or make it violative of Article 14 or would render it unconstitutional. However, it is clear to us that legislative mandate has to be respected and courts do not legislate but interpret statute as legislative edict. third proviso after amendment, undoubtedly bars and prohibits tribunal from extending interim stay order beyond 365 days. It stipulates deemed vacation and imposes no fault consequences in strict terms. language is clear and therefore has to be respected. However, provision does not bar or prohibit assessee from approaching High Court by way of writ petition for continuation, extension or grant of stay. Fairly, standing counsel for Revenue accepts and admits that in spite of Section 254(2A), High Court has power to grant and extend stay where appeal is pending before tribunal. constitutional power and right is available and has not and cannot be curtailed. powers of High Court under WP(C) 1334/2015 & ORS Page 20 of 37 Articles 226 and 227 form part and parcel of basic structure of Constitution and cannot be over written and nullified as held by Constitutional Bench in L. Chandra Kumar versus Union of India, (1997) 3 SCC 261. Thus, High Court in appropriate matters can grant or extend stay even when tribunal has not been able to dispose of appeal within 365 days from date of grant of initial stay. This perhaps appears to be and apparently is intention of Parliament. High Court while granting or rejecting writ petition will examine factual matrix, record reasons as to who is to be blamed and is responsible for default and can also issue appropriate directions or orders for expeditious and early disposal of appeal. provision will propel and ensure that tribunal will try and dispose of and decide appeals within 365 days of grant of stay order. Bombay High Court in Jethmal Faujimal Soni vs. Income Tax Appellate Tribunal [2011] 333 ITR 96, had occasion to deal with similar situation and entertained writ petition. In said case constitutional validity of third proviso inserted in Section 254(2A) of Act by Finance Act, 2008, w.e.f. 1 st October, 2008 was challenged It was observed that proviso enacted stringent provision as result of which even if delay in disposing of appeal was/is not attributable to assessee, stay stands vacated after 365 days. Thus, tribunal was/is under binding duty and obligation to dispose of appeal within said time, particularly when fault was not on part of assessee. In said case, directions were issued for expeditious disposal of appeal and it was also directed that Revenue shall not take coercive steps for enforcing demand subject matter of appeal. (underlining added) 16. At this juncture itself, we may reiterate that decision of Division Bench in Maruti Suzuki (India) Limited (supra) was based on WP(C) 1334/2015 & ORS Page 21 of 37 interpretation of third proviso to Section 254(2A) as it stands. constitutional validity of same had not been examined. It only spelt out legislative intent and that was more than clear that no stay could be granted by Tribunal beyond period of 365 days under any circumstances. question that we have to examine is whether this intention of legislature is not hit by Article 14 of Constitution of India. We may also point out that fact that judicial review was available to assessee under Article 226 of Constitution, would not, in any way, add to or subtract from issue of constitutional validity of third proviso to Section 254(2A). 17. It would now be relevant to examine decision of Supreme Court in Mohammed Kunhi (supra). question before Supreme Court was whether Income Tax Appellate Tribunal had power under relevant provisions of said Act to stay recovery of realization of penalty imposed by departmental authorities on assessee during pendency of appeal before it. In that case, Tribunal had declined to order any stay holding that it had no power to grant such prayer. We must be mindful of fact that at that point of time Section 254(2A) was not WP(C) 1334/2015 & ORS Page 22 of 37 there in said Act. said provision was introduced with effect from 01.06.1999 by Finance Act, 1999. In absence of any specific provision, permitting Tribunal to grant stay, question arose as to whether Tribunal had power to stay proceedings as also collection of penalties pending appeal. High Court of Kerala held that Tribunal had such power and that power was incidental and ancillary to its appellate jurisdiction. Supreme Court observed that powers, which had been conferred by Section 254 on Appellate Tribunal, were of widest possible amplitude and, therefore, must carry with them, by necessary implication, all powers and duties incidental and necessary to make exercise of those fully effective. Finally, Supreme Court concluded by holding:- 13. Section 255(5) of Act does empower Appellate Tribunal to regulate its own procedure, but it is very doubtful if power of stay can be spelt out from that provision. In our opinion Appellate Tribunal must be held to have power to grant stay as incidental or ancillary to its appellate jurisdiction. This is particularly so when Section 220(6) deals expressly with situation when appeal is pending before Appellate Assistant Commissioner, but Act is silent in that behalf when appeal is pending before Appellate Tribunal. It could well be said that when Section 254 confers appellate jurisdiction, it impliedly grants power of doing all such acts, or employing such means, as are essentially necessary to its execution and that statutory power carries with it duty in WP(C) 1334/2015 & ORS Page 23 of 37 proper cases to make such orders for staying proceedings as will prevent appeal if successful from being rendered nugatory. 14. certain apprehension may legitimately arise in minds of authorities administering Act that if Appellate Tribunals proceed to stay recovery of taxes or penalties payable by or imposed on Assessees as matter of course revenue will be put to great loss because of inordinate delay in disposal of appeals by Appellate Tribunals. It is needless to point out that power of stay by Tribunal is not likely to be exercised in routine way or as matter of course in view of special nature of taxation and revenue laws. It will only be when strong prima facie case is made out that tribunal will consider whether to stay recovery proceedings and on what conditions, and stay will be granted in most deserving and appropriate cases where tribunal is satisfied that entire purpose of appeal will be frustrated or rendered nugatory by allowing recovery proceedings to continue during pendency of appeal. (underlining added) 18. From this decision, it is evident that power to grant stay is incidental or ancillary to appellate jurisdiction of Tribunal. It is also clear that power of stay exercised by Tribunal is not likely to be exercised in routine way or as matter of course in view of special nature of taxation and revenue laws and it is only when strong prima facie case is made out that Tribunal would consider whether to stay recovery proceedings and on what conditions. stay is also granted in WP(C) 1334/2015 & ORS Page 24 of 37 deserving and appropriate cases where Tribunal is satisfied that entire purpose of appeal would be frustrated or rendered nugatory by allowing recovery proceedings to continue during pendency of appeal. These words of Supreme Court were indeed prophetic, as can be discerned from data which has been referred to by Division Bench of this Court in Maruti Suzuki (India) Limited (supra), which shows that in less than 10% of appeals filed by assessees, Tribunal has granted stay orders and in very few of such cases, appeals are pending beyond period of 365 days stipulated under provisions, as they now stand. 19. reference has been made to Mardia Chemicals Limited (supra). passages referred to were paragraphs 55, 61 and 80, which read as under: 55. We may then turn to arguments raised on behalf of petitioners that remedy before Debts Recovery Tribunal under Section 17 of Act is illusory, burdened with onerous and oppressive condition of deposit of 75% of amount of demand notice before appeal can be entertained by Tribunal. We feel that it would be difficult to brush aside challenge made to condition of such deposit. Sub-section (2) of Section 17 itself says that no appeal shall be entertainable unless borrower has deposited aforesaid sum of amount claimed. Much stress has been given in reply to proviso to sub-section (2) of Section 17, according to which Tribunal has power to waive or reduce WP(C) 1334/2015 & ORS Page 25 of 37 amount. While waiving condition of depositing amount or reducing it, Tribunal is required to record reasons for same. It is submitted for respondents that in appropriate case, DRT which is presided over by Member of Higher Judicial Service, would exercise its discretion and may waive or reduce amount required to be deposited in deserving cases. It is, therefore, not absolute condition which must in all cases and all circumstances be fulfilled irrespective of special features of particular case. xxxx xxxx xxxx xxxx 61. In case of Seth Nandlal (supra), while considering question of validity of pre-deposit before availing right of appeal Court held: right of appeal is creature of statute and while granting right legislature can impose conditions for exercise of such right so long as conditions are not so onerous as to amount to unreasonable restrictions rendering right almost illusory. (emphasis supplied). While making said observation this Court referred to decision in case of Anant Mills Co. Ltd. (supra). In both above noted decisions this Court had negated plea raised against pre-deposit but in case of Seth Nandlal (supra) it was found that condition was not so onerous since amount sought to be deposited was meager and that too was confined to landholding tax payable in respect of disputed area i.e. area or part thereof which is declared surplus by Prescribed Authority (emphasis supplied) after leaving permissible area to appellant. In above circumstances it was found that even in absence of provision conferring discretion on appellate authority to waive or reduce amount of pre- deposit, it was considered to WP(C) 1334/2015 & ORS Page 26 of 37 be valid, for two reasons indicated above. facts of case in hand are just otherwise. xxxx xxxx xxxx xxxx 80. Under Act in consideration, we find that before taking action notice of 60 days is required to be given and after measures under Section 13(4) of Act have been taken, mechanism has been provided under Section 17 of Act to approach Debts Recovery Tribunal. above noted provisions are for purpose of giving some reasonable protection to borrower. Viewing matter in above perspective, we find what emerges from different provisions of Act, is as follows :- 1. Under sub-section (2) of Section 13 it is incumbent upon secured creditor to serve 60 days notice before proceeding to take any of measures as provided under sub-section (4) of Section 13 of Act. After service of notice, if borrower raises any objection or places facts for consideration of secured creditor, such reply to notice must be considered with due application of mind and reasons for not accepting objections, howsoever brief they may be, must be communicated to borrower. In connection with this conclusion we have already held discussion in earlier part of judgment. reasons so communicated shall only be for purposes of information/knowledge of borrower without giving rise to any right to approach Debts Recovery Tribunal under Section 17 of Act, at that stage. 2. As already discussed earlier, on measures having been taken under sub-section (4) of Section WP(C) 1334/2015 & ORS Page 27 of 37 13 and before date of sale/auction of property it would be open for borrower to file appeal (petition) under Section 17 of Act before Debts Recovery Tribunal. 3. That Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to condition as it may deem fit and proper to impose. 4. In view of discussion already held in this behalf, we find that requirement of deposit of 75% of amount claimed before entertaining appeal (petition) under Section 17 of Act is oppressive, onerous and arbitrary condition against all canons of reasonableness. Such condition is invalid and it is liable to be struck down. 5. As discussed earlier in this judgment, we find that it will be open to maintain civil suit in civil court, within narrow scope and on limited grounds on which they are permissible, in matters relating to English mortgage enforceable without intervention of court. 20. learned counsel for petitioners had also referred to decision of Division Bench of Punjab and Haryana High Court in PML Industries Limited (supra). Although that decision pertained to Section 35C (2A) of Central Excise Act, 1944, provision under consideration was somewhat similar. It pertained to waiver of pre-deposit at stage of appeal pending before Central Excise Service Tax Appellate Tribunal. WP(C) 1334/2015 & ORS Page 28 of 37 provision indicated that waiver would stand vacated after 180 days. In that context, question arose, as to whether second proviso to Section 2A of Section 35C was directory and that Tribunal, in appropriate circumstances, could extend period of stay beyond 180 days. While considering said question, Punjab and Haryana High Court held as under:- 51. Though right of appeal is creation of Statute and it can be exercised only subject to conditions specified therein, but conditions specified have to be in relation to assessee as something which is required to be complied with by assessee. But where assessee has no control over functioning of Tribunal, then provision of vacation of stay cannot be sustained. 52. assessee having preferred appeal and that Tribunal being satisfied that condition for dispensing with pre- deposit of duty demanded and penalty levied is made out, is compelled to pay duty demanded and penalty levied, if appeal is not decided within 180 days. assessee has no control in respect of matters pending before Tribunal; in matter of availability of infrastructure; members of Tribunal and workload. Therefore, for reason that Tribunal is not able to decide appeal within 180 days, vacation of stay is harsh and onerous and unreasonable condition. condition of vacation of stay for inability of Tribunal to decide appeal is burdening assessee for no fault of his. Such condition is onerous and renders right of appeal as illusory. order passed by judicial forum is sought to be annulled for no fault of assessee. Therefore, in terms of judgments in Anant Mills Ltd. and Seth Nandlal cases (supra), such condition of automatic vacation of stay on WP(C) 1334/2015 & ORS Page 29 of 37 expiry of 180 days, has to be read down to mean that after 180 days Revenue has right to bring to notice of Tribunal conduct of assessee in delay or avoiding decision of appeal, so as to warrant order of vacation of stay. If provision is not read down in manner mentioned above, such condition suffers from illegality rendering right of appeal as redundant. xxxx xxxx xxxx xxxx 54. Consequently, second proviso in sub-section (2A) of Section 35C is ordered to be read down to mean that after 180 days, Revenue has right to seek vacation of stay on proof of fact that assessee is one, who is defaulted or taken steps to delay ultimate decision. said Court read down provision in question in much same manner as did Bombay High Court in case of Narang Overseas (supra). object being that, if provision were to be read strictly, it would render right of appeal to be illusory and for no fault of assessee. 21. decision in Wire Netting Store, Delhi (supra) was relied upon by learned counsel for petitioners for proposition that availability of constitutional remedy would not remove lacuna of provision which was inherently unconstitutional. There can be no dispute with this proposition. provision which is challenged, as being violative of Article WP(C) 1334/2015 & ORS Page 30 of 37 14 of Constitution, would have to be tested on its own without recourse to availability of remedy of judicial review under Article 226 of Constitution. 22. In Dr Subramanian Swamy (supra), Constitution Bench of Supreme Court, while considering parameters which needed to be kept in mind in determining whether particular provision of statute was violative of Article 14 or not, made following observations:- 46. In Air India v. Nergesh Meerza and Ors. : (1981) 4 SCC 335, three-Judge Bench of this Court while dealing with constitutional validity of Regulation 46(i)(c) of Air India Employees' Service Regulations (referred to as 'A.I. Regulations') held that certain conditions mentioned in Regulations may not be violative of Article 14 on ground of discrimination but if it is proved that conditions laid down are entirely unreasonable and absolutely arbitrary, then provisions will have to be struck down. With regard to due process clause in American Constitution and Article 14 of our Constitution, this Court referred to State of West Bengal v. Anwar Ali Sarkar : (1952) SCR 284, and observed that due process clause in American Constitution could not apply to our Constitution. Court also referred to A.S. Krishna v. State of Madras: 1957 S.C.R. 399 wherein Venkatarama Ayyar, J. observed: "13. .The law would thus appear to be based on due process clause, and it is extremely doubtful whether it can have application under our Constitution." WP(C) 1334/2015 & ORS Page 31 of 37 47. In D.S. Nakara and Ors. v. Union of India: (1983) 1 SCC 305, Constitution Bench of this Court had occasion to consider scope, content and meaning of Article 14. Court referred to earlier decisions of this Court and in para 15, Court observed: 15. Thus fundamental principle is that Article 14 forbids class legislation but permits reasonable classification for purpose of legislation which classification must satisfy twin tests of classification being founded on intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of group and that differentia must have rational nexus to object sought to be achieved by statute in question. xxxx xxxx xxxx xxxx Court's approach 49. Where there is challenge to constitutional validity of law enacted by legislature, Court must keep in view that there is always presumption of constitutionality of enactment, and clear transgression of constitutional principles must be shown. fundamental nature and importance of legislative process needs to be recognized by Court and due regard and deference must be accorded to legislative process. Where legislation is sought to be challenged as being unconstitutional and violative of Article 14 of Constitution, Court must remind itself to principles relating to applicability of Article 14 in relation to invalidation of legislation. two dimensions of Article 14 in its application to legislation and rendering legislation invalid are now well recognized and these are (i) discrimination, based on impermissible or invalid classification and (ii) excessive delegation of powers; conferment of uncanalised and unguided powers on executive, whether in form of delegated WP(C) 1334/2015 & ORS Page 32 of 37 legislation or by way of conferment of authority to pass administrative orders-if such conferment is without any guidance, control or checks, it is violative of Article 14 of Constitution. Court also needs to be mindful that legislation does not become unconstitutional merely because there is another view or because another method may be considered to be as good or even more effective, like any issue of social, or even economic policy. It is well settled that courts do not substitute their views on what policy is. It is clear that where legislation is sought to be challenged, as being unconstitutional or violative of Article 14 of Constitution, Court must keep in mind principles relating to applicability of Article 14 in relation to invalidation of legislation. two dimensions of Article 14 in its application to legislation and for rendering legislation invalid are well settled and these are (i) discrimination, based on impermissible or invalid classification and (ii) excessive delegation of powers; conferment of uncanalised and unguided powers on executive, whether in form of delegated legislation or by way of conferment of authority to pass administrative orders. Constitution Bench also cautioned that Courts need to be mindful that legislation does not become unconstitutional merely because there is another view or because another method may be WP(C) 1334/2015 & ORS Page 33 of 37 considered to be as good or even more effective, like any issue of social, or even economic policy. 23. Keeping in mind principles set out by Supreme Court in Dr Subramanian Swamy (supra), we need to examine whether present challenge to validity of third proviso to Section 254(2A) can be sustained. This is not case of excessive delegation of powers and, therefore, we need not bother about second dimension of Article 14 in its application to legislation. We are here concerned with question of discrimination, based on impermissible or invalid classification. It is abundantly clear that power granted to Tribunal to hear and entertain appeal and to pass orders would include ancillary power of Tribunal to grant stay. Of course, exercise of that power can be subjected to certain conditions. In present case, we find that there are several conditions which have been stipulated. First of all, as per first proviso to Section 254(2A), stay order could be passed for period not exceeding 180 days and Tribunal should dispose of appeal within that period. second proviso stipulates that in case appeal is not disposed of within period of 180 days, if delay in disposing of appeal is not attributable to assessee, Tribunal has power to extend stay for WP(C) 1334/2015 & ORS Page 34 of 37 period not exceeding 365 days in aggregate. Once again, Tribunal is directed to dispose of appeal within said period of stay. third proviso, as it stands today, stipulates that if appeal is not disposed of within period of 365 days, then order of stay shall stand vacated, even if delay in disposing of appeal is not attributable to assessee. While it could be argued that condition that stay order could be extended beyond period of 180 days only if delay in disposing of appeal was not attributable to assessee was reasonable condition on power of Tribunal to grant order of stay, it can, by no stretch of imagination, be argued that where assessee is not responsible for delay in disposal of appeal, yet Tribunal has no power to extend stay beyond period of 365 days. intention of legislature, which has been made explicit by insertion of words even if delay in disposing of appeal is not attributable to assessee renders right of appeal granted to assessee by statute to be illusory for no fault on part of assessee. stay, which was available to him prior to 365 days having passed, is snatched away simply because Tribunal has, for whatever reason, not attributable to assessee, been unable to dispose of appeal. Take case of delay being caused in disposal of WP(C) 1334/2015 & ORS Page 35 of 37 appeal on part of revenue. Even in that case, stay would stand vacated on expiry of 365 days. This is despite fact that stay was granted by Tribunal, in first instance, upon considering prima facie merits of case through reasoned order. 24. Furthermore, petitioners are correct in their submission that unequals have been treated equally. Assessees who, after having obtained stay orders and by their conduct delay appeal proceedings, have been treated in same manner in which assessees, who have not, in any way, delayed proceedings in appeal. two classes of assessees are distinct and cannot be clubbed together. This clubbing together has led to hostile discrimination against assessees to whom delay is not attributable. It is for this reason that we find that insertion of expression even if delay in disposing of appeal is not attributable to assessee by virtue of Finance Act, 2008, violates non- discrimination clause of Article 14 of Constitution of India. object that appeals should be heard expeditiously and that assesses should not misuse stay orders granted in their favour by adopting delaying tactics is not at all achieved by provision as it stands. On contrary, clubbing together of well behaved assesses and those who cause delay in WP(C) 1334/2015 & ORS Page 36 of 37 appeal proceedings is itself violative of Article 14 of Constitution and has no nexus or connection with object sought to be achieved. said expression introduced by Finance Act, 2008 is, therefore, struck down as being violative of Article 14 of Constitution of India. This would revert us to position of law as interpreted by Bombay High Court in Narang Overseas (supra), with which we are in full agreement. Consequently, we hold that, where delay in disposing of appeal is not attributable to assessee, Tribunal has power to grant extension of stay beyond 365 days in deserving cases. writ petitions are allowed as above. 25. Consequently, petitioners may approach Tribunal for extension of stay in each of cases before us and till Tribunal passes such orders, interim orders granted by us in these matters shall continue. petitioners shall move Tribunal within four weeks from date of this judgment. parties are left to bear their own costs. BADAR DURREZ AHMED, J SANJEEV SACHDEVA, J MAY 19, 2015 SR WP(C) 1334/2015 & ORS Page 37 of 37 Pepsi Foods Pvt. Ltd. (Now Merged With Pepsico India Holding Pvt. Ltd v. Assistant Commissioner of Income-tax & Anr