Pre-deposit has to be waived off if Assessee’s case is a good/ strong prima facie case covered by a binding precedent

SERVICE TAX RECENT CASE LAWS

Pre-deposit has to be waived off if Assessee’s case is a good/ strong prima facie case covered by a binding precedent

Shukla & Brothers Vs. Customs, Excise & Service Tax Appellate Tribunal [(2015) 54 taxmann.com 182(Allahabad)]

Shukla & Brothers (“the Appellant”) is a proprietorship firm registered under Service tax under the category of 'Construction Work'. However, under some confusion and misguidance, the Appellant was issued registration under ST-2 in the category of 'Civil Structure Construction Work'. The Appellant claimed that the services provided are of maintenance/ sanitation services provided at factory premises of clients, which does not fall within the Service tax net.

Thereafter, the Show Cause Notice was issued to the Appellant demanding the alleged amount of Service tax along with interest and penalties, which was further confirmed by the Adjudicating Authority. Being aggrieved, the Appellant filed an appeal before the ld. Commissioner (Appeals) but the same was rejected.

Thereafter, the Appellant filed an appeal before the Hon’ble CESTAT, Delhi. The Hon’ble Tribunal vide a non-speaking Order dated February 26, 2013 (“Impugned Order”) ordered pre-deposit of 40% of the demand under Section 35F of the Central Excise Act, 1944 made applicable to the Finance Act, 1994 (“the Finance Act”) vide Section 83 thereof. Later vide Order dated April 11, 2013, the Hon’ble Tribunal dismissed the appeal filed by the Appellant for non-compliance of condition of pre-deposit. Being aggrieved, the Appellant filed an appeal before the Hon’ble High Court of Allahabad.

The Hon’ble High Court of Allahabad held as follows:

It has been a uniform view of various Courts that while considering provisions of pre-deposit of duty and penalty, the Authority concerned has to examine the question as to whether the Assessee has a good prima facie case so as to justify the dispensation of requirement of pre-deposit.

Further, the Authority must exercise its discretion to dispense with such requirement particularly in a case where the Assessee satisfies the Appellate Authority that his case is squarely covered by the decision of a competent court binding on it and in such cases, asking the appellant to deposit the duty demanded and the penalty levied would cause undue hardship to the Appellant -

Hindustan Ferro & Industries Ltd. Vs. CESTAT [2006 (205) ELT 153 (All)]; B.P.L. Sanyo Utilities & Appliances Ltd. Vs. Union of India [1999 (108) E.L.T. 621]; Andhra A2Z TAXCORP LLP Tax and Law Practitioners Page 6 Civil Construction Co. Vs. CEGAT [1992 (58) E.L.T. 184]; J.N. Chemical (P.) Ltd. Vs. CEGAT [1991 (53) E.L.T. 543].

For a good or strong prima facie case, it is not necessary for the Assessee to satisfy the Tribunal that his case is full proof and is bound to succeed. Strong prima facie case would mean that the case is an arguable one and fit for trial, or prima facie covered by a binding precedent. In such a situation, the Tribunal is under a legal obligation to consider the application of waiver taking into account the undue hardship which would require examination of prima facie case, on merits;

The Impugned Order, running into six lines and directing the Appellant to deposit 40% of the demand is sans any reason and as such is cryptic.

Therefore, the Hon’ble High Court set aside the Impugned Order and the matter was remitted back to the Hon’ble CESTAT, Delhi for re-determine the issue and passing fresh orders on the applications for waiver of the condition of pre-deposit and the appeal itself thereafter.

Our Comments: Important to note changes brought in by the Finance (No. 2) Act, 2014

Effective from August 6, 2014, the Finance (No. 2) Act, 2014 substituted new Section 35F of the Central Excise Act, 1944 which is also applicable for Service tax vide Section 83 of the Finance Act, 1994 and for Customs vide Section 129E of the Customs Act, 1962 prescribing a mandatory fixed pre-deposit of:

a) 7.5% of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, for filing of appeal before the Commissioner(Appeals) or the Tribunal at the first stage; and

b) 10% of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, for filing second stage appeal before the Tribunal.

However, the amount of pre-deposit payable is subjected to a ceiling of Rs 10 Crore.

The said amendment has done away with the requirement of filing stay applications for waiver of pre-deposit. However, it is to be noted that all pending appeals/ stay applications would be governed by the statutory provisions prevailing at the time of filing such appeals/ stay applications.

Now, even though the above stated judgment of the Hon’ble High Court of Allahabad pertains to the period prior to August 6, 2014, the moot question still remains as to whether the Assessee is required to make mandatory pre-deposit under the new provisions even when his/her case is covered by a binding precedent. Hope that the Board may come out with some clarification in this regard.

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