2013 (10) TMI 1165 - HC - Service Tax

Waiver of Pre-deposit Appeal u/s35F Whether its activities fall within the definition of Business Auxiliary Service , so as to eligible to service tax - Receipt of incentives from M/s Maruti Suzuki India Limited - Held that - It is for the appellant to establish undue hardship and the mere fact that the demand of duty and penalty may appear to be excessive, is irrelevant if the appellant has not been able to establish undue hardship - The expression undue hardship relates not only to the economic wellbeing of the appellant but also to the merits of the case, thus, requiring the CESTAT to also prima-facie appraise the merits and record an opinion for or against the appellant - An appellate forum cannot where the opinion recorded does not suffer from the aforesaid defects, impose its own perception of the merits of the case whatever be the nature of undue hardship . The appellant has not pleaded any financial hardship or financial distress in support of its plea of undue hardship and has mainly confined its pleadings to the merits of the demand raised by the revenue - A perusal of the orders passed by the Assessing Officer and the Appellate Authority do not enable us to record an emphatic finding in favour of the appellant that duty demanded and penalty levied are illegal or could not have been imposed - Assessee directed to make a pre deposit of 50% of demand - Decided against assessee.

Summary

Issues:
1. Challenge to order of Customs, Excise & Service Tax Appellate Tribunal
2. Interpretation of "Business Auxiliary Service" for service tax on incentives
3. Application of Section 35F of the Central Excise Act
4. Consideration of "undue hardship" and interest of revenue in stay applications

Analysis:

1. The appellant contested the order of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) which directed a 50% deposit of the tax amount claimed by the revenue. The appellant argued that the incentives received from a company were not subject to service tax as they were part of the profit margin and not "Business Auxiliary Service." The appellant sought waiver of the entire tax component based on an arguable prima facie case. However, the revenue contended that the CESTAT had already granted significant relief by waiving 50% of the tax component and the penalty. The High Court observed surprise at the appeal filing, considering the findings of the lower authorities.

2. The CESTAT found the appellant to have an arguable case regarding whether their activities fell within the definition of "Business Auxiliary Service." The Court noted the demand for service tax on incentives received and the need for a detailed examination of the contractual relationship with the company. While the appellant claimed the service tax demand was illegal, the Court emphasized the need for a thorough assessment of the contract terms and incentives before a final determination could be made. The CESTAT's decision to stay 50% of the tax amount was upheld as a balanced approach considering the appellant's arguments and the revenue's interests.

3. The Court analyzed Section 35F of the Central Excise Act, which requires a deposit pending appeal of duty demanded or penalty levied. The provision allows for dispensing with the deposit in cases of "undue hardship," balancing the interests of the appellant and revenue. The Court referred to a Supreme Court judgment highlighting the need for the appellant to establish undue hardship, not merely assert it. The expression "undue hardship" encompasses economic factors and the merits of the case, guiding the CESTAT's decision-making process.

4. The High Court reiterated the principle that appellate forums are limited to identifying jurisdictional errors or miscarriages of justice. In this case, the Court found no illegal exercise of power by the CESTAT in directing the appellant to pay 50% of the tax amount. The Court emphasized the importance of balancing undue hardship with revenue interests, requiring a detailed assessment of the case merits. As the appellant failed to demonstrate financial hardship and the merits of the service tax demand were yet to be fully examined, the appeal was dismissed, and the appellant was directed to deposit the amount as per the CESTAT's order within one month.