2014 (7) TMI 706 - HC - Service Tax

Waiver of pre deposit - Suppression of value of services - Undue hardship - Whether the Tribunal was justified in calling upon the appellant to make a pre-deposit of ₹ 2.50 Crores for entertaining an appeal in terms of Section 35-F of the Central Excise Act, 1944 - Held that - If a specific amount is charged by the service provider under the mining services agreement, that agreement has to be tested on its own merits in terms of Section 67(1)(i) of the Finance Act, 1994. Nevertheless, falling upon Rule 3(b) of the Service Tax (Determination of Value) Rules, 2006, overlooking the provisions of Section 67(1)(i) of the Finance Act, 1994, may not be justified. In this case, the agreement for providing mining services stands and the appellant has paid service tax in accordance with the value in the said agreement. In any event, Rule 4 of the Service Tax (Determination of Value) Rules, 2006 provides for the method in which the Central Excise Officer can satisfy himself as to the accuracy of any information furnished or document presented for valuation and it provides for a procedure. Such procedure has not been followed in the instant case. The issue as to whether the back to back agreements entered into between the appellant and the service recipients was a method adopted by the appellant to suppress the value of services is also a question that should be answered in the appeal on considering Section 67(1)(i) of the Finance Act, 1994. The plea of financial hardship has been raised by the appellant before the Tribunal and that has also been recorded in paragraph (8) of the order of the Tribunal. We find much force in the plea of the appellant regarding undue hardship and financial difficulty in pursuing the appeal on payment of the pre-deposit as ordered by the Tribunal. The same, therefore, requires to be modified considering the prima facie case of the appellant. - amount of pre-deposit reduced from ₹ 2.5 crores to ₹ 1 crore only - Decided partly favour of assessee.

Issues Involved:
1. Justification of the pre-deposit order by the Tribunal.
2. Determination of the value of mining services for service tax purposes.
3. Application of Section 67(1)(i) of the Finance Act, 1994.
4. Application of Rule 3 of the Service Tax (Determination of Value) Rules, 2006.
5. Financial hardship and undue hardship considerations.

Issue-Wise Detailed Analysis:

1. Justification of the Pre-Deposit Order by the Tribunal:
The appellant contested the Tribunal's order directing a pre-deposit of Rs. 2.50 Crores for entertaining the appeal. The Tribunal's decision was based on the premise of potential undervaluation of services. The High Court found that the Tribunal overlooked the specific agreement for providing mining services, which indicated a fixed value for the services rendered. The Court held that the Tribunal was not justified in ordering the pre-deposit in the manner it did.

2. Determination of the Value of Mining Services for Service Tax Purposes:
The appellant argued that the value of mining services should be based on the specific agreement, which had a predetermined rate per ton. The department, however, included additional expenses listed in the appellant's Profit and Loss Account for determining the service tax. The High Court noted that the agreement for providing mining services should be tested on its own merits under Section 67(1)(i) of the Finance Act, 1994, and not by adding other business expenses.

3. Application of Section 67(1)(i) of the Finance Act, 1994:
The Court emphasized that the agreement for providing mining services falls under Section 67(1)(i) of the Finance Act, 1994, which pertains to cases where consideration is received in money. The department's approach of deriving a different value under Rule 3 of the Service Tax (Determination of Value) Rules, 2006 was not justified without first concluding that Section 67(1)(i) does not apply.

4. Application of Rule 3 of the Service Tax (Determination of Value) Rules, 2006:
The High Court observed that Rule 3(b) of the Service Tax (Determination of Value) Rules, 2006 applies only when the value cannot be determined under Rule 3(a). The Court found no cogent reason in the adjudication order for invoking Rule 3(b) when a specific agreement indicating the value of services exists. The Court also noted that the procedure under Rule 4 for verifying the accuracy of the value was not followed by the department.

5. Financial Hardship and Undue Hardship Considerations:
The appellant raised the plea of financial hardship, which was acknowledged by the Tribunal. The High Court referred to the Supreme Court's decision in Benara Valves Ltd. v. CCE, emphasizing that undue hardship and safeguarding the interests of the Revenue must be considered. The Court found merit in the appellant's claim of undue hardship and financial difficulty, leading to the modification of the pre-deposit order.

Conclusion:
The High Court modified the Tribunal's order, reducing the pre-deposit amount to Rs. 1,00,00,000/- and reinstated the appeal dismissed for non-compliance. The Court emphasized the need to consider the specific agreement for mining services under Section 67(1)(i) of the Finance Act, 1994, and found the Tribunal's approach of invoking Rule 3(b) without proper justification to be flawed. The Court also recognized the appellant's financial hardship and adjusted the pre-deposit requirement accordingly.

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