2014 (11) TMI 126 - HC - Service Tax

Waiver of pre deposit - Undue hardship - Held that - appellant had pleaded financial difficulties and it had stated that the overall financial position of the company, which is reflected in the Profit and Loss Account, shows erosion of profitability, and, as such, the appellant is undergoing financial hardship - appellant is prepared to make a pre-deposit of ₹ 30 lakhs for entertaining the Appeal, as against the service tax demand made against it - stay granted partly.

Summary

Issues: Service tax liability, Financial hardship, Pre-deposit waiver

The judgment by the Madras High Court dealt with a case involving a service tax liability of Rs. 1,07,73,577 imposed on the appellant under Section 75 of the Finance Act, 1994. The Appellate Tribunal had initially directed the appellant to make a pre-deposit of Rs. 50 lakhs within eight weeks to entertain the appeal. The appellant, citing financial hardship, sought a waiver of the pre-deposit, which was not considered by the Tribunal in its order. The respondent argued that the Tribunal's order was reasonable and that the appellant had not provided sufficient reasons for the waiver. The Court, after considering the appellant's financial difficulties and the erosion of profitability as reflected in the company's financial statements, concluded that requiring the full pre-deposit would cause undue hardship and impede the right to appeal. Consequently, the Court directed the appellant to make a reduced pre-deposit of Rs. 30 lakhs before a specified date and report compliance to the Tribunal, thereby disposing of the Civil Miscellaneous Appeal without costs.

Analysis by Issue:

1. Service tax liability: The case involved a substantial service tax liability of Rs. 1,07,73,577 imposed on the appellant under Section 75 of the Finance Act, 1994. The Appellate Tribunal had initially required a pre-deposit of Rs. 50 lakhs for the appeal to be entertained, indicating the seriousness of the tax demand and the procedural steps necessary to challenge it.

2. Financial hardship: The appellant contended that it was facing undue financial hardship, which was not considered by the Tribunal when ordering the pre-deposit. The appellant presented evidence of financial difficulties, including an erosion of profitability as reflected in the Profit and Loss Account. The Court acknowledged the appellant's financial challenges and recognized that the full pre-deposit amount would exacerbate the financial burden, potentially impeding the right to appeal.

3. Pre-deposit waiver: The appellant sought a waiver of the pre-deposit requirement due to financial constraints. The respondent argued against the waiver, claiming that the appellant had not provided adequate reasons for it. After evaluating the appellant's financial position and the potential impact of the pre-deposit on its financial stability, the Court decided to reduce the pre-deposit amount to Rs. 30 lakhs, allowing the appeal to proceed while mitigating the financial strain on the appellant.

Overall, the judgment balanced the need to address the service tax liability with the appellant's financial circumstances, ensuring access to justice while safeguarding against undue financial hardship.