2015 (1) TMI 811 - HC - Service Tax

Waiver of pre deposit - Cargo handling service - Receipt of amount from FCI - Amount not deposited with Central Government - Held that - Under the circumstances and considering the facts and circumstances, as such, the learned CESTAT has not committed any error in not passing the full waiver of pre-deposit. It is required to be noted that as such the petitioner has never pleaded any financial hardship, which is required to be considered while considering the issue with respect to pre-deposit. Identical question came to be considered by the division Bench of this Court in the case of M/s. Explosion Proof Electrical Control and Ors. (2011 (10) TMI 442 - GUJARAT HIGH COURT) and in the said decision the Division Bench has considered the decision of the Hon ble Supreme Court in the case of Benara Valves Ltd. & Ors (2006 (11) TMI 6 - SUPREME COURT OF INDIA); the decision of the Hon ble Supreme Court in the case of Mehsana District Cooperative Milk P.U. Ltd. v. Union of India reported in 2003 (3) TMI 113 - SUPREME COURT OF INDIA and the decision of the Hon ble Supreme Court in the case of Indu Nissan Oxo Chemicals Industries Ltd. Union of India reported in 2007 (12) TMI 220 - SUPREME COURT OF INDIA wherein it is held that while considering waiver of condition as to pre-deposit, condition can be waived on the ground of undue hardship. As such the petitioner has not pleaded any undue financial hardship. Now so far as safeguarding the interest of the revenue is concerned, as it is required to be noted that as such the petitioner did charge and recovered the amount of service tax from FCI, which the petitioner retained with it and did not deposit the same in the Central Government Account and, therefore, considering Section 73A of the Act the petitioner is liable to deposit the same in the Central Government Account. Under the circumstances and in the facts and circumstances of the case and considering the provisions of Section 73 of the Act, no error has been committed by the learned CESTAT in not passing the order of full waiver of pre-deposit, which the petitioner charged and recovered from FCI and did not deposit the same in the Central Government Account. It is required to be noted that as per Section 73A of the Act even if a person, who is liable to pay the service tax, has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of Chapter V of the Act or the Rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. Under the circumstances, the contention on behalf of the petitioner that the petitioner may not be called upon to deposit the balance amount of ₹ 5 crores as pre-deposit, the amount of service tax, which the petitioner charged and collected from FCI, cannot be sustained. - However, pre deposit amount is reduced - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Legality of the CESTAT's order directing the petitioner to deposit Rs. 5 crores as pre-deposit.
2. Applicability of Section 73A of the Finance Act, 1994.
3. Consideration of undue hardship and financial hardship in pre-deposit orders.
4. Entitlement to exemption under Notification No. 10/2002-S.T.
5. Validity of the petitioner's claim regarding the adjustment of service tax by FCI.

Detailed Analysis:

1. Legality of the CESTAT's Order Directing the Petitioner to Deposit Rs. 5 Crores as Pre-deposit:
The petitioner challenged the CESTAT's order under Article 226 of the Constitution of India, which directed the petitioner to deposit Rs. 5 crores towards pre-deposit. The petitioner argued that the CESTAT did not adequately consider their submissions, particularly regarding the non-taxability of services rendered to FCI due to an exemption notification. The petitioner also contended that the service tax recovered from FCI had been adjusted in the bills and that the CESTAT should have granted an unconditional stay or full waiver of the pre-deposit.

2. Applicability of Section 73A of the Finance Act, 1994:
The adjudicating authority found that the petitioner had collected service tax amounting to Rs. 7,69,65,589/- from FCI and GPPL but did not deposit this amount with the government. Consequently, a show-cause notice was issued under Section 73A of the Finance Act, 1994, demanding the recovery of the service tax amount along with interest. The petitioner admitted liability under Section 73A but argued that the service tax amount had been adjusted by FCI through credit notes.

3. Consideration of Undue Hardship and Financial Hardship in Pre-deposit Orders:
The petitioner did not plead any financial hardship, which is a critical factor in considering pre-deposit orders. The court noted that the petitioner had not demonstrated undue financial hardship, which is necessary for waiving the pre-deposit condition. The court referred to the Supreme Court's decision in Benara Valves Ltd. v. Commissioner of Central Excise, which emphasizes considering undue hardship and safeguarding the revenue's interest when deciding on pre-deposit waivers.

4. Entitlement to Exemption Under Notification No. 10/2002-S.T.:
The petitioner claimed that the services provided to FCI were exempt from service tax under Notification No. 10/2002-S.T. However, the court noted that this issue would only arise if the service tax amount was deposited with the government. The court emphasized that under Section 73A, any amount collected as service tax must be credited to the government's account, regardless of whether the services are ultimately found to be exempt.

5. Validity of the Petitioner's Claim Regarding the Adjustment of Service Tax by FCI:
The petitioner argued that the service tax amount had been adjusted by FCI through credit notes. However, the department contended that FCI had denied receiving such credit notes. The court acknowledged that this could be a dispute between the petitioner and FCI but maintained that the petitioner was liable to deposit the collected service tax amount with the government.

Conclusion:
The court modified the CESTAT's order, reducing the pre-deposit amount from Rs. 5 crores to Rs. 3 crores, to be deposited within three months. The CESTAT was directed to consider the appeal on merits upon compliance with this modified pre-deposit condition. The court emphasized that the petitioner had not demonstrated undue financial hardship and that the collected service tax amount must be deposited with the government as per Section 73A of the Finance Act, 1994. The rule was made absolute to the extent of modifying the pre-deposit amount, with no order as to costs.