2016 (7) TMI 158 - HC - Service Tax

Waiver of pre-deposit - demand of service tax - undue hardship - Tribunal concluded that the assessee has failed to establish prima facie case and dismissed the said application on the ground that the assessee failed to prove undue hardship and ordered substantial amount of pre-deposit - Section 35-F of the Central Excise Act, 1944 - the main grievance of the assessee is that the assessee is running in loss for the last many years prior to the demand and on the date of demand for payment of duty or service tax. To substantiate the said contention, the assessee produced profit & loss account statements and Balance sheets. Held that - The reasoning recorded by the Tribunal to decline the waiver of pre-deposit is based on accounting procedure of the assessee, even otherwise the loan and advances of the assessee is ₹ 11.35 crores besides Sundry Debtors to a tune of ₹ 08.58 crores. The assessee can realise the amount from the Sundry Debtors and loans and advances, and make pre-deposit as required under Section 35-F of the Central Excise Act. Therefore, the reasoning recorded by the Tribunal to decline waiver of predeposit is in accordance with law for the reason that the assessee himself disclosed the claim for depreciation to a tune of ₹ 6.80 crores, Sundry Debtors to the tune of ₹ 8.58 crores and loans and advances of ₹ 11.35 crores. Even otherwise, the assessee is a partnership firm, the partners are liable to pay statutory dues to the Government. Therefore, the order of the Tribunal does not indicate that the assessee can sell away the assets and make predeposit. On an overall consideration of the material on record, the assessee possessed sufficient means to comply with the requirement of Section 35-F of the Central Excise Act and that the assessee would not be put to financial hardship for compliance of the same. - No relief - Writ Petition shall stand dismissed - Decided against the petitioner.

Summary

Issues Involved:
1. Whether the assessee would suffer undue hardship if the pre-deposit under Section 35-F of the Central Excise Act, 1944 is not waived.
2. Whether the claim of the department is barred by limitation since the notice was issued beyond one year.

Detailed Analysis:

Issue 1: Undue Hardship and Waiver of Pre-Deposit
The primary issue is whether the assessee would face undue hardship if the pre-deposit under Section 35-F of the Central Excise Act, 1944 is not waived. The assessee, a partnership firm, argued financial difficulties and continuous losses, supported by profit & loss statements and balance sheets for the relevant periods. The Tribunal initially dismissed the application for waiver, stating that the assessee failed to prove undue hardship.

Legal Framework:
- Section 35-F of the Central Excise Act mandates pre-deposit of disputed service tax unless waived.
- The proviso to Section 35-F allows the Commissioner (Appeals) or the Appellate Tribunal to dispense with such deposit if it would cause "undue hardship," subject to conditions safeguarding the interests of revenue.

Tribunal's Findings:
- The Tribunal directed the assessee to deposit ?4.00 crores, noting that despite claimed losses, the assessee had significant assets, including sundry debtors and loans & advances.
- The Tribunal concluded that the depreciation claimed was for accounting purposes and did not involve an actual outflow of money.

Court's Analysis:
- The court emphasized that "undue hardship" involves more than just hardship; it must be excessive or disproportionate.
- The assessee's balance sheets showed losses but also significant assets that could be liquidated to meet the pre-deposit requirement.
- The court found no prima facie case for undue hardship, as the assessee possessed sufficient means to comply with Section 35-F.

Issue 2: Limitation of Department's Claim
The assessee contended that the department's claim was barred by limitation, as the notice was issued beyond one year. The relevant period of assessment was from 2007-2008 to 2010-2011, with the show-cause notice issued on 12.03.2012.

Legal Framework:
- Section 11-A of the pre-amended Central Excise Act sets a one-year limitation for issuing a show-cause notice for short levy or short payment, extendable to five years in cases of fraud, collusion, or willful misstatement or suppression of facts.

Tribunal's Findings:
- The Tribunal noted that the notice was issued within five years, as the assessee had allegedly suppressed facts with intent to evade tax.

Court's Analysis:
- The court found that the case fell within the proviso to Section 11-A, allowing a five-year limitation period due to alleged suppression of facts.
- The court held that the issue of limitation could be decided in the pending appeal and did not constitute a prima facie case for undue hardship.

Conclusion:
The court dismissed the appeal, confirming the Tribunal's order requiring the assessee to deposit ?4.00 crores. The court found no substantial question of law warranting interference, as the assessee failed to prove undue hardship and the department's claim was not barred by limitation. The appeal was devoid of merit, and the Tribunal's decision was upheld.