2009 (7) TMI 258 - HC - Service Tax

Quantum of pre-deposit - petitioner have received consideration for transfer of formulation as also assignment of trade marks as also from technical know-how and technology transfer fees. Apart from that, they have received an amount by way of marketing assistance fees in connection with the above transactions and service charges. Service tax would be payable in the event, agreements result in rendering of any advice or consultancy or scientific or technical assistance. - Transfer of brand name, transfer of patent right, prima facie would not fall within these predicates. Petitioners, therefore, have made out a prima facie case. Petitioners also had filed their balance sheet which shows that for 9 months up to 31-12-2008, they had incurred a loss of Rs. 13.28 crores. - Considering the above and the financial hardship that would cause to the petitioner and the petitioner is a going concern, in our opinion, ends of justice would be met when the impugned order is partly modified. - Instead of directing the petitioner to pre-deposit Rs. 2 crores, the same is modified that the petitioner will furnish bank guarantee of Rs. 50 lacs - Courts and Tribunals must bear in mind that when the company is functioning, the order of pre-deposit shall not result in the company having to bear undue financial burden which would result in affecting production and may also result in loss of jobs

Summary

Issues:
1. Pre-deposit order by the Tribunal
2. Consideration received by the petitioner
3. Financial hardship and modification of the pre-deposit order

Analysis:

1. The Tribunal, in the impugned order, directed the petitioner to pre-deposit a sum of Rs. 2 crores plus service tax within 8 weeks, failing which their appeal would be dismissed. The petitioner filed a petition to challenge this order. The High Court noted that the appeal had not been disposed of separately, and failure to deposit the amount would lead to dismissal of the appeal. The prayer in the petition was to challenge the said order.

2. The petitioner had received consideration from M/s. Cadila Health Care Ltd. for the transfer of formulation, assignment of trademarks, technical know-how, technology transfer fees, marketing assistance fees, and service charges. The issue of service tax arose concerning the agreements and whether they involved rendering advice, consultancy, or technical assistance. The petitioner demonstrated a prima facie case and presented a balance sheet showing a significant loss incurred.

3. Considering the financial hardship the pre-deposit order would cause and recognizing the petitioner as a going concern, the High Court modified the order. Instead of depositing Rs. 2 crores, the petitioner was directed to furnish a bank guarantee of Rs. 50 lakhs from a nationalized bank within four weeks. This modification aimed to prevent undue financial burden on the company, which could impact production and employment. The High Court emphasized that pre-deposit orders should consider the company's functioning and potential consequences on its operations. If the bank guarantee was furnished as directed, the pre-deposit order would stand modified, and the appeal would be restored for further proceedings.

This judgment highlights the importance of balancing legal requirements with the practical implications on businesses, particularly in cases involving financial burdens and potential operational impacts.