WAIVER OF MANDATORY PRE-DEPOSIT FOR FILING APPEAL

[Mr. M. GOVINDARAJAN]

Section 35F of the Central Excise Act, 1944 provides that the Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal-

• under sub-section (1) of section 35, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute-in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Commissioner of Central Excise;
• against the decision or order referred to in clause (a) of sub-section (1) of section 35B, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;
• against the decision or order referred to in clause (b) of sub-section (1) of section 35B, unless the appellant has deposited ten per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against:

The amount required to be deposited under this section shall not exceed rupees ten crores:  The provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014.  The said provisions came into effect from 01.09.2014.

The issue to be discussed in this article is whether these provisions are applicable to the lis started before this date with reference to the decided case law.

In ‘M/s Muthoot Finance Limited V. Union of India and others’ - 2015 (3) TMI 634 (Ker) the petitioner challenged the award passed  against the order, confirming a demand of service tax and penalty on the petitioner.  The demand was confirmed under the head of business auxiliary services.  If the petitioner wants to file appeal before the appellate authority the petitioner has to deposit the mandatory percentage as a condition for preferring an appeal before the appellate authority.  The petitioner filed a writ petition before the High Court.

The department contended that the petitioner did not avail the alternative remedy available under the provisions of the Act i.e., the petitioner ought to have filed appeal before the Tribunal.   Filing writ petition before the High Court is not maintainable on the virtue of the said fact.   The High Court considered the only point that arised for their consideration is whether the petitioner would have to deposit the mandatory percentage of the tax confirmed against it, as a condition for pursuing the appellate remedy before the Tribunal.  The High court relied on the view taken by the Telengana & Andhra Pradesh High Court.  The High Court observed that the lis in question has commenced prior to the introduction of the amendment to the Finance Act, 1994.  The High Court is of the view that the settled law that the institution of a suit carries with it an implication that all rights of appeal then in force are preserved to the parties thereto till the rest of the career of the suit and further that the right of appeal that is vested is to be governed by the law prevailing at the date of institution of the suit or proceeding and not by the law that prevails at the date of its decision or at the date of filing of the appeal.

The High Court found that the petitioner’s case was commenced in 2012.   Therefore the petitioner would not be required to deposit the mandatory percentage as required pursuant to the 2014 amendment and in that respect he would have an efficacious alternate remedy before the Tribunal where he could file an appeal together with an application for waiver of pre deposit and stay or recovery of the amount confirmed against him by the impugned order.  The High Court further directed that the petitioner at the time of filing the appeal, will not be required to make any payment as a pre condition for the hearing of the waiver of the application by the Tribunal.   The High Court relegated the petitioner to the alternate remedy available under the Finance Act, 1994 as amended of approaching the Appellate Tribunal by way of an appeal against the impugned order.  The High Court made it further clear that the appeal to be filed by the petitioner would be governed by the statutory provisions, as they stood prior to the amendment introduced with effect from 16.08.2014. 

The High Court held that if the petitioner prefers a duly constituted appeal under the provisions of Finance Act, 1994, as they stood prior to the amendment, then the Appellate Tribunal shall number the appeal and consider the application filed by the petitioner for waiver of pre deposit and stay of recovery of the amounts confirmed against the petitioner by the impugned order, on merits, and thereafter proceed to hear the appeal itself in due course.  The High Court directed the petitioner to file appeal along with the stay petition for waiver of penalty on or before 31.03.2015.   No steps for recovery of the amount shall be made by the Department.

The case law discussed makes it clear that the mandatory deposit of the confirmed tax is not required to be followed for the cases that started before 01.09.2014.

Discussions to this article

[Rajagopalan Ranganathan]

Sir,

With due respect to the views expressed by the author of the article, my view is when an appeal is filed before Commissioner (Appeals) or CESTAT on or after 1.9.2014 the assessee who prefers the appeal has to comply with the provisions of amended Section 35 F though the order appealed against had been passed prior to 1.9.2014 for the reason that conditions for filing the appeal on the date of filing appeal is to be complied with and there is no exemption or deviation can be made.

[Dr. Sanjiv Agarwal]

I agree with Mr Rajagopalan