MANDATORY PRE-DEPOSIT

[Dr. Sanjiv Agarwal]

Finance Act, 2014 had substituted section 35F of the Central Excise Act to provide for deposit of certain percentage of duty demanded or penalty imposed or both before filing an appeal. All pending stay applications in relation to appeals filed prior to Finance Act, 2014 would continue to be governed by statutory provisions prevailing at the time of filling such stay applications/appeals.

Impact of New section 35F

The new provision of section 35F shall be beneficial to both –assessee as well as Government. Moreover, it will eliminate the arbitrariness in the decisions in granting the pre-deposit or otherwise. The issue of alleged corruption shall also be addressed. Since not all the stay applications are rejected against the assessee (more than 60 per cent go in appellant’s favour), in case of mandatory pre-deposit, Government will get the pre-deposit, through 7.5% or 10% only, which will be much more than what is collected on the basis of orders. In many cases, full waiver is granted. Such pre-deposit bears no interest and as such, Government may not be at loss. So far as appellant is concerned, it would save him from avoidable litigation atleast at stay stage and reduce time for disposal of appeal significantly. Then, 10% amount as pre-deposit is also nominal whereas Tribunals have been granting deposit of up to 100 per cent in many cases.

The provision of section 35F was relevant when it was inserted in the Central Excise Act, 1944. When section 35F came into effect, there was no provision to recover interest from the appellants. The introduction of provisions for interest on delayed payment of duty came into effect from 1995-96 in view of section 11AA and 11AB of the Central Excise Act, 1944. Thus, by delaying appeal in Cestat, one would not gain by unduly with holding the payment of duty since interest is payable from the date when the duty becomes payable. If the appeal is delayed for years together, it is the appellant who will suffer more, rather to the greatest extent without any danger to the Government revenue, since interest will be payable on duty demand up to the time, the appeal is finally decided by the Tribunal against the appellants. Whereas, if the appellant succeeds in CESTAT, they are only entitled for interest after 3 months from final disposal of case in their favour and no interest is allowed for the interim period i.e., from the date of payment against Stay order to 3 months from final disposal of appeal.

In Neotech Rubber Products reported in 2013 (11) TMI 484 - ANDHRA PRADESH HIGH COURT, the Andhra Pradesh High Court observed that “in our opinion, this is nothing short of arm-twisting the petitioner. On one hand, the application for pre-deposit was not taken up for no fault of the petitioner, and on the other hand, the revenue takes steps to recover the amount, if necessary through coercive methods.”

Summary of Pre-deposit Provisions w.e.f. 06.08.2014

Appeal filed under Section	Order appealed against	Appeal to	Percentage of mandatory pre-deposit payable	Authority
35(1) of CEA and 85 of Finance Act, 1994	Order-in-Original passed by Additional Commissioner / Joint Commissioner, or Deputy / Assistant Commissioner	Commissioner	7.5% of demand / penalty	Section 35F(i) of CEA
35B(1)(a) of CEA and 86 of Finance Act, 1994	Order-in-Original passed by Commissioner of Central Excise q	Cestat	7.5% of demand / penalty	Section 35F(ii) of CEA
35B(1) (b) of CEA and 86 of Finance Act, 1994	Order-in-Appeal passed by Commissioner (Appeals)	Cestat	10% of demand / penalty	Section 35F(iii) of CEA

Clarifications on Pre-deposit

1. CBEC Circular No. 984/08/2014-CX dated 16.09.2014

Mandatory pre-deposit provision has been brought by substitution of section 35F by Finance Act, 2014 w.e.f. 6.8.2014 wherein mandatory pre-deposit is prescribed as a percentage of the duty demanded or penalty, as the case may be. The amended provision applies to appeals filed on or after 6.8.2014. As per the saving clause, all pending appeals / stay application filed till 5.8.2014 shall be governed by earlier provisions. An Act of Parliament comes into effect on the date it received the assent of the President of India. Hence, the amended provisions regarding filing of appeal along with stipulated percentage of pre-deposit shall apply to all appeals filed on or after 6th August, 2014.

Section 35FF provides for payment of refund alongwith interest at the prescribed rate on the amount pre-deposited from the date of such payment till the date of refund. The rate of interest prescribed is six percent (6%) vide Notification No. 24/2014-CE (NT) dated 12.08.2014.

In order to have smooth implementation of scheme and to remove doubts, CBEC has issued detailed clarification vide Circular No. 984/08/2014-CX dated 16.09.2014 covering the following aspects –

1. Quantum of pre-deposit
2. Payment made during investigation
3. Recovery of amounts during pendency of appeal
4. Refund of pre-deposit
5. Procedure and manner of making pre-deposit
6. Procedure for refund
7. Preamble of adjudication / first appeal orders

 

2. Cestat Circular (F. No. 15/Cestat/General / 2013-14) dated 28.08.2014

To remove confusion on adjustment of Cenvat credit against mandatory penalty, Cestat has clarified as follows (extracts):

1. If the mandatory deposit of duty or penalty, as the case may be, has been made in cash and evidence thereof is produced at the time of filing appeal.
2. If mandatory deposit of duty confirmed is made from Cenvat account and evidence thereof is produced.
3. If the appellants have made deposit of the duty assessed subsequently, during investigation and if the same is more than the mandatory deposit as stipulated in the captioned amendments.

 

3. Cestat Circular (F.No. 1/14/Circular / Cestat / 2014) dated 4.9.2014

Based on Gujarat High Court order in CC v. Small Industries Development Bank of India 2014 (7) TMI 738 - GUJARAT HIGH COURT, Cestat had issued following instructions for dealing of cases of power of Tribunal regarding extending of stay beyond a period of 365 days –

 

"In the case of CC v. M/s. Small Industries Development Bank of India in Tax Appeal No. 341 of 2014 & Others, the Hon'ble High Court of Gujarat at Ahmedabad vide order dated 9-7-2014 [Commissioner Versus Small Industries Development Bank of India 2014 (7) TMI 738 - GUJARAT HIGH COURT ], while dealing with the powers of the Appellate Tribunal regarding extend the stay granted earlier, beyond 365 days in view of the provisions contained in section 35C(2A) of Central Excise Act, 1944, has directed CESTAT, Registrar to maintain separate registers with respect to appeals in which stay has been granted fully and or partially and the appeals in which no stay has been granted.

In view of the above, all Deputy Registrar/Assistants are hereby directed-

(1) To maintain two separate Registers viz

(a)		For cases wherein stay was granted by the Tribunal fully/partially.
(b)		For appeals in which no stay was granted.

(2) Since the Hon'ble High Court of Gujarat further directed that the Appellate Tribunal must and shall give priority to appeals in which stay has been granted, continued and or extended, preference should be given for such cases while listing the appeals for final hearing."

4. Cestat Circular (F.No. 15 / Cestat / General 2013-14)dated 14.10.2014

Cestat had clarified on applicability of amended section 35F enabling mandatory pre-deposit of demand / penalty for Cestat appeals. The relevant extracts of the Circular are as follows which clarify that there is no exemption from the provisions of section 35F –

"……………The above said provisions came into force with effect from 6-8-2014. However, some of the appellants/consultants/Counsels while presenting appeals are expressing reluctance in compliance with the condition of mandatory deposit stipulated under the Act as amended. Some of them have contend that as the Show Cause Notice was issued and demand confirmed earlier to 6-8-2014, the amended provisions are not applicable to their case. Few of them have relied upon judgments of various judicial forums to claim exemption from the mandatory deposit while filing appeal. It is pertinent to mention that no such exemption has been contemplated either in the amended provision of the Act statutes, or even in the clarificatory circular issued by the C.B.E.C. on the subject. "

5. CBEC Circular No. 993/17/2014-CX dated 5.1.2015

In terms of Circular No. 984/08/2014-CX dated 16.09.2014, instructions were issued on procedure and manner of refund of pre-depositand need to maintain data base of records of deposits made so as to facilitate seamless verification of the deposits at the time of processing of refund claims made in case of favourable order from Appellant Authority. This Circular clarifies on data base for refunds and pre-deposit in case of demand of erroneous drawback granted. Following extracts are relevant -

"2. In order to maintain uniformity in the database being maintained, the following columns are suggested to be maintained in a separate register (e-register preferably) in the Review Cell of each Commissionerate. The following columns need to be filled in on receipt of each appeal memo as directed in Para 6.2 of the Circular mentioned above. The data should be maintained separately in respect of appeals before CESTAT and Commissioner (Appeals)-

(i) Sl. No.

(ii) Name of the Appellant/ Party

(iii) Details of duty paying document, viz, challan etc

(iv) Amount of pre-deposit paid

(v) Order No and date of the order of Commissioner (A) / Tribunal

………………………..

……………………….

5. Several representations have been received by the Board stating that some Commissioners (Appeals) have been insisting on pre-deposit in cases of demand of erroneous drawback granted. It has been represented that drawback is not a duty and hence the amended provisions would not apply to such cases.

6. The issue has been examined. Drawback, like rebate in Central Excise, is refund of duty suffered on the export goods. Section 129E stipulates that appellant filing appeal before the Commissioner (Appeals) shall pay 7.5% of the duty demanded where duty and penalty are in dispute. Accordingly, it is clarified that mandatory pre-deposit would be payable in cases of demand of drawback as the new Section 129E would apply to such cases.

7. The ambit of the Section 129E of the Customs Act, 1962 in the legislation does not extend to appeals under section 129DD before Joint Secretary (Revision Application). Therefore, while mandatory pre-deposit would be required to be paid in cases of drawback, rebate and baggage at the first stage appeal before Commissioner(Appeals), no pre-deposit would be payable in such cases while filing appeal before the JS(RA)."