PRE-DEPOSIT OF SERVICE TAX

[Dr. Sanjiv Agarwal]

Section 35F

Section 35F of Central Excise Act, 1944 provides as under -

Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of Central Excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied:

Provided that where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue.

Provided further that where an application is filed before the Commissioner (Appeals) for dispensing with the deposit of duty demanded or penalty levied under the first proviso, the Commissioner (Appeals) shall, where it is possible to do so, decide such application within thirty days from the date of its filing.

'Explanation.— For the purposes of this sections, ''duty demanded'' shall include, —

(i)   amount determined under section 11D;

(ii)  amount of erroneous CENVAT credit taken;

(iii) amount payable under rule 57CC of Central Excise Rules, 1944;

(iv) amount payable under rule 6 of CENVAT Credit Rules, 2001 or CENVAT Credit Rules, 2002 or CENVAT Credit Rules, 2004;

(v)  interest payable under the provisions of this Act or the rules made thereunder.'

Amounts to be pre-deposited and stay on Interest

The amounts for which pre-deposit is required are only amount of service tax and penalty. Section 35F does not mention about deposit of interest and as such

pre-deposit of interest is not a requirement of law.

Stay cannot be granted for amount of interest. Even if stay is granted, interest liability does not absolve but continues during the stay period. Interest would be payable for the stay period also, if assessee loses the appeal. It was held in Shree Cement Ltd. v. CCE (2003) 156 ELT 924 (CEGAT, New Delhi), that since the pre-deposit of interest is not a pre-requisite for admission and hearing of an appeal, application for recovery of interest was not maintainable.

Pre-deposit as a Condition to Appeal

While right to appeal is a statutory right, it does not mean that it is a absolute right and no conditions could be attached to it. If such right to appeal is subject to condition of pre-deposit of duty or service tax or penalty, whether in full or part, the appeal could be considered only upon fulfillment of such conditions.

Disposal of Pre-deposit

Any condition of pre-deposit has to meet the any of the following outcome —

(a)   Payment of amount as required for pre-deposit,

(b)   Stay of pre-deposit, or

(c)   Waiver of requirement of pre-deposit.

For (b) and (c) above, an application for stay or waiver, as the case may be should be moved before the appropriate appellate authority. Despite there being a statutory provision for payment of pre-deposit, appellate authority may grant stay of such requirement on grounds such as causing hardship etc. However, legislative intention is also important and to be kept in mind.

According to Section 35F of the Central Excise Act, a person desirous of appealing against the order shall, pending such appeal, deposit the duty demanded or penalty levied, if any. The objective of Section 35F is to protect the interest of revenue and discourage frivolous appeals. It may be noted that mere filing of appeal or its admission or making a stay application does not automatically lead to grant of stay of or waiver from pre-deposit condition.

In ACC Ltd. v CCE, Chandigarh (2010) 256 ELT 148 (Cestat, New Delhi), it was held that financial hardship has to be substantiated with necessary material. Mere contention that unless the pre deposit is waived off, it would cause undue hardship is not sufficient. In yet another case of Nicco Corporation Ltd. v. CCE, 2010 -TMI - 78392 - (CALCUTTA HIGH COURT), where financial hardship was pleaded, it was held that appellant is not entitled to unconditional stay of duty amount and was asked to pay part of deposit by way of cash and bank  guarantee.

Stay Application

Assessees or aggrieved service providers should note to make a separate application simultaneously with an appeal seeking stay or waiver of recovery of amount till the appeal is disposed of. However, if stay is not granted, the order of the adjudicating authority continues to be in force and valid till the appeal is decided.

The stay application may be made on a plain paper addressed to the concerned appellate authority i.e., Commissioner (Appeals) or Appellate Tribunal.

In case of stay application by Commissioner (appeals), he may grant stay in respect of appeals before him after hearing but it may not be possible to file an appeal against non-grant of stay by Commissioner (Appeals) to the Tribunal.

Commissioner (Appeals) is required to dispose of the stay application within thirty days of filing. No application fees is payable for filing a stay application before the Commissioner (Appeals).

In case of application before the Tribunal, the assessee is required to make an application along with a payment of prescribed fee of Rs. 500 with each application. If the application is filed by the Department, no fee is payable.

There is no time limit prescribed for disposal of stay application by the Tribunal but stay granted by Tribunal is valid only for a period of 180 days.

The stay application should be decided after hearing the parties concerned and a notice to this effect should be served.

During the pendency of stay application, generally, coercive steps are not taken for recovery of amounts due. Supreme court has dismissed the special leave petition filed by Union of India in arising out of Galaxy Indo Fab Ltd. v. Union of India 2010 -TMI - 76668 - (ALLAHABAD HIGH COURT)  wherein court had held that once the stay order is in existence, Department has no legal authority to circumvent such order and initiate recovery proceedings

Circular No. 396/29/98-CX dated 02.06.1998 states that no coercive action should be taken to realize the dues, till the disposal of the stay application by the CCE (Appeals) and that the CCE (Appeals) may dispose off the application within one month of its filing.

Vide Circular No. 450/16/99-CX dated 30.03.1999, it was clarified that though discretion is vested with the appellate authority to give personal hearing in the facts and circumstances of the given case before disposing of stay applications, this should be more of an exception rather than the normal rule. All requests or petition for dispensation of pre-deposits should be disposed of within one month of their filing by passing speaking orders and communicating these to the concerned parties.

In Ravi Gupta v Commissioner of Sales Tax 2008 -TMI - 48377 - SUPREME COURT OF INDIA, Supreme Court in Para 10 of the judgment held as under :

"It is true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory-glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay-should not be disposed of in a routine matter unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens' faith in the impartiality of public administration, interim relief can be given."

Merely on showing a prima facie case, interim order of protection should not be passed. Such a course of action is to be taken only "if on a cursory glance it appears that the demand raised has no leg to stand" [Microsoft Corporation (India) Pvt. Ltd. v CST 2009 -TMI - 34883 - (DELHI HIGH COURT).

In LG Electronics India Pvt. Ltd. v CCE, Noida (2009) 22 STT 269; (2009) 16 STR 136 (Allahabad), it was held that the Tribunal has to maintain a balance between interest of revenue and right and interest of an individual and it should not refrain itself from exercising discretionary power conferred by statute, if facts and circumstances of case so justify merely on pretext that interest of revenue can not be jeopardized.

Documents Required

According to CBEC, following documents should filed for claiming refund of pre deposits made under section 35F of the Centre Excise Act, 1944-

1. Application in plain form.

2. Copy of order of Appellate Authority consequent to which the deposit made becomes returnable.

3. Copy of Challan evidencing payment of pre-deposit (in original).

4. Any other document in support of the refund claim.