2011 (1) TMI 356 - HC - Service Tax

Waiver of pre-deposit - Application for stay - commercial training or coaching service - The question of dispensing with pre-deposit would arise only when the duty demanded, or the penalty levied, would cause undue hardship to the assessee and not otherwise - It is true that on merely establishing a prima facie case, interim order of protection should not be passed - show cause notice in this case has been issued on 8-9-2008 demanding service tax for the period 2003-2007 - It is also fact that the Govt. of India has brought in retrospective amendment to the definition of Commercial Coaching and Training Centre which could include the activity of the appellant and liability to service tax arises - It did not consider the aspect of undue hardship which must exist for exercising power under Section 35F of the Central Excise Act - Appeal is allowed by way of remand

Issues Involved:
1. Waiver of pre-deposit and stay of recovery of service tax.
2. Consideration of undue hardship and safeguarding the interests of revenue.
3. Applicability of limitation period for service tax demand.
4. Interpretation and application of Section 35F of the Central Excise Act.

Detailed Analysis:

1. Waiver of Pre-deposit and Stay of Recovery of Service Tax:
The appeal was filed by the Revenue against the CESTAT's order that waived the pre-deposit requirement for the respondent and stayed the recovery of service tax. The respondent, running coaching centers, was charged with a service tax liability for the period from 2003-04 to 2006-07. Despite obtaining centralized service tax registration in 2006 and paying some dues, the respondent did not pay the tax for the earlier period nor submitted returns. The adjudicating authority issued a show cause notice and subsequently passed an order levying service tax, cess, and penalties. The respondent appealed to the CESTAT, which granted a stay on the ground of limitation without imposing any conditions.

2. Consideration of Undue Hardship and Safeguarding the Interests of Revenue:
The court emphasized that Section 35F of the Central Excise Act requires the consideration of undue hardship and the imposition of conditions to safeguard the interests of revenue. The CESTAT's decision to grant a stay without considering these aspects was found to be contrary to the principles laid down by the Supreme Court. The court cited several cases, including *Benara Valves Ltd. v. CCE* and *Asst. Collector, Central Excise v. Dunlop India Ltd.*, highlighting that undue hardship must be demonstrated by the applicant and that interim orders should not be granted merely on a prima facie case.

3. Applicability of Limitation Period for Service Tax Demand:
The respondent contended that the service tax demand was barred by limitation. The CESTAT agreed, noting that the show cause notice was issued in 2008 for the period 2003-2007 and that the retrospective amendment to the definition of "Commercial Coaching and Training Centre" did not address the limitation issue. The court, however, found that the CESTAT failed to properly consider the balance of convenience and irreparable loss, as well as the undue hardship aspect, which are critical under Section 35F.

4. Interpretation and Application of Section 35F of the Central Excise Act:
The court reiterated that Section 35F mandates pre-deposit for appealing against a decision or order, with the possibility of waiver only if undue hardship is proven and conditions are imposed to safeguard revenue interests. The CESTAT's order was criticized for not adhering to these statutory requirements and judicial precedents. The court underscored that the power to dispense with pre-deposit should not be exercised routinely and must be based on a thorough consideration of the relevant factors.

Conclusion:
The court set aside the CESTAT's order and remitted the matter for reconsideration in light of the principles outlined. It directed the CESTAT to complete this exercise within six weeks, emphasizing the need for a balanced approach that safeguards revenue interests while addressing any undue hardship faced by the respondent.

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