2015 (7) TMI 304 - HC - Service Tax

Waiver of pre-deposit - Effective date of amendment to Section 35F - mandatory pre-deposit - Recovery of demand u/s 73 - penalty under Sections 70, 76, 77 and 78 - Section 35F - Held that - right of appeal is a vested right and the right to enter a superior Court or Tribunal accrues to a litigant as on and from the date on which the lis commences although it may actually be exercised when the adverse judgment is pronounced. Such a right is governed by the law which prevails on the date of institution of the suit or proceeding and not by the law that prevails at the date of the decision or on the date of the filing of an appeal. Moreover, the vested right of an appeal can be taken away only by a subsequent enactment, if it so provides expressly or by necessary intendment and not otherwise. Provisions of the section shall not apply to stay applications and appeals which were pending before any appellate authority prior to the commencement of Finance (No.2) Act 2014. The second proviso is a clear indicator that Parliament has exempted the requirement of complying with the pre-deposit as mandated by Section 35F (1) of the Act as amended only in the case of those stay applications and appeals which were pending before any appellate authority prior to the commencement of Finance (No.2) Act 2014. Consequently, both by virtue of the opening words of Section 35F(1) of the Act as well as by the second proviso to the provision, it is clear that appeals which are filed on and after the enforcement of the amended provision on 6 August 2014 shall be governed by the requirement of pre-deposit as stipulated therein. The only category to which the provision will not apply that would be those where the appeals or, as the case may be, stay applications were pending before the appellate authority prior to the commencement of Finance (No.2) Act 2014. Petitioner would not be justified in urging that the amended provisions of Section 35F(1) of the Act would not apply merely on the ground that the notice to show cause was issued prior to the enforcement of Finance (No.2) Act, 2014. We find no merit in the constitutional challenge - Decided against assessee.

Summary

Issues Involved:
1. Demand of service tax and penalty.
2. Constitutional validity of the mandatory pre-deposit requirement under Section 35F of the Central Excise Act, 1944, as amended.
3. Retrospective application of the amended Section 35F.

Issue-wise Detailed Analysis:

1. Demand of Service Tax and Penalty:
The petitioner provided construction services to the Varanasi Development Authority between 2007-08 and 2011-12. On 19 September 2013, the Additional Commissioner, Central Excise, Customs and Service Tax, Allahabad, issued a show cause notice demanding Rs. 34.02 lacs as service tax, along with interest and penalties under Sections 70, 76, 77, and 78 of the Finance Act, 1994. The demand was confirmed on 31 March 2015.

2. Constitutional Validity of the Mandatory Pre-deposit Requirement:
The petitioner challenged the constitutional validity of the amended Section 35F of the Central Excise Act, 1944, which mandates a pre-deposit of 7.5% of the duty or penalty for first appeals and 10% for second appeals. The court upheld the validity, stating that the right of appeal is a statutory right and can be conditioned by the legislature. The court referred to several precedents, including Elora Construction Company vs. Municipal Corporation of Greater Bombay and Anant Mills Company Ltd. vs. State of Gujarat, which upheld similar pre-deposit requirements. The court concluded that the pre-deposit requirement is not unduly onerous and does not violate Article 14 of the Constitution.

3. Retrospective Application of the Amended Section 35F:
The petitioner argued that the amendment to Section 35F, effective from 6 August 2014, should not apply retrospectively to appeals arising from notices issued before this date. The court referred to the Constitution Bench judgment in Garikapatti Veeraya vs. N. Subbiah Choudhury, which established that the right of appeal is a vested right governed by the law prevailing at the date of the institution of the suit or proceeding. However, the court noted that the amended Section 35F explicitly states that it applies to all appeals filed on or after its enforcement date. The second proviso of the amended section exempts only those appeals and stay applications pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014. Therefore, the court held that the amended provisions apply to the petitioner's appeal, as it was filed after the enforcement date.

Conclusion:
The court dismissed the petition, upholding the demand for service tax and penalties, the constitutional validity of the mandatory pre-deposit requirement under the amended Section 35F, and its application to the petitioner's case. The court emphasized that the power under Article 226 of the Constitution to dispense with the pre-deposit requirement remains intact but should be exercised judiciously.