Pre-Deposit U/s 35F, Service Tax

[CA.Mohammed Lakkadsha]

The Taxpayer had deposited 7.5% of Demand before preferring an appeal before Comm.Appeals. The Appeals was disposed in favour of the taxpayer and hence the pre-deposit amount was claimed back from department. The Department aggrieved by the order of the comm. appeals filed appeal before CESTAT which is pending as of date. Now the taxpayer has been served upon a SCN by the original adjudicating authority ( Deputy Comm) , contesting that the comm. Appeal order is improper, incorrect and hence the dept has preferred an appeal before CESTAT , hence the pre-deposit refunded should be paid along with interest till the matter is disposed by the CESTAT. Is SCN Valid , how a lower authority can condemn comm.appeals order and compel the taxpayer to make predeposit. What is recourse to SCN.

Posts / Replies

[KASTURI SETHI]

Without stay order against the Order-in-Appeal from CESTAT, the department cannot demand the refunded amount of pre-deposit. Mere filing of appeal by the department with CESTAT does vest powers to issue SCN. You can challenge such SCN in High Court without exhausting departmental channel now. Issuance of SCN is not justified at all. It is due to lack of knowledge. When I was in service, such like situation arose, the party approached the Chief Commissioner, the party got the refund which was being denied on the ground that the department was in appeal. It is a matter of common knowledge that without stay order against O-i-A, the department cannot demand duty or any pre-deposit. Stay order is requirement of Central Excise or Service Tax law.

[YAGAY and SUN]

Since you got a favourable order and now the Department is gone to appeal against this order then in our view and as per the settle legal position you are not bound to pay an amount @ 10%. Let them seek a stay order against the OIO and then force you to pay predeposit @ 10%.

[MADAN RAHEJA]

The SCN issued to you is a protective demand in terms of para 26 of CBEC circular 1053/2/2017-CX dated 10-3-2017 and has to be kept in call book till decision of appeal filed by department. I think this para is ultravires of Section 11A and 35 F of Central Excise Act because pre-deposit is only a condition for filing appeal by assessee. Once an appeal is decided in favour of assessee, the condition automatically gets lapses entitling assessee refund of pre-deposit. Circular itself is saying that pre-deposit is not payment of duty. Then how refund of pre-deposit can be made a subject matter of demand under Section 11A. In any case if department wins in appeal, it is entitled to recover amount of duty involved in lis. Would they recover pre-deposit amount over and above duty originally demanded. This is absurd.

Para 26 of this circular is as under for your information.

26. Refund of pre-deposits:-(i) Where the appeal is decided in favour of the party/assessee, he shall be entitled to refund of the amount deposited along with the interest at the prescribed rate from the date of making the deposit to the date of refund in terms of Section 35FF of the Central Excise Act, 1944 23 (ii) Pre-deposit for filing appeal is not payment of duty. Hence, refund of pre-deposit need not be subjected to the process of refund of duty under Section 11B of the Central Excise Act, 1944. Therefore, in all cases where the appellate authority has decided the matter in favour of the appellant, refund with interest should be paid to the appellant within 15 days of the receipt of the letter of the appellant seeking refund, irrespective of whether order of the appellate authority is proposed to be challenged by the Department or not. (iii) If the Department contemplates appeal against the order of the Commissioner (A) or the order of CESTAT, which is in favour of the appellant, refund along with interest would still be payable as per the time limits prescribed in the law or in the order, unless such order is stayed by a competent Appellate Authority. It is important to note that in such cases of consequential refund, besides filing of appeal against the order, it is also necessary that a protective demand of the refunded amount be issued under Section 11A by not lower than Assistant/Deputy Commissioner of Central Excise as per new monetary limits for adjudication of cases by the Central Excise officers and transferred to the call-book. (iv) In the event of a remand, refund of the pre-deposit shall be payable along with interest.

[KASTURI SETHI]

Views of both experts are full of legal force. I endorse both experts.

[DR.MARIAPPAN GOVINDARAJAN]

The show cause notice is not valid. The Revenue cannot compel the taxpayer to make predeposit which was paid to the assessee on the success before Commissioner (Appeals). There is no such provision in the Act or the rules made there under.