MANDATORY FIXED PRE-DEPOSIT: LITTLE SOUR LITTLE SWEET

[Pradeep Jain]

INTRODUCTION

Filing of appeal is a mechanism available to the assessees who are aggrieved by the orders passed by the adjudicating authority or the higher appellate authorities. However, mere filing of appeal is not sufficient and there is a condition of making pre-deposit of duty or tax amount involved in the case. Pre-deposit is a certain amount of duty or tax amount that is required to be paid beforehand to the government exchequer in order to get the case heard before the appellate authority. The amount of pre-deposit can differ under various circumstances depending upon the merits of the case and financial position of the assessee. However, budget, 2014 has proposed a fixed amount of pre-deposit which is mandatorily to be made for getting the case heard.

EXISTING SECTION 35F:-

Section 35F: Deposit, pending appeal, of duty demanded or penalty levied. -

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 section ‘‘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.

The existing section 35F states that the appeal will be heard only after the appellant has made a pre-deposit of the duty amount and penalty involved in the case. However, if pre-deposit will cause financial hardship on the appellant, the Commissioner (appeal) or Tribunal may grant full or partial waiver from pre-deposit.

PROPOSED SECTION 35F:-

Budget, 2014 has proposed to substitute section 35F as follows:-

“35F. The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal, -

(i) under sub-section (1) of section 35, unless the appellant has deposited seven and a half percent of the duty demanded or penalty imposed or both, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Commissioner of Central Excise;

(ii) against the decision or order referred to in clause (a) of sub-section (1) of section 35B, unless the appellant has deposited seven and a half per cent. of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against;

(iii) against the decision or order referred to in clause (b) of sub-section (1) of section 35B, unless the appellant has deposited ten per cent. of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against:

Provided that the amount required to be deposited under this section shall not exceed rupees ten crores:

Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014.

Explanation. - For the purposes of this section “duty demanded” shall include, -

(i) amount determined under section 11D;

(ii) amount of erroneous Cenvat credit taken;

(iii) amount payable under rule 6 of the Cenvat Credit Rules, 2001 or the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.

Thus, the proposed provision states that:-

• The appeal should not be entertained unless the following amount is pre-deposited:-

Order passed by	Appellate authority	% of duty and/or penalty required as pre-deposit
Any officer of a rank lower than Commissioner of Central Excise	Commissioner (Appeals)	7.5
Commissioner of Central Excise	CESTAT	7.5
Commissioner (Appeals)	CESTAT	10

• The ceiling limit of pre-deposit has been proposed as ₹ 10 crores in the budget.
• The proposed section states that this provision will be prospective and will not affect the stay applications pending prior to enactment of Finance (no. 2) Act, 2014.

Implication of amendment:-

The fixation of percentage of pre-deposit is a sign of relief to the appellants in the cases where the duty amount is very high. This amendment is beneficial particularly to those assessees who have very strong merits but they are insisted to make the pre-deposit as they have no proof to prove the financial hardship. Despite strong merits of the case, the assessees are compelled to make the pre-deposit which results into nothing but hampering their liquidity. Also, the amount pre-deposited by them is ultimately refunded to them when the favourable order is passed. However, the provision of mandatory pre-deposit will create problem for those appellants who have weak financial position and have strong merits of case. During our practice, we have come across couple of such cases where the persons were show caused as abettor inspite of the fact that they were not actively involved in the fraud committed by the main players of the case. The alleged abettors were small town people with negligible amount of assets. Since they were not filing any return, no documentary proof was available to prove the financial hardship. But the case was strong enough on merits. In such cases, the proposed provision will require the mandatory pre-deposit and a person with weak financial position may not be able to deposit the same and will lose the case without even hearing the merits. However, despite few drawbacks, this proposal should be accepted whole heartedly as it will reduce the cost of filing the appeal as the concept of filing the stay application will scrap away. Thus, there will be savings in precious time of appellate authorities which will ultimately lead to early disposal of appeals.