PRE DEPOSIT BEFORE FILING APPEAL UNDER CENTRAL EXCISE PROVISIONS – REVISED PROCEDURE

[Mr. M. GOVINDARAJAN]

Appeal provisions

Section 35 of the Central Excise Act, 1944 (‘Act’ for reference) provides that any person aggrieved by any decision or order passed under this Act by a Central Excise Officer, lower in rank than a Commissioner of Central Excise, may appeal to the Commissioner of in this Chapter referred to as the Commissioner (Appeals) within sixty days from the date of the communication to him of such decision or order in the prescribed form and shall be verified in the prescribed manner.

Section 35B (1) of the Act provides for filing appeal before the Tribunal on the following:

• a decision or order passed by the Commissioner of Central Excise as an adjudicating authority;
• an order passed by the Commissioner (Appeals) under section 35A

in the prescribed form, prescribed manner and within the time limit prescribed.

Requirements of pre deposit

Before 06.08.2014 Section 35F of the Act provides that 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.

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

• amount determined under section 11D;
•  amount of erroneous CENVAT credit taken;
• amount payable under rule 57CC of Central Excise Rules, 1944;
• amount payable under rule 6 of CENVAT Credit Rules, 2001 or CENVAT Credit Rules, 2002 or CENVAT Credit Rules, 2004;
• interest payable under the provisions of this Act or the rules made there under.

With effect from 06.08.2014, Section 35F has been substituted by a new provision.  The newly substituted provision provides that the Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal—

• Under sub-section (1) of section 35, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute-in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Commissioner of Central Excise;
• 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, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;
• 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, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against:

The amount required to be deposited under this section shall not exceed rupees ten crores.  For the purposes of this section “duty demanded” shall include,—

• amount determined under section 11D;
• amount of erroneous CENVAT credit taken;
• amount payable under rule 6 of the CENVAT Credit Rules, 2001 or the CENVAT Credit Rules, 2002 or the CENVAT Credit Rules, 2004.

Without paying the required tax or penalty and showing the proof of the same with the appeal the appeal is liable to be rejected.  Even in case short payment also the appeal is liable to be rejected.

Clarification issued by the Board

In this regard, the CBE&C issued clarifications vide Circular No. 984/08/2014-CX, dated 16.09.2014.  The Board issued clarification as to the percentage of tax deposited before filing appeal before the Tribunal.  It has clarified that as per Section 35F (iii) 10% of the duty or penalty payable in pursuance of the decision or order being appealed against i.e., the order of Commissioner (Appeal).  It would be better if the clarification gives some example for better clarification. 

Appeal before Commissioner (Appeals)

The assessee may file appeal if the Adjudicating Authority confirmed the demand of duty against him.  If he wants to file appeal before Commissioner (Appeals) he is to deposit 7.5% of the amount, the Adjudicating Authority confirmed.  For example the Adjudicating Authority confirmed the excise duty for ₹ 1,40,000/-; education cess – ₹ 2,800; higher education cess – ₹ 1,400/- and penalty ₹ 1,40,000/-.   The total amount imposed by the Adjudicating Authority is ₹ 2,84,200/-.  The assessee is to deposit Rs.21,315/- with the Adjudicating Authority.  The assessee is to submit the proof of the same while filing appeal with the Commissioner (Appeals).

Appeal before Appellate Tribunal

In the appeal filed before him, the Commissioner (Appeals) may either-

• set aside the demand confirmed by the Adjudicating Authority; or
• confirm the demand confirmed by the Adjudicating Authority; or
• reducing the demand  confirmed by the Adjudicating Authority; or
• enhance the demand confirmed by the Adjudicating Authority.

If the Commissioner (Appeals) set aside the demand confirmed by the Adjudicating Authority there is no question of filing appeal by the assessee before the Tribunal.  But there is a chance of filing appeal for the rest of three cases.

If the assessee wants to file appeal before the Tribunal the assessee is to 10% of the total amount confirmed by the Commissioner (Appeals).   Let us see examples of three situations-

• if Commissioner (Appeals) confirmed the demand of Adjudicating Authority – the assessee is to deposit Rs.28,420/- [10% of ₹ 2,84,200/-( duty + E.cess+SHE+penalty) before filing appeal to the Tribunal;
• If Commissioner (Appeals) reduced the demand of Adjudicating Authority, say –

Excise duty – ₹ 70,000/-; EC – ₹ 1400/-; SHE –Rs.700/-; Penalty – ₹ 70,000/-

            In this case the assessee is to pay Rs.14,210/- as 10% of the amount confirmed by the  Commissioner (Appeals) of ₹ 1,42,100/-;

• If Commissioner (Appeals) enhanced the demand of Adjudicating Authority, - say

Excise duty – ₹ 2,10,000/-; EC – ₹ 4200/-; SHE – 2,100/-; Penalty – ₹ 2,40,000/-; Total amount = ₹ 4,26,300/-

In this case the assessee is to pay Rs.42,630/- as 10% of the amount confirmed by the Commissioner (Appeals).

In case of penalty alone

In para 2.2 of the clarification the Board clarified that in a case, where penalty alone is in dispute and penalties have been imposed under different provisions of the Act, the pre deposit would be calculated on the aggregate of all penalties imposed in the order against which the appeal is proposed to be filed.

Payment during Investigation

Para 3.1 of the circular indicates that the payment made during the time of audit or investigation by the Central Excise authority, prior to the date on which appeal is filed can be considered as deposit towards fulfillment of the requirements under Section 35F to the extent of 7.5% as the case may be, 10% on the total amount confirmed by the Adjudicating Authority as the case may be Commissioner (Appeals).  Any short fall on the amount payable under Section 35F shall be paid before filing of appeal before the authority.  If any amount is deposited over and above the amount required to be deposited cannot be treated as deposit under the Section 35F.  In such cases, the date of filing appeal would be the date of payment of deposit.

Procedure for payment of pre deposit

Para 6 of the Circular prescribes the procedure and manner of making pre deposits.  Wherever possible the assessee may avail the benefit e-payment facility.  A copy of the challan duly attested by the assessee for the proof of making the deposit is to be submitted before the appellate authority in terms of Section 35F of the Act.  Column no. 7 of EA-1form (appeal form before Commissioner (Appeals) seeks the details of the duty/penalty deposited.   The same may be used for indicating the deposits made under amended Section 35F of the Act.

Column No. 14(1) of EA-3, meant for filing appeal before the Tribunal, seeks information of payment of duty, fine, penalty along with proof of payments.   These columns may be used for the purpose of indicating the amount of deposit made, which shall be verified by the Appellate Authority before registering the appeal.

Para 6.5 of the circular indicated that as per instructions, a copy of the appeal memo along with proof of deposit made shall be filed with the jurisdictional officers.

Recovery of the amount during the pendency of appeal

The Board, vide their circular No. 967/1/2013, dated 01.01.2013 issued detailed instructions to the Revenue Officers for the recovery of the amount due to the Government during the pendency of stay applications or appeals with the appellate authority which is very stringent and opposed by the industries in all parts.  After substituting Section 35F the scenario has entirely been changed.   Para 4.1 of the circular indicated that the said circular would not apply to cases where appeal is filed after 06.08.2014. The circular instructed that no coercive measures for the recovery of the balance amount i.e., the amount in excess of 7.5% or 10% deposited in terms of Section 35F shall be taken during the pendency of appeal where the assessee shows to the jurisdictional authorities-

• The proof of payment of stipulated amount as pre deposit of 7.5% or 10% subject a limit of  ₹ 10 crores, as the case may be; and
• The copy of appeal memo filed with the appellate authority.

Para 4.3 of the circular indicated that recovery action, if any, can be initiated only after the disposal of the case by the Commissioner (Appeal)/Tribunal in favor of the Department.  In case the appeal is in favor of the Department, recovery action for the amount over and above the amount deposited may be initiated unless the order is stayed by the High Court/Supreme Court.   The recovery, in such cases would include the interest at the specified rate, from the date duty became payable till the date of payment.

Refund of pre-deposit

Para 5.1 of the circular indicated that If the appeal is decided in favor of the 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.   The circular further clarified that pre-deposit for filing appeal is not payment of duty.   Therefore the refund of pre deposit need not be subjected to the process of refund of duty under Section 11B of the Central Excise Act, 1944 (such as limitation for filing refund, unjust enrichment etc.,).  Therefore refund with interest should be paid to the appellant within 15 days of the receipt of the letter from the appellant seeking refund, irrespective of whether order of the appellate authority is proposed to be challenged by the Department or not.  The circular stressed that if the Department contemplates appeal against the order of the Commissioner (Appeals) or the order of CESTAT, which is in favor of the appellant refund along with interest would still be payable unless such order is stayed by a competent Appellate Authority.  This is also applicable in the event of remanding the case to the lower authority also.  In case of partial remand where a portion of the duty is confirmed, it may be ensured that the duty due to the Government on the portion of order in favor of the Department is collected by adjusting the deposit amount along with interest.   The circular reiterated that refund of pre deposit made should not be withheld on the ground that the Revenue is proposing to file an appeal or has filed an appeal against the order granting relief to the party. 

For the purpose of getting refund, the appellant may submit a simple letter requesting for the return of the deposit.   A self attested xerox copy of the order and evidence for payment of such deposit are also to be submitted along with refund application to the jurisdictional Assistant/Deputy Commissioner of Central Excise.  The circular insists that the Department is to maintain a record of Deposits so as to facilitate seamless verification of the deposits at the time of processing of the refund claims made in case of favorable order from the Appellate Authority.

Amendment to Preamble of orders

The circular directs the Adjudicating Authority below the rank of Commissioner to incorporate the following in the Preamble to the order being issued by them-

“An appeal against this order shall lie before the Commissioner (Appeals) on payment of 7.5% of the tax demanded where tax or tax and penalty are in dispute or penalty, are in dispute or penalty, where penalty alone is in dispute.”

The following may be added in the Preamble of the orders issued by the Commissioner as an original adjudicating authority-

“An appeal against this order shall be before the Tribunal on payment of 7.5% of the duly demanded where tax or tax and penalty are in dispute or penalty, where penalty alone is in dispute”.

The following may be added in the preamble of the orders issued by the Commissioner (Appeals)-

“An appeal against this order shall lie before the Tribunal on payment of 10% the tax demanded where tax or tax and penalty are in dispute, or penalty, where penalty alone is in dispute”.