Statutory provisions (Section 35F of Central Excise Act, 1944)
Pre-deposit means the deposit of amount of duty (service tax) and penalty pending the disposal of the appeal. According to Section 35F of the Central Excise Act, 1944, any person desirous of appealing against the order shall pending the appeal, deposit the duty demanded or penalty levied thereon. It may be noted that pre-deposit is of service tax and penalty and not of the interest, because interest has to be paid, in any case, for the delayed period. The right to appeal or filing of appeal itself does not waive the requirement of payment of pre-deposit and it must be paid unless it is waived or stayed.
According to section 35F of Central Excise Act, 1944 which applies to service tax also, a person desirous of appealing against the order shall, pending the appeal, deposit the duty demanded or penalty levied. It may be noted that right to appeal is neither an absolute right nor an ingredient of natural justice. It is a statutory right and can be circumscribed by the conditions of grant. Though the pre-deposit is required to be made pending the appeal, the appellate authority is empowered to dispense with it if it may cause undue hardship to the person concerned. Mere filing of appeal or admitting the appeal does not amount to grant of stay. Pre-deposit is only of a duty (service tax) and penalty. Thus, pre-deposit of interest is not required only tax and penalty are required to be pre-deposited. So where demands are huge, it is advisable to simultaneously seek grant of stay and/or waiver of pre-deposit.
Finance Act, 2007 had amended Section 35F of the Central Excise Act, 1944 so as to insert an Explanation therein with a view to widen the scope of expression 'duty demanded' for the purpose of this section.
Finance Act, 2013 has amended section 35C (2A) of the Central Excise Act, 1944 to provide for a maximum ceiling of 365 days upto which the Tribunal can grant stay of recoveries. It has been stipulated that after 365 days from the stay order, the stay shall stand vacated even if the disposal of the case is pending for no fault of the assessee. By virtue of stipulation under section 86(7) of the Finance Act, 1994, the provisions of the Central Excise Act, 1944 would be applicable for dispute in Service Tax matters.
It thus stipulates that on an application made by a party and on being satisfied that the delay in disposing of the appeal is not attributable to such party, the Appellate Tribunal shall have the power to extend the period of stay to such further period, as it thinks fit, not exceeding one hundred and eighty-five days, and in case the appeal is not so disposed of within the total period of three hundred and sixty-five days from the date of order referred to in the first proviso, the stay order stands vacated.
Principles of Pre-deposit
Following can be enumerated as Principles of Pre-deposit -
- Prima facie case, balance of convenience and irreparable loss has to be considered.
- On merely establishing a prima facie case, interim order of protection should not be passed.
- When denial of interim relief may lead to public mischief, grave irreparable private injury or shake citizen's faith in impartiality of public administration, pre-deposit could be waived.
- 'undue' add something more to hardship, excessive hardship.
- Pre-deposit cannot waived in every case of undue hardship, interest of revenue have also to be protected.
- Balance of convenience must be clearly in favor of making an interim order with no indication of likely prejudice to revenue.
- Twin considerations of undue hardship and conditions to safeguards interest of revenue must be kept in view.
Principles as per Judicial Pronouncements
(i) Three aspects to be focused while dealing with the applications for dispensing of pre-deposit are :
(a) prima facie case,
(b) balance of convenience, and
(c) irreparable loss;
(ii) Interim orders ought not to be granted merely because a prima facie case has been shown;
(iii) The balance of convenience must be clearly in favour of making of an interim order and there should not be the slightest indication of a likelihood of prejudice to the interest of public revenue;
(iv) While dealing with the applications, twin requirements of consideration i.e., consideration of undue hardship and imposition of conditions to safeguard the interests of Revenue, must be kept in view;
(v) When the Tribunal decides to grant full or partial stay it is has to impose such conditions as may be necessary to safeguard the interests of the Revenue. This is an imperative requirement; and
(vi) An Appellate Tribunal, being a creature of the statute, cannot ignore the statutory guidance while exercising general powers of expressly conferred incidental powers.
i) Whether assessee is having any prima facie case
ii) Whether balance of convenience lies in their favour or not, and
iii) Whether irreparable loss of revenue will be caused to either sides.
These three basic principles need to be considered.
- In Musk Tobacco (India) P. Ltd v. CCE & ST 2013 (3) TMI 321 - ALLAHABAD HIGH COURT, it was held that while dealing with application seeking dispension of pre-deposit, twin requirements were to be kept in mind ,i.e. consideration of undue hardship and to safeguard interests of revenue, undue hardship is considered to be within special knowledge of applicant and has to be established by him. A mere assertion about undue hardship would not be sufficient .When there is prima facie finding of suppression of provision of services and receipts there from ,balance sheets cannot be said to reflect true and correct financial position. Hence, requirement of pre-deposit could not be waived.
- In Aluminium & Glazing v. CCE (Appeals), Chennai 2013 (3) TMI 294 - MADRAS HIGH COURT, it was held that cardinal principle of consideration of waiver of pre-deposit is based on undue hardship, prima facie case of balance of convenience, financial burden and other difficulties expressed by party before taking matter on appeal and these factors have to be weighed in relevant circumstances, taking into account all material facts, which alone can come to wisdom of authority to give certain waiver of pre-deposit to party who is on appeal .However, if capacity of assessee to pay amount has been noticed and there is no financial burden, then, it cannot be construed that there is an undue hardship for assessee to resort to claim waiver of pre-deposit.
- In Life Care Medical Systems v Commissioner of Service Tax, Mumbai-II, 2012 (8) TMI 607 - CESTAT, MUMBAI, it was held that stay could not be granted merely on prima facie case being shown and balance of convenience must be clear in favour of making of interim order. There should not be slightest likelihood of prejudice to interest of public revenue. Hence, Tribunal could not ignore statutory guidance while exercising power of interim stay.
- In Leaap International (P) Ltd v. CST 2013 (5) TMI 112 - MADRAS HIGH COURT, it was held that two important expressions used in section 35F are "undue hardship to such person" and "safeguard interests of Revenue". While dealing with application for waiver of pre-deposit, said twin requirements have to be kept in view. Under Indian conditions, "undue hardship" is normally related to economic hardship where 'undue' means something which is not merited by conduct of claimant, or is very much disproportionate to it and 'undue hardship' is caused when hardship is not warranted by circumstances.
- In Foxteq Services India Ltd v. CST 2013 (4) TMI 203 - MADRAS HIGH COURT, it was held that pre-deposit is mandatory while dispensing with same is discretionary power of appellate authorities. Twin tests of 'undue hardship' and 'safeguarding interest of Revenue' were to be applied to each and every case where waiver of pre-deposit was sought for. Undue hardship, being a matter within special knowledge of applicant, has to be established by him with specific averments of facts and figures to establish undue hardship. As such, pre-deposit is mandatory and waiver thereof is discretionary. Tests of undue hardship and safeguarding interest of Revenue were to be applied and all grounds need not be considered while disposing stay application. Hence, stay could not be granted merely by establishing a prima facie case, while stay could be granted only where it appears that demand imposed had no legs to stand or it would be undesirable to ask assessee to pay full or part of demand.
- In Sivasakthi Auto Ancillaries Pvt. Ltd. v. Additional CCE, 2013 (3) TMI 482 - MADRAS HIGH COURT, it was held that while granting waiver of pre-deposit is a discretion, if an assessee pleads undue hardship or financial constraint, appellate authorities should take note of prima facie case and balance of convenience of the assessee to pay the amount demanded and pass appropriate orders for ordering pre-deposit or otherwise before the appeal is entertained. Such cardinal principles are in the discretion of the appellate authorities in deciding as to what could be the undue hardship, financial burden etc of assessee before ordering pre-deposit or its waiver.
