NEW PRE-DEPOSIT PROVISIONS FOR APPEAL IN SERVICE TAX
September, 09th 2014
Finance Act, 2014 has substituted section 35F of the Central Excise Act to provide for deposit of certain percentage of duty demanded or penalty imposed or both before filing an appeal. All pending stay applications in relation to appeals filed prior to Finance Act, 2014 would continue to be governed by statutory provisions prevailing at the time of filling such stay applications / appeals. The text of section 35F reads as follows –
“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 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;
(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, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute 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, 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.
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, -
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.”
Section 35F of the Central Excise Act which already been made applicable to Service Tax is going to be drastically revamped. This section is being substituted with a new section to prescribe a mandatory fixed pre-deposit of 7.5% of the duty, in case where duty or duty and penalty are in disputes or penalty, where such penalty is in dispute for filing of appeal before the Commissioner (Appeal) or the Tribunal at the first stage, and 10% of the duty, in case where duty or duty and penalty are in disputes or penalty, where such penalty is in dispute for filing second stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of ₹ 10 Crore.
Section 35F states that the appeal should not be entertained unless the following amount is pre-deposited –
Order passed by
% of duty and / or penalty required as pre-deposit
Any officer of a rank lower than Commissioner of Central Excise
(maximum of ₹ 10 Crores)
Commissioner of Central Excise
(maximum of ₹ 10 Crores)
(maximum of ₹ 10 Crores)
It may be noted that the provision of section 35F was relevant when it was inserted in theCentral Excise Act, 1944. When section 35F came into effect, there was no provision to recover interest from the appellants. The introduction of provisions for interest on delayed payment of duty came into effect from 1995-96 in view of section 11AA and 11AB of the Central Excise Act, 1944. Thus, by delaying appeal in Cestat, one would not gain by unduly with holding the payment of duty since interest is payable from the date when the duty becomes payable. If the appeal is delayed for years together, it is the appellant who will suffer more, rather to the greatest extent without any danger to the Government revenue, since interest will be payable on duty demand up to the time, the appeal is finally decided by the Tribunal against the appellants. Whereas, if the appellant succeeds in CESTAT, they are only entitled for interest after 3 months from final disposal of case in their favour and no interest is allowed for the interim period i.e., from the date of payment against Stay order to 3 months from final disposal of appeal.
Impact of New Section 35F
In Neotech Rubber Products reported in 2013 (11) TMI 484 - ANDHRA PRADESH HIGH COURT, the Andhra Pradesh High Court observed that "in our opinion, this is nothing short of arm-twisting the petitioner. On one hand, the application for pre-deposit was not taken up for no fault of the petitioner, and on the other hand, the revenue takes steps to recover the amount, if necessary through coercive methods."
It is also a fact that in Tribunal, over 50% of pendency is on account of stay applications.
The new provision of section 35F shall be beneficial to both –assessee as well as Government. Moreover, it will eliminate the arbitrariness in the decisions in granting the pre-deposit or otherwise. The issue of alleged corruption shall also be addressed. Since not all the stay applications are rejected against the assessee (more than 60 percent go in appellant's favour), in case of mandatory pre-deposit, Government will get the pre-deposit, through 7.5% or 10% only, which will be much more than what is collected on the basis of orders. In many cases, full waiver is granted. Such pre-deposit bears no interest and as such, Government may not be at loss. So far as appellant is concerned, it would save him from avoidable litigation atleast at stay stage and reduce time for disposal of appeal significantly. Then, 10% amount as pre-deposit is also nominal whereas Tribunals have been granting deposit of upto 100 percent in many cases.