By TIOL News Service

ALLAHABAD, JUNE 24, 2015: THE Petitioner sought a Writ restraining the respondent department from enforcing mandatory pre-deposit of 7.5% of the Service Tax demanded pursuant to the order of adjudication confirming the demand. The Petitioner sought the High Court to declare the amendment to the provisions of Section 35F as ultra vires and unconstitutional. They also contended that the amended provisions are not applicable to their case as the Show Cause Notice was issued prior to the amendment of the Section.

Dealing with the first contention, the High Court held:

As a first principle of law, a right of appeal is a statutory right and it is open to the legislature which confers a remedy of an appeal to condition the appeal subject to compliance with conditions. A fiscal legislation cans tipulate a requirement of pre-deposit as a condition precedent to an appeal to be entertained. The restraint on the power of the legislature to do so, is that the condition which is prescribed should not be so onerous so as to restrict or abrogate the right of appeal altogether. A condition which is unduly onerous will render the right of appeal illusory and would hence run the risk of being held to be arbitrary and of being violative of the fundamental right conferred by Article 14 of Constitution.

Stay applications and the issue of whether a case of undue hardship was made out, gave rise to endless litigation. There would be orders of remand in the litigative proceedings. All this was liable to result in a situation where the disposal of stay applications would consume the adjudicatory time and resources of the Tribunal or, as the case may be, of the Commissioner (Appeals). Parliament has stepped in by providing a requirement of a deposit of 7.5% in the case of a First Appellate remedy before the Commissioner (Appeals) or to the Tribunal. The requirement of a deposit of 10% is in the case of an appeal to the Tribunal against an order of the Commissioner (Appeals). This requirement cannot be regarded or held as being arbitrary or as violative of Article 14.

With regard to the second contention that the amended provisions are not applicable to the Show Cause Notices issued prior to the amendment, the High Court held:

Parliament while substituting the provisions of Section 35F of the Central Excise Act, 1944 by Finance Act (No.2) of 2014, has laid down that the Tribunal or the Commissioner (Appeals) "shall not entertain any appeal" unless the appellant has deposited the duty or, as the case may be, a penalty to the stipulated extent. These words in Section 35F of the Act would indicate that on and after the enforcement of the provision of Section 35F of the Act, as amended, an appellant has to deposit the duty and penalty as stipulated and unless the appellant were to do so, the Tribunal shall not entertain any appeal. This provision would, therefore, indicate that it would apply to all appeals which would be filed on and from the date of the enforcement of Section 35F of the Act.

The second proviso is a clear indicator that Parliament has exempted the requirement of complying with the pre-deposit as mandated by Section 35F(1) of the Act as amended only in the case of those stay applications and appeals which were pending before any appellate authority prior to the commencement of Finance (No.2) Act 2014. Consequently, both by virtue of the opening words of Section 35F(1) of the Act as well as by the second proviso to the provision, it is clear that appeals which are filed on and after the enforcement of the amended provision on 6 August 2014 shall be governed by the requirement of pre-deposit as stipulated therein.

Accordingly, the High Court dismissed the Petition.

(See 2015-TIOL-1490-HC-ALL-ST)