By TIOL News Service

MUMBAI, AUG 11, 2016: IN this Service Tax case, investigations were initiated against the appellant in 2008. A show cause was issued on 19.04.2012 & the case was adjudicated by the Commissioner of Service Tax, Mumbai in 2015.

When the appeal was filed before the CESTAT the new section 35F of the CEA, 1944 had already come into force (on 06.08.2014) and which required the appellant to make a pre-deposit of 7.5% of the duty/tax demanded.

The appellant did not make any pre-deposit and, therefore, the appeal was heard by the CESTAT for maintainability of the same.

In an elaborate order replete with an array of case laws, the Division Bench dismissed the appeal on the ground of maintainability by observing thus -

Pre-amendment, Section 35F required that the appellant shall deposit the entire amount of duty demanded and penalty levied - It is clear that there was no unfettered right of not pre-depositing any amount or even a portion of the amount demanded in adjudication proceedings - It was only the discretionary power of the Tribunal which allowed the Commissioner (Appeals) or Appellate Tribunal to dispense with such deposit - Whereas the new provisions under the amended Section 35F require the appellant to deposit 7.5% as pre-condition for appeal being entertained - Thus the change brought about in the statute does not reduce or fetter any right of the appellant as far as pre-deposit is concerned - From a situation of full deposit under the pre-amended Section, it has now come down to a situation where only 7.5% of the amount has to be deposited - Consequently the question of discrimination does not arise - The amended provision is not to the disadvantage of litigants in whose case the Adjudication Order is passed after 06.08.2014 because they would have to deposit a lesser amount vis-à-vis the litigants who had to deposit the entire amount under the provisions existing prior to 06.08.2014 - From the Objectives of the Finance Bill and the plain language of the amended Section 35F, it is seen that the proviso was meant to cover all appeals filed after 06.08.2014 - second proviso to section 35F clearly stipulates that amended provisions will not apply to appeals pending before the commencement of the Finance Act, 2014 - From the context of the legislation as brought out in the Explanatory notes it would follow that the appeals filed after the commencement of the Act would be governed by the amended provisions - amended section 35F actually enhances the package of appellate remedy available - Bench also agreed with the decision taken in Maneesh Export (EOU) vs. Commissioner of Central Excise, Belapur -   2015-TIOL-1093-CESTAT-MUM   and M/s. Sridhar Metal vs. Commissioner of Central Excise, Customs & Service Tax, Aurangabad -   2015-TIOL-654-CESTAT-MUM   where it is held that pre-deposit is to be made when an appeal is filed.

We reported this order dated 17th December 2015 as - 2016-TIOL-1731-CESTAT-MUM.

An appeal came to be filed before the Bombay High Court and the same was admitted as the same raised the following substantial questions of law:

(1) The right of appeal being a vested right, whether the provisions of law as applicable at the commencement of the lis would apply or the amended provisions as on the date of filing of appeal would apply.

(2) Whether the second proviso to the amended section 35F can be interpreted as providing expressly or by necessary intendment that amended section 35F would apply to all appeals filed after 6.8.2014, even if the lis in respect of the same has arisen prior to 6.8.2014.

(3) Whether the amended section 35F of the Central Excise Act, 1944, w.e.f. 06.08.2014, reduces or puts fetters upon the vested right of appeal that an appellant has or the same increased the scope of the appellate package, thereby not impinging upon the vested right of the appellant?

The High Court after considering the submissions made by both sides extracted the provisions of section 35F of the CEA, 1944 before and after the amendment made by the Finance Act, 2014, the ratio of the High Court decisions in Muthoot Finance Ltd. - 2015-TIOL-632-HC-KERALA-ST, Ganesh Yadav - 2015-TIOL-1490-HC-ALL-ST and observed thus -

++ We are clear that section 35F cannot be held to be unconstitutional. Section 35F only ensures that the appeal shall not be entertained unless the amount to the extent mentioned therein is secured. The interest of the Revenue which has to be secured was the paramount consideration in both the unamended and amended provision. Now there is a specific stipulation and the extent to which the interest of the Revenue has to be secured is also clarified. Once there is a clear indication from the language of the Statute and which is plain and unambiguous, then, we do not think that the view taken by the Kerala High Court Muthoot Finance Ltd. vs. Union of India - 2015-TIOL-632-HC-KERALA-ST can be accepted. We would prefer to agree with the Hon'ble Division Bench of the Allahabad High Court in Ganesh Yadav - 2015-TIOL-1490-HC-ALL-ST.

++ The view taken by the Division Bench of the High Court of Madras in Dream Castle - 2016-TIOL-1009-HC-MAD-ST, with respect, is also in consonance with the statutory prescription and the intent. It has referred to all the decisions in the field and the rival contentions. The Division Bench of the Allahabad High Court and all other judgments, including of the Kerala High Court have been extensively referred to. The independent reasoning of the Division Bench of the High Court of Madras is, with respect, rightly construing and interpreting the statutory provision. As held by the Division Bench of the High Court of Madras, the substantive provision section 35F after its amendment is not capable of any other interpretation. Though the second proviso was referred, but the Division Bench independent thereof, agreed with the contention of the Revenue which is that the amended provision would have to be applied to all such appeals as falling within the second proviso.

Agreeing with the view taken by the CESTAT, the High Court dismissed the appeal.

The appellant requested for a six months time to comply with the pre-deposit requirement but the same was objected by the counsel for the Revenue.

Nevertheless, the High Court allowed the appellant to deposit the sum mandated by section 35F(1) with its provisos within a period of three months pursuant to which the Tribunal would entertain the appeal and decide the same on merits and in accordance with law. It was also made clear that the time granted would not be extended under any circumstances.

In passing: The service tax liability stands @ Rs.246,22,73,817/-.

(See 2016-TIOL-1708-HC-MUM-ST)