MAY 05, 2017

By L S Karthikeyan, Advocate, Lakshmikumaran & Sridharan

TO a simple mind, a plain reading of the provisions of Section 35F of Central Excise Act, 1944 (applicable to Service Tax also) and Section 129E of the Customs Act, 1962 does not create any confusion as regards the amount to be deposited for filing an appeal. The provision would normally be understood as:

i) If the appeal is to be preferred before Commissioner (Appeals) against order passed by an authority below the rank of Commissioner, 7.5% of the duty / tax amount is to be paid (7.5% of penalty, if only penalty is disputed);

ii) If the appeal is to be preferred before the CESTAT:

b) Against an order passed by Commissioner (Appeals), 10% of the duty/tax amount is to be paid.

There is no dispute against the amount to be deposited in (i) or (a) of (ii) above. However, controversies started on the quantum of deposit in the case of situation (b) of (ii) i.e. whether the appellant should deposit 10% including the 7.5% deposited at the time of filing appeal before the Commissioner (Appeals) or an amount equal to 10% is to be deposited irrespective of the amount deposited earlier. A corollary to the second part of the question was whether in the case of Appeal to the Tribunal, the total amount to be deposited is 17.5% of the duty / tax amount.

The refrain of the Larger Bench in the present order [2017-TIOL-1414-CESTAT-DEL-LB] is that the appeal to the Commissioner (Appeals) and second appeal to the Tribunal are two different proceedings. Therefore, the Appellant has to deposit 10% of the disputed amount for the Tribunal to entertain his appeal.

The question framed vide Para 2 of the order is whether deposit of 10% is inclusive of 7.5% deposited before First Appellate Authority [FAA] (as per orders such as in the case of Balajee Structural (India) Private Limited 'impliedly' holding so) or the pre-deposit of 10% of the amount of duty / penalty needs to be deposited over and above the amount mandated to be deposited before the FAA as held in Hindalco Industries and Ors 2016-TIOL-3050-CESTAT-Kol and ASR Multimetals Private Limited and Ors. 2016-TIOL-3154-CESTAT-AHM .

Para 6.3 of the LB order holds that the decision in the case of ASR Multimetals Pvt. Limited is correct.

In Para 6.1 of the order, the LB observes that 'if the appeal (before the first Appellate Authority) is disposed of, amount pre-deposited by him which is equivalent to 7.5% … needs to be refunded in accordance with law'.

Again, in Para 6.2, the Hon. Bench states that 'if an assessee or importer wishes to exercise his statutory right of second appeal, then the said exercise of right it needs to be considered as an independent right and proceeding subsequent to pre-deposit of the amount to exercise first appeal needs to be considered as having come to closure. In that case,… as regards mandatory pre-deposits made before first appellate authority, it needs to be decided in accordance with law.'

The order thus should at least set to rest the view that in the case of 'second appeal', the Appellant has to deposit 17.5%.

However, with due respect to the Hon. Bench, it appears that the order has not considered a crucial factor while reaching its conclusion viz., the scope and meaning of the expression 'deposit' used in Section 35F / 129E.

Clause (iii) in both the provisions provide that the Tribunal shall not entertain any appeal unless the appellant has deposited ten per cent of the duty'.

The question which begs attention is 'how and where' is the amount to be deposited?

Section 35F, prior to its amendment with effect from 6.8.2014, provided that the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority (129E 'with the proper officer') the duty demanded or the penalty levied.

The CBEC vide Circular 12/93-CX 6 dated 23.08.1993 had clarified that 'the right procedure is to classify such deposits (pending appeal) under the final revenue head of account in the Government account from the initial stage itself…The term 'DEPOSIT WITH THE ADJUDICATING AUTHORITY' pending appeal / adjudication may be construed to mean 'REMITTANCE OF DUTY'.

The new sections merely state that 'unless the amount is deposited' but does not mention with whom the amount is to be deposited. Does it mean that the amount mandated for entertaining the appeals is being deposited with the Commissioner (Appeals) or the Tribunal, as the case may be?

However, it is felt that the practice of treating such deposits as payment of duty / tax continues. In any case, neither the Commissioner (Appeals) nor the Tribunal, collects the 'deposits'. The amount is paid and credited into the Consolidated of India, under the accounting code of the Appellant / assessee and hence through the jurisdictional Commissionerate.

Viewed in the light of the above, the expression 'unless the Appellant has deposited 10% of the duty', would plainly mean that while exercising the right of second appeal, the Appellant should have deposited 10% of the disputed duty or penalty into the Government account. Since 7.5% of the amount deposited (under the same head) at the time of filing the first Appeal remains with the Government, payment of further amount of 2.5% should fulfill the condition in Clause (iii).

The suggestion in the LB order that 'the 7.5% deposited at the filing of first appeal needs to be refunded in accordance with law' would only create unnecessary paper work and futile litigation.

Sections 35F / 129E do not directly provide for refund of the deposit amount. Sections 35FF / 129EE provide that 'where an amount deposited is required to be refunded consequent upon the order of the appellate authority'. The Department may take a stand that since the demand has been confirmed by the FAA, there is no cause for refunding the amount. The application of Section 11B of Central Excise Act, 1944 or Section 27 of Customs Act, 1962 would also be negated ( except for limitation) on the ground that as per the orders of the Original Authority / FAA, the duty / tax is liable to be paid by the Appellant.

Therefore, even though the LB does not postulate payment of 17.5% as deposit for entertaining the second appeal, by implication the amount of mandatory deposit for second appeal would stand fixed at 17.5%, which is not provided by the Parliament.

It would create a wide difference between the amount to be deposited while filing appeal to the Tribunal against order passed by Principal Commissioner / Commissioner as adjudicating authority and the 'second appeal'. Further, even in respect of an order passed by Commissioner (Appeals) on an appeal filed before him before 6.8.2014, the Appellant would be required to deposit 10% only whereas in respect of an appeal filed on deposit of 7.5%, on second appeal to the CESTAT, the appellant would end up depositing 17.5%.

It is hoped that the views of the LB are reconsidered.

(The views expressed are strictly personal.)