Judgement of the AP High Court on the principles for dispensation of pre-deposit pending appeal in Service tax matters

The Commissioner of Central Excise and Customs issued notice calling upon the Respondent to show cause as to why action should not be taken under Section 73(1) of the Act and the Service Tax Rules, 1994, for consideration of the commercial nature of business, willful delay in obtaining registration, willful default in payment of service tax and submission of information and willful evasion of payment of service tax. Upon adjudication, the Commissioner passed an Order in Original levying service tax, educational cess and penalty on the respondent.

The respondent preferred an Appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) along with application for dispensation of pre- deposit of duties, interest and penalty under Section 75, and the penalties under Sections 76, 77 and 78 of the Act.

The respondent’s application for waiver of pre- deposit under Section 35F of the Central Excise Act was allowed and recovery of service tax was stayed.

Revenue filed an appeal under Section 35G of the Central Excise Act, 1944 against the stay order of the CESTAT.

Contentions of the Revenue

The Revenue contended that the stay order of the CESTAT should be set aside on the following grounds:

• The CESTAT erred in passing the impugned order in a routine manner ignoring Section 35F of the Central Excise Act, 1944.
• Waiver of pre- deposit and stay of recovery was granted without application of mind.

Contentions of the Respondent

The contentions of the Respondent were as under:

• As the matter is pending before the CESTAT, the appeal under Section 35G of the Central Excise Act, 1944 is not maintainable.
• The Respondent is a non-profit coaching center and using its surplus only for educational activities and it cannot be treated as a commercial training or coaching center. Hence, they are not liable to pay service tax.
• As demand of service tax was beyond the period of one year, it is barred by time under Section 73 of the Act.

Decision of the High Court

• The question of dispensing with pre- deposit would arise only when the duty demanded or the penalty levied, would cause undue hardship to the assessee and not otherwise.
• Any order to dispense with pre- deposit has necessarily to be subject to certain conditions which are to be imposed to safeguard the interests of the Revenue.
• The following principles have to be kept in mind while considering the applications for stay or for dispensing with the requirement of pre- deposit under Section 35F of the Central Excise Act,1944 or under Section 129E of the Customs Act, 1962 or other similar provisions:

– The applications for stay should not be disposed of in a routine manner, unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand;

– 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;

– Interim orders ought not to be granted merely because a prima facie case has been shown;

– The balance of convenience must be clearly in favor 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;

– While dealing with the applications, twin requirements to be satisfied, i.e., consideration of undue hardship and imposition of conditions to safeguard the interests of revenue;

– When the Tribunal decides to grant full or partial stay, it has to impose such conditions as may benecessary to safeguard the interests of the Revenue. This is an imperative requirement; and