Tribunal can’t order pre-deposit of both duty as well as penalty at a time

Tribunal can’t order pre-deposit of both duty as well as penalty at a time as pre-deposit of penalty arises only when penalty order alone is under challenge

Spandana Spoorthy Financial Ltd. (Petitioner) filed a writ petition against the order of the Hon’ble CESTAT, Hyderabad, dated July 10, 2013 by which the Hon’ble Tribunal has directed the Petitioner to make pre-deposit of the basic tax component as well as 50% of the penalty under Section 78 of the Finance Act, 1994 (Finance Act)

and discrepancy of Rs. 12 Lakhs between the Petitioner’s own assessment of tax liability and the Adjudicating Authority’s determination.

The Petitioner contended that when the appeal is admitted for hearing and the order of the assessment is under scrutiny, unless the order of assessment reaches its finality, the question of initiation of penalty proceedings does not arise at all.

The Hon’ble High Court of Andhra Pradesh analyzed Section 35F of the Central Excise Act, 1944 ( Excise Act) which is applicable to Service tax provisions also vide Section 83 of the Finance Act and held that in view of the expression ‘duty demanded or penalty levied’ in Section 35F of the Excise Act (i.e., use of word ‘or’), the Tribunal cannot ask to make pre-deposit of both at a time. Pre-deposit of penalty is required when order of penalty alone is under challenge. If there is a composite order providing for duty/ tax and penalty, direction for pre-deposit of any portion of penalty would result in injustice as well as hardship. Hence, pre-deposit of penalty was set aside.