R.K Rengaraj, Advocate

The much awaited Union Budget for the year 2014-15 is presented today by the Finance Minister, Mr Arun Jaitely in the Parliament. Though there is no change in the general rate of Excise Duty or Service tax, significant legislative changes have been made in the Section 35 F of the Central Excise Act, Section 83 of the Finance Act and in Section 129E of the Customs Act, which proposes a statutory pre-deposit of Duty demanded, instead of filing a separate stay petition.

The proposed section 35F reads as follows:

The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal,-

(i) under sub-section (1) of section 35, unless the appellant has deposited seven and a half per cent of the duty demanded or penalty imposed or both, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Commissioner of Central Excise;

(ii) against the decision or order referred to in clause (a) of sub-section (1) of Section 35B, unless the appellant has deposited seven and a half percent of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against;

(iii) against the decision of order referred to in clause (b) of sub-section (1) of section 35B, unless the appellant has deposited ten percent of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against;

Provided that the required to be deposited under this section shall not exceed rupees ten crores;

Provided further that the provisions of this section shall not reply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 20114.

Explanation :- For the purposes of this section” duty demanded “ shall include.-

(i) amount determined under section 11D

(ii) amount of erroneous cenvat credit taken

(iii) amount payable under rule 6 of the Cenvat Credit Rules, 2001 or the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.

It means Section 35F of the Central Excise Act is now being substituted with a new section which prescribes a mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both, for filing appeal before the Commissioner (Appeals) or the Tribunal at the first stage and 10% of the duty demanded or penalty imposed or both, for filing the second stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of Rs.10 Crore. All pending appeals/stay applications would be governed by the statutory provisions prevailing at the time of filing such stay applications/appeals. When the amended section 35F in the Central Excise Act comes into force, it would, mutatis mutandis, apply to service tax by virtue of section 83 of the Finance Act, 1994.

This new provision will open pandora’s box as the payment of pre-deposit has now become mandatory in Commissioner (Appeals) stage itself, as per the amendment. The phrase coined in the section is dangerous to interpret in many ways, as it says “duty demanded or penalty imposed or both”. Depositing the amount in the Commissioner’s stage itself would cause financial commitment to the assessees even in their genuine prima facie cases.   In today’s changed scenario, getting favourable orders in the adjudication stage is remote and this would cause definitely financial hardships to the assessees.

By this amendment, the Tribunals workload may be eased in disposing the stay applications as there will not be any necessity to file a separate stay applications along with Appeals before the Tribunal and the Appeals will not be entertained without a pre-deposit. The only solace available to the assessee is, he need not worry about the disposal of the stay within 180 days, as per the draconian circular issued by the department on 01.01.2013 regarding pendency of the Appeal.

This type of mandatory pre-deposit procedure is already prevailing in the State VAT Acts and there are States which fixes 25 to 30% of the tax, penalty and interest.

The Notification No.12/2014 ST dated 11.07.2014 brings tough time to Service Providers as the said notification fixes highest interest rates for the delay in remitting the Service tax amount beyond 6 months, with effect from 01.10.2014.

Sl.No. Delay period Rate of interest
(1) (2) (3)
Delay up to 6 months 18 %
If the delay is more than 6 months and upto 1 year 18 % for the first 6 months of delay and 24 % for the delay beyond 6 months.
If the delay is more than 1 year a)   18 % for the first six months of delay;b)   24 % for the period beyond six months up to one year and 30 per cent for any delay beyond one year.

 Hence, in the author’s opinion, it is going to be a tough time for Central Excise Assessees and the Service providers in view of the proposed amendments in the respective acts, made in the Union Budget 2014-15.

(Advocate R.K Rengaraj, M.COM., MBA., LL.B,, Swamy Associates – Email- renga42002@yahoo.co.in)

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