Dr. Sanjiv Agarwal
According to section 35F of Central Excise Act, 1944 which applies to service tax also, a person desirous of appealing against the order shall, pending the appeal, deposit the duty demanded or penalty levied. It may be noted that right to appeal is neither an absolute right nor an ingredient of natural justice. It is a statutory right and can be circumscribed by the conditions of grant. Though the pre-deposit is required to be made pending the appeal, the appellate authority is empowered to dispense with it if it may cause undue hardship to the person concerned. Mere filing of appeal or admitting the appeal does not amount to grant of stay. Pre-deposit is only of a duty (service tax) and penalty. Thus, pre-deposit of interest is not required only tax and penalty are required to be pre-deposited. So where demands are huge, it is advisable to simultaneously seek grant of stay and/or waiver of pre-deposit.
Supreme Court in Dunlop India reported in (1985) 19 ELT 22 (SC), opined that the relevant factors in granting the stay of recovery of the duty demanded and penalty levied are as follows :
(i) Prima facie case,
(ii) Balance of convenience,
(iii) Possibility of irreparable injury,
(iv) Safeguarding public interest.
Andhra Pradesh High Court in SQL Star International Ltd. v. Cestat (2012) 25 STR 113 (AP) stipulated the following six principles to be borne in mind while dealing with pre-deposit/ stay applications —
(i) 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;
(ii) Interim orders ought not to be granted merely because a prima facie case has been shown;
(iii) The balance of convenience must be clearly in favour 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;
(iv) While dealing with the applications, twin requirements of consideration i.e., consideration of undue hardship and imposition of conditions to safeguard the interests of Revenue, must be kept in view;
(v) When the Tribunal decides to grant full or partial stay it is has to impose such conditions as may be necessary to safeguard the interests of the Revenue. This is an imperative requirement; and
(vi) An Appellate Tribunal, being a creature of the statute, cannot ignore the statutory guidance while exercising general powers of expressly conferred incidental powers.
In SKOL Breweries Ltd. v. CCE & C (2013) 38 STT 228 (Cestat), it was held that while deciding a stay application, it is to be borne in mind –
i) Whether assessee is having any prima facie case
ii) Whether balance of convenience lies in their favour or not, and
iii) Whether irreparable loss of revenue will be caused to either sides.
These three basic principles need to be considered.
Recently in CC & CE, Salem v. Visaka Industries Ltd. (2014) 299 ELT 199 (Madras), on appeal and pre-deposit, high court observed that Section 35F of the Central Excise Act, 1944, mandates that the person desirous of appealing against the decision of a lower authority shall deposit with the adjudicating authority the duty demanded or the penalty levied. The proviso to Section 35F gives discretion to the Appellate Authority to waive the deposit in case it is demonstrated that it would cause undue hardship to such person.
In case the appellant invokes the proviso to Section 35F to dispense with the requirement regarding pre-deposit, necessarily, the essential conditions should be satisfied. The Appellate Authority is expected to consider the relevant materials for the purpose of dispensation of pre-deposit. The Tribunal must consider the prima facie case, balance of convenience and undue hardship. Undue hardship cannot be decided without making an attempt to consider the prima facie case. The Tribunal is expected to safeguard the interest of the Revenue also.
While considering the applicability of the proviso to Section 35F of the Act in a given case, necessarily, the Tribunal should consider the interest of the Revenue also. In case the available materials are sufficient to arrive at a finding that the assessee has no prima facie case and the pre-deposit would cause undue hardship, necessarily, pre-deposit should be insisted. There is an element of discretion available to the Appellate Tribunal in such matters. The discretion should be exercised in accordance with the settled legal principles. The materials available on record should suggest a prima facie case in favour of the appellant besides undue hardship. When a finding is recorded with respect to prima facie case and undue hardship by CESTAT, in exercise of the power conferred under the proviso to Section 35F or the Act, such finding should be given due weight unless there are materials to show that the finding was perverse and no reasonable person would have arrived to such a finding on the basis of available materials. Each case has to be decided on its own peculiar facts. The proviso to Section 35F makes it mandatory that the Appellate Tribunal should impose necessary conditions to safeguard the interest of Revenue in case the authority is of the view that pre-deposit would cause undue hardship to the appellant.
The court relied upon the apex court judgment in Benara Values Ltd. v. CCE (2006) 204 ELT 513 (SC); (2008) 12 STR 104 (SC), wherein apex court was not happy with the casual disposal of stay application and emphasized that the twin conditions of the provisions of section 35F must be satisfied i.e., consideration of the aspect of undue hardship and imposition of conditions to safeguard the interests of the revenue.