CA Urvashi Porwal
Brief of the Case
In the case of Fifth Avenue Sourcing (P) Ltd. V/s Commissioner of Service Tax it was held BY Madras High Court that second proviso to Section 35F of the Act makes it abundantly clear that the proviso to this Section shall not apply to stay applications and appeals pending before the appellate authority prior to the commencement of the Finance Act (2 of 2014).
The petitioner being engaged in the business of sourcing for Foreign Buyers to procure Indian Garments, obtained Service Tax Registration under the category of ”Business Auxiliary Service”. After receiving orders from the buyers from abroad, the petitioner placed orders on different vendors/manufacturers in India and raised proforma invoice on the overseas buyer for the total order and again open Letter of Credit (LC) in their name. Similarly, on receipt of proforma invoice from the Indian vendors/manufacturers, the Letter of Credit would be transferred to the respective vendors/manufacturers, after retaining the margin of the petitioner. Once the shipment of the goods was effected, the documents from the vendors would reach the petitioner bank through the vendor’s bank and only thereafter, the petitioner would substitute their invoice and bills of exchange permissible as per UCP and then the documents were sent to the buyers situated abroad. Upon receipt of the payment, the petitioner’s bankers would credit the petitioner with the margin in convertible foreign currency and the rest of the amount would be sent to the vendors in convertible foreign currency. In this background, the issue raised in the Writ Petition is whether the receipt of Letter of Credit Margin/Trade margin by the petitioner in convertible foreign exchange for rendering service to various overseas buyers are liable to service tax under the category of ”Business Auxiliary Services” as per Section 65(19) of the Finance Act.
The petitioner received a notice for Statement of Demand No.193/2013 dated 05.06.2013 for the period October 2011 to September 2012 to show cause as to why service tax of Rs.1,74,04,550/- for the period commencing from October 2011 to September 2012 should not be demanded along with interest and penalty. In response to the said notice, the petitioner submitted a detailed reply in July 2012 and finally he has also appeared for personal hearing on 16.02.2015. However, the respondent has passed the impugned Order-in-Original dated 27.02.2015 without following the ratio already decided in Order-in-Original Nos.6 and 7 of 2014 (ST) dated 31.01.2014. Therefore, the petitioner is constrained to come this Court.
Contentions of the Assessee
The petitioner submitted that the Order-in-Original is not only non-speaking, but also has been passed without jurisdiction, in as much as it goes beyond the scope of show cause notice.
The Kerala High Court while dealing with almost in a similar and identical issue under Section 35(F) of the Act has come to the conclusion that the appellant would not be required to make the pre-deposit amount of 7.5% pursuant to 2014 Amendment. The same ratio has been once again reiterated by the Hon’ble Andhra Pradesh High Court stating that at the time of filing the appeal, the appellant is not required to make the payment as pre-condition for the hearing of the waiver application by the Tribunal. In support of his submission, the appellant relied upon the following judgments of Kerala High Court (i) M/s.Muthoot Finance Ltd., ..vs.. Union of India and another reported in 2015-TIOL-632-HC-Kerala-ST. (ii) Secretary to Government Department of Agriculture, Government of Kerala and another ..vs.. Union of India and another reported in 2015-TIOL-895-HC –Kerala-ST. and on this basis, he sought for a direction to enable the petitioner to file appeal without making payment of 7.5% of the tax amount confirmed against the petitioner as a pre-condition for making the appeal before the CESTAT.
Contentions of the Revenue
The Revenue relied on the judgment of the Kerala High Court in K.V.Raghunathan Pillai ..vs.. The Commissioner of Central Excise, Customs and Service Tax, Thiruvananthapuram to impress upon this Court that reading of second proviso to Section 35(F) as contained in the Finance Act itself shows that the provision relied on by the learned counsel appearing for the petitioner shall not apply to stay applications and appeals pending before any appellate authority prior to the commencement of the amendment, viz., 06.08.2014, hence, the petitioner should be directed to file his appeal along with pre-deposit as per Law.
Held by Hon’ble High Court of Madras
The Hon’ble High Court stated that a close reading of second proviso to Section 35F of the Act makes it abundantly clear that the proviso to this Section shall not apply to stay applications and appeals pending before the appellate authority prior to the commencement of the Finance Act (2 of 2014). In the present case, to apply the second proviso in order to deny the benefit of filing the appeal without making the payment of 7.5% before the CESTAT, it should be mentioned that the petitioner as against the Order-in-Original passed by the respondent on 27.02.2015, till date has not filed any appeal nor moved any stay application. Therefore, the petitioner, as rightly contended, is entitled to have the benefit of the ratio laid down by both the Kerala High Court and Andhra Pradesh High Court in the afore-mentioned judgments.
In this regard, it is necessary to extract the view taken by the Hon’ble High Court of Kerala at Ernakulam in WP(C).No.6173/15 (V) dated 02.03.2015 in M/s.Muthoot Finance Limited ..Vs.. Union of India and another, which reads as follows:-
“4. ………. The only point that arises for consideration is whether the petitioner would have to deposit the amount of 7.5% of the tax confirmed against him, as a condition for pursuing the appellate remedy before the Tribunal. I note in this connection that recently, a Division Bench of the High Court of Telengana & Andhra Pradesh has taken a prima facie view that, inasmuch as the lis in question had commenced prior to the introduction of the amendment to the Finance Act, 1994, with effect from August 2014, the petitioner’s right of appeal as per the erstwhile provisions of law would not be affected by the provisions introduced by the amendment of 2014. Although not expressly referred to in the interim order dated 19.02.2015 passed by the High Court of Telengana & Andhra Pradesh in W.P.No.3393/2015, the view seems to be consistent with the settled law that the institution of a suit carries with it an implication that all rights of appeal then in force are preserved to the parties thereto till the rest of the career of the suit and, further, that the right of appeal that is vested is to be governed by the law prevailing at the date of institution of the suit or proceeding, and not by the law that prevails at the date of its decision or at the date of filing of the appeal. (See: Garikapati Veeraya v. N.Subbiah Choudhry and other (AIR 1957 SC 540); Messrs Hoosein Kasam Dada (India) Ltd., v. The State of Madhya Pradesh and others, (AIR 1953 SC 221; Vitthalbhai Naranbhai Patel v. Commissioner of Sales Tax M P Nagpur (AIR 1967 SC 344) and Ramesh Singh and Another v. Cinta Devi and others (1996 (3) SCC 142). In that view of the matter, I find that the petitioner, in whose case also the lis commenced in 2012, would not be required to deposit the amount of 7.5%, as required pursuant to the 2014 amendment, and in that respect, he would have an efficacious alternate remedy before the Tribunal where he can file an appeal, together with an application for waiver of pre-deposit and stay or recovery of the amounts confirmed against him by Ext.P8 order. At the time of filing the appeal, he will not be required to make any payment as a pre-condition for the hearing of the waiver application by the Tribunal. I, therefore, relegate the petitioner to the alternate remedy available under the Finance Act, 1994, as amended, of approaching the Appellate Tribunal by way of an appeal against Ext.P8 order. It is made clear that the appeal to be filed by the petitioner would be governed by the statutory provisions, as they stood prior to the amendment introduced with effect from 16.08.2014. Thus, without making any observations on the merits of the case, and without prejudice to all the contentions that the petitioner can take against Ext.P8 order of the 2nd respondent, I dismiss the writ petition in its challenge against Ext.P8 order. I make it clear that, if the petitioner prefers a duly constituted appeal under the provisions of the Finance Act, 1994, as they stood prior to 16.08.2014, then the Appellate Tribunal shall number the Appeal, and consider the application filed by the petitioner for waiver of pre-deposit and stay of recovery of the amounts confirmed against him by Ext.P8 order, on merits and thereafter, proceed to hear the appeal itself in due course. The petitioner shall file the appeal, together with the application for waiver of pre-deposit and stay, before the Appellate Tribunal on or before 31.03.2015.”
The above view has been followed in a subsequent case reported in 2015-TIOL-895-HC-Kerala-ST (Secretary to Government, Department of Agriculture, Government of Kerala and another ..vs.. Union of India represented by the Secretary, Ministry of Finance (Department of Revenue), New Delhi and another)
After that, the Hon’ble High Court of Andhra Pradesh also in M/s.K.Rama Mohana Rao & Co. ..vs.. Union of India, Ministry of Finance, New Delhi and 4 others reported in 2015-TIOL-511-HC-AP-CX, while dealing with the very same amendment, has held that on the date of initiation of proceedings, the aforesaid amendment was not in force however, during the pendency of the matter, the above said amendment is made. Hence, on the date of initiation of proceedings, the right to appeal also accrues on that date, in view thereof, as the appeal is in continuation of the original proceedings. The aforesaid amendment may not be applicable for the simple reason that the proceedings were initiated with the issuance of show cause notice prior to the amendment.
In the light of the above decision, as the amended provisions of the Act are not given retrospective effect as of from an anterior date, it has been construed that the amended provisions are prospective.
Therefore, this Court without entertaining the Writ Petition, directs the petitioner to file an Appeal before the CESTAT along with stay application, without making pre-deposit of 7.5% of the tax amount confirmed against the petitioner, within a period of two weeks from the date of receipt of a copy of this order.