Clarifications on mandatory pre-deposit for filing appeals under Service tax, Excise and Customs

The Finance Act (No.2), 2014 (the Finance Act) has substituted new Section 35F of the Central Excise Act, 1944 (the Excise Act) which is also applicable for Service Tax vide Section 83 of the Finance Act, 1994 and Section 129E of the Customs Act, 1962 (the Customs Act) to prescribe mandatory pre-deposit of 7.5% or 10% for first stage or second stage appeal, of duty demanded where duty demanded is in dispute or where duty demanded and penalty levied are in dispute and where penalty alone is in dispute, the pre-deposit shall be calculated on the penalty imposed. The said amendments have become applicable for the appeals to be filed after August 6, 2014 and all pending appeals/stay applications filed prior to August 6, 2014 shall be governed by the erstwhile provisions.

The Central Board of Excise & Customs has issued Circular no. 984/08/2014-CX dated September 16, 2014 (“the Circular”) providing clarifications on various doubts / issues raised by trade bodies, industry associations and field formations etc., on implementation of new provisions pertaining to amendments made in appeal provisions in Customs, Central Excise and Service Tax are as under:

1. Quantum of pre-deposit in terms of Section 35F of the Excise Act and Section 129E of the Customs Act

Issue: There is confusion/ doubt if an appellant has already deposited 7.5% in first stage of appeal then, the Appellant is required to deposit another 10% in second stage of appeal or differential 2.5% only.

The CBEC has clarified that in the event of appeal against the order of Commissioner (Appeals) before the Tribunal, 10% pre-deposit has to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals). However, this amount need not be the same as the amount of duty demanded or penalty imposed in the Order-in-Original in the said case.

Further, it has been clarified that in a case, where penalty alone is in dispute and penalties have been imposed under different provisions of the Act, the pre-deposit would be calculated based on the aggregate of all penalties imposed in the order against which appeal is proposed to be filed.

Furthermore, in case of any short payment or non-payment of the amount stipulated under Section 35F of the Excise Act or Section 129E of the Customs Act, the appeal filed is liable for rejection.

2. Payment made during investigation:

The CBEC has clarified that payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10%, subject to the limit of Rs 10 crores, can be considered to be pre-deposit made towards fulfilment of stipulation under Section 35F of the Excise Act or Section 129E of the Customs Act.

However, amounts paid over and above the amounts stipulated under Section 35F of the Excise Act or Section 129E of the Customs Act shall not be treated as deposit under the said sections. Further, the date of filing of appeal shall be deemed to be the date of deposit made in terms of the said sections.

Important to note: It means that No Interest benefit as granted under Section 35FF of the Excise Act or Section 129EE of the Customs Act on any excess payment made beyond 7.5% or 10% of duty or penalty. 

3. Refund of pre-deposit:

In case appeal is decided in favour of the assessee, he shall be entitled to refund of amount deposited along with the interest at the prescribed rate (recently notified @ 6% PA) from the date of making the deposit to the date of refund in terms of Section 35FF of the Excise Act or Section 129EE of the Customs Act.

Further, the refund of pre-deposit made by the assessee should not be withheld on the ground that Department is proposing to file an appeal or has filed an appeal against the order granting relief to the assessee. The concerned Jurisdictional Commissioner should ensure that refund of pre-deposit made for hearing the appeal should be refunded within the stipulated time of 15 days of the receipt of the letter of the assessee seeking refund.

A simple letter from the person who has made such deposit, requesting for return of the said amount, along with a self attested Xerox copy of the order in appeal or the CESTAT order consequent to which the deposit becomes returnable and attested Xerox copy of  the document evidencing payment of such deposit, addressed to Jurisdictional Assistant/Deputy Commissioner of Central Excise and Service Tax or the Assistant/Deputy Commissioner of Customs, as the case may be, would suffice for refund of the amount deposited along with interest at the rate specified. Record of deposits made under Section 35F of the Excise Act or section 129E of the Customs Act should be maintained by the Commissionerate so  as to facilitate seamless verification of the deposits at the time of processing the refund claims made in case of favourable order from the Appellate Authority.

It has been further clarified that if the Department contemplates appeal against the  order of the Commissioner (A) or the order of CESTAT, which is in favour of the appellant, refund along with interest would still be payable unless such order is stayed by a competent Appellate Authority.

In the event of a remand, refund of the pre-deposit shall be payable along with interest.

4. Recovery of the Amounts during the Pendency of Appeal:

It is clarified that no coercive measures for the recovery of balance amount i.e., the amount in excess of 7.5% or 10% deposited in terms of Section 35F of the Excise Act or Section 129E of the Customs Act shall be taken during the pendency of appeal where the assessee shows to the jurisdictional authorities:

• Proof of payment of stipulated amount as pre-deposit of 7.5% / 10%, subject to a limit of Rs.10 crores , as the case may be; and

• Copy of appeal memo filed with the appellate authority.

It has been further provided that recovery action, if any, can be initiated only after the disposal of the case by the Commissioner (Appeals)/ Tribunal in favour of the Department unless the order of the Tribunal is stayed by the High Court/Supreme court. The recovery, in such cases, would include the interest, at the specified rate, from the date duty became payable, till the date of payment.

5. Other clarifications on Procedure and manner of making pre-deposits:

The Circular has also clarified on procedure and manner of making the pre-deposit while filing the appeal by the assessee.

Further, in this regard, the CESTAT has issued a Circular No. F. No. 15/ CESTAT/ general/ 2013-14 dated August 28, 2014 which clarified as follows:

• Pre-deposit of the amount of Service tax or Excise Duty or Customs duty can also be made through reversal of CENVAT Credit apart from payment made in cash but Pre-deposit of the penalty amount has to be made in Cash.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)