Litigation under service tax starts by issuance a “Show Cause Notice” under the provision of section 73 of the Finance Act, 1994, which could be a resultant of a Audit, ST-3 scrutiny, investigation or pending issues of previous period. This notice would be adjudicated by the Central Excise and Service Tax officer by following the principles of Natural Justice and adjudication order would be passed which is named as “Order in Original”. This Order is an appealable order. The amounts confirmed in this order along with the interest and penalties mentioned in the order is payable and the same is recoverable by the department from the end of 30 days from the Order, unless otherwise the stay is granted by the Appellate Authority.

Initially every appeal was to be accompanied with the Application for waiver of pre-deposit of the amounts confirmed. Discretionary power was vested in the hands of appellate authority (Commissioner of Central Excise (Appeals) or Customs, Excise and Service Tax Appellate Tribunal) for waiver the full deposit or in part. This led to lot of time and energy being washed out on stay proceedings only to decide whether or not any pre-deposit is to be made or otherwise making the Appeal process time consuming. In order to expedite the Appeal process and to ensure that matters in appeal are directly dealt on merits of the case for final disposal, an amendment was brought in Section 35F of the Central Excise Act, 1944 (also applicable for Service Tax vide Section 83 of the Finance Act, 1994) and Section 129E of the Customs Act, 1962 in the union budget 2014-15 which is with effect from 06th August 2014.

This amendment prescribes for mandatory pre-deposit of 7.5% of duty/tax in case the tax or tax with penalty is under dispute and 7.5% of the penalty in case where only penalty is under dispute for the first Appeal preferred before the Commissioner (Appeal) (against the order of the any officer below the rank of Commissioner) and for the first appeal preferred before CESTAT (against the order by Commissioner). 10% of duty/taxin case the tax or tax with penalty is under dispute and 10% of the penalty in case where only penalty is under dispute for the second stage Appeal preferred before CESTAT against the order passed by the Commissioner (Appeals). However the upper limit of pre-deposit is fixed not to exceed rupees ten crores.

One issue and a frequently asked question is in case an appellant has paid 7.5% during the fist stage of appeal before the Commissioner (Appeals) and again prefers the second stage appeal before the CESTAT, whether the differential of 2.5% needs to be paid or again an addition of 10% needs to be made? There are divergent views on this, One theory is that any additional 10% needs to be paid since there is fresh condition to that extent of second appeal and also the circular D.O.F.No.334/15/2014-TRU, the 10th July, 2014 states that “an another 10%” needs to be made. However on plane reading of the provsion it suffices that 10% in total should suffice. However this issue needs to be settled judically when the Discripanies Memorandum would be heard by the bench of CESTAT.

CBEC by way of Circular No 984/08/2014-CX dated the 16th September, 2014 has issued certain clarification on various issued involved in such pre-deposit. The intention of this article is to bring about out the clear Do’s and Don’ts to be followed by the executors of the law including the ones, which have been clarified in the circular.

Do’s

1. The 10% shall be computed on the duty or penalty as the case may be confirmed in the Order-in-Appeal (OIA) issued by the Commissioner (Appeal). In case the initial 7.5% exceeds the additional 10% (or 2.5% as may be settled) on duty demand in OIA, then a refund clan be claimed as refund

2. Payments made during the course of investigation or audit, prior to the date on filing of the appeal is also considered as pre-deposit for this purpose

3. Pre-deposit can be made by debiting the CENVAT credit balance available as on the date of filing the Appeal. The letter intimating the debit to this extend needs to be given to the range superintendent and needs to be disclosed in ST-3 in Sl. No. I3.1.3.8 & G.11

4. The challan of pre-deposit needs to be submitted along with appeal memo and to be intimated to range superintendent and to be disclosed in ST-3 in Sl. No. G.11

5. The details of amounts pre-deposited must be mentioned in 6 of ST-4 and Sl. No. 14.(i) of ST-5 respectively.

6. Use the Accounting code for the main service under dispute for the payment of pre-deposit.

7. In case of un-registered Appellant, needs to taken registration as non-assessee for making the payment.

8. Appeal to be filed well within ahead of the prescribed due date of 2 months and 3 months as the case may be in order to avoid any rejection because of shortage of pre-deposit.

9. On getting a favorable decision, the pre-deposit made needs to be claimed as refund by making a simple letter to the jurisdictional AC immediately. Refund to be paid within 15 days from the date of filing the letter irrespective of the fact that he department is challenging/intending to challenge the order.

10. No time limit for claiming the refund

11. Interest to be claimed at 6% p.a. from the date of payment of pre-deposit till the date of refund.

Don’ts

1. Interest may be paid only to the extent of the prescribed mandatory pre-deposit and hence any amount deposit in excess may not bear any interest and hence excess pre-deposit may be avoided for the cases, which are strong on merits.

2. Short payment of pre-deposit needs to be avoided.

3. No recovery for the amount in excess of the 7.5% or 10% as the case may be and hence no filing of stay application is required.

4. Do not use the challan enclosed for pre-deposit for off setting any other liability not part of the dispute.

(For feedback or queries write to sudhir@hiregange.com or ravikumar@hiregange.com)

 

CA Sudhir V SCA Sudhir V S

CA Ravi Kumar Somani

Author Bio

Qualification: CA in Practice
Company: Hiregange & Associates
Location: Hyderabad , Telangana, IN
Member Since: 08 Apr 2020 | Total Posts: 7

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0 Comments

  1. samant says:

    Dear sir ,
    It is really a good article, I am having certain doubt regarding the deposit amount of 7.5% or tax/demand . please advise, the extract of the order of Additional Service tax Commissioner is as such

    1. penalty of Rs.25,99,930/- (Rupees Twenty Five Lakhs Ninety Nine Thousand Nine Hundred and Thirty only) under the provisions of Section 78 of the Finance Act, 1994
    2.a penalty of Rs.5000/- ( Rupees Five Thousand Only) under the provisions of 77 (l)(b) of the Finance Act, 1994;
    3. a penalty of Rs.5000/- ( Rupees Five Thousand Only) under the provisions of 77 (l)(a) of the Finance Act, 1994

    in the first point I have deposited in different head an amount of 23 lakh rest 2.3 lakh service tax is not collected and not deposited.

    Question:
    1. after the order of the Additional Commissioner can I deposit the differential amount of 2.3 lakh excluding the interest to close the case?
    2. should I prefer the appeal?
    3. Whether the Additional commissioner of service tax is having the power to alter his own order?
    4. what is the percentage of amount I should deposit before going to appeal in this case

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