We are sharing with you an important judgement of the Hon’ble High Court of Allahabad in the case of Ganesh Yadav Vs. Union of India [2015 (59) taxmann.com 447 (Allahabad)] on the following issue:
Whether mandatory pre-deposit provision under Section 35F of the Central Excise Act, 1944[as applicable for Service Tax vide Section 83 of the Finance Act, 1994 and for Customs vide Section 129E of the Customs Act, 1962] would be applicable to the cases where the lis commenced prior to August 6, 2014?
Facts & Background:
In the instant case, Ganesh Yadav (“the Petitioner”) had provided the services of construction of flats to Varanasi Development Authority under the Manyavar Kanshi Ram Saheri Garib Awas Yojna during the Financial Years 2007-08 to 2011-12. On September 19, 2013, a Show Cause Notice (“SCN”) was issued to the Petitioner demanding Service tax on stated services. Later on, the Department vide Adjudication Order dated March 31, 2015 confirmed the demand of Service tax along with interest and penalty (“Adjudication Order”).
Effective from August 6, 2014, Section 35F of the Central Excise Act, 1944(“the Excise Act”) [as applicable for Service Tax vide Section 83 of the Finance Act, 1994 and for Customs vide Section 129E of the Customs Act, 1962]was substituted to provide for mandatory pre-deposit in the following manner:
a) 5% of the duty in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute for filing of appeal before the Commissioner(Appeals) or the Tribunal at the first stage; and
b) 10% of the duty in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute for filing second stage appeal before the Tribunal.
The amount of pre-deposit payable is subject to a ceiling of Rs. 10 Crore.
The Petitioner has filed Writ Petition before the Hon’ble High Court of Allahabad challenging the constitutional validity of substituted Section 35F of the Excise Act and for restraining the Department from enforcing the mandatory requirement of a pre-deposit of 7.5% of the duty demanded in pursuance of the Adjudication Order.
The Hon’ble High Court of Allahabad while upholding the constitutional validity of Section 35F of the Excise Act held as under:
Thus, the Hon’ble High Court held that the Petitioner is not justified in urging that the amended provisions of Section 35F of the Excise Act would not apply merely on the ground that the SCN was issued prior to the enforcement of the Finance (No. 2) Act, 2014.
Important to Note:
Here, it would not be out of place here to mention the judgment of the Hon’ble Kerala High Court in the case of Muthoot Finance Ltd. Vs. Union of India [2015 (56) taxmann.com 122 (Kerala)] (“Muthoot Finance case”), wherein, the Hon’ble High Court while referring to an interim order passed by the Hon’ble Andhra Pradesh High Court in the case of K Rama Mohanarao & Co. Vs. Union of India [2015 (56) taxmann.com 123 (Andhra Pradesh)] held as under:
Relying upon the decision in the Muthoot Finance Case, the Hon’ble High Court of Kerala in the case of Sea Breeze Courier Vs. Commissioner of Central Excise, Customs & Service Tax [2015 (57) taxmann.com 129 (Kerala)], once again held that where lis between the assessee and the Department commenced prior to introduction of mandatory pre-deposit in Section 129E of the Customs Act, 1962 [i.e., before amendment made on August 6, 2014 by Finance (No. 2) Act, 2014], then same would be governed by erstwhile provisions and accordingly, mandatory pre-deposit would not apply thereto.
Here, it is pertinent to note that second proviso to substituted Section 35F of the Excise Act makes the legislative intent clear that in case of appeals filed on or after August 6, 2014, the substituted provisions are sought to be applied. If the right to appeal is a statutory right, it must be governed by the provisions of the Law/ Statute:
“Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014.”
However, such clear statement of law in aforesaid proviso was not brought before and/or considered by the Hon’ble High Court of Kerala.
Moreover, on close perusal of Muthoot Finance case, it is revealed that the Petitioners therein did not challenge the substituted Section 35F of the Excise Act in that Writ Petition. It was a simple case of challenging the Commissioner’s order on merits for which the Respondent sought dismissal of Petition on the ground of alternative remedy being available with mandatory requirement of pre-deposit. Thus, it may be said that this is a case where the matter was not fully argued properly before the Hon’ble High Court.
That’s why the Hon’ble Allahabad High Court in the above discussed case also expressed their view on the decision of Hon’ble Kerala High Court in the Muthoot Finance case by stating that:
“With great respect, the judgment of the learned Single Judge of the Kerala High Court has not considered the express language which has been used in the amended provisions of Section 35F(1) of the Act. The order of the Andhra Pradesh High Court which was relied upon in the judgment of the Kerala High Court is only an interim order.”