BACKGROUND:
As announced by Hon. Finance Minister, Goods and Services Tax is likely to be effective from July 01, 2017. Indirect tax litigation is yet to become a story of the past considering pendency of the matters before various Benches of CESTAT and first appellate authorities, which is further topped up by enthusiasm demonstrated by officers of the department of service tax in particular of initiating proceedings for all and sundry, decided or undecided issues. Since service tax law underwent an ‘overhaul’ on account of introduction of “negative list” based taxation from 01/07/2012, various issues closed under the earlier regime are routinely initiated for the legal testing under the “negative list” based period as well, even though those issues do not remain open on account of the new law having taken care of the shortcomings in interpretation of the earlier provisions of service tax law.
ISSUE OF PRE-DEPOSIT OF DUTY OR TAX IN TWO-STAGE APPEAL
In the scenario, pre-deposit of duty or tax payable while filing appeals is quite a concern of many assessees under service tax considering huge demands initiated and routinely confirmed by adjudicating authorities at all levels and especially in vexatious cases. In a recent decision, Ahmedabad Tribunal in ASR Multimetals Pvt. Ltd. 2017 (345) ELT 294 (Tri.-Ahmd) had an occasion to examine whether pre-deposit made while filing the first appeal can be adjusted against the quantum of deposit required to be made while filing the appeal before the Tribunal.
Section 35F of the Central Excise Act, 1944 laying down provisions in this regard (as amended with effect from August 06, 2014) also applicable to service tax vide section 83 of the Finance Act, 1994 is reproduced below:
“35F. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal.- The Tribunal or the Commissioner (Appeals), as the case may be shall not entertain any appeal,-
(i) under sub-section (1) of section 35, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Commissioner of Central Excise
(ii) against the decision or order referred to in clause (a) of sub-section (1) of section 35B, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;
(iii) against the decision or order referred to in clause (b) of sub-section (1) of section 35B, unless the appellant has deposited ten per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against.
Provided that the amount required to be deposited under this section shall not exceed rupees ten crores.
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.
Explanation.- For the purposes of this section “duty demanded” shall include.-
(i) amount determined under section 11D
(ii) amount of erroneous CENVAT credit taken;
(iii) amount payable under Rule 6 of the CENVAT Credit Rules, 2001 or the CENVAT Credit Rules, 2002 or the CENVAT Credit Rules, 2004.”
[emphasis supplied]
In three cases under appeal before the Tribunal, the Appellants paid 7.5% duty at first appellate stage before Commissioner (Appeals). Against the orders passed by Commissioner (Appeals), when the appeals were filed before the Tribunal, they deposited 2.5% in terms of clause (iii) of the above section 35F / section 129A of the Customs Act, 1962*).
(*Since the provisions of the Customs Act in this regard are identical, they are not reproduced here for the sake of brevity).
They adjusted thus the amount paid at the first appellate stage and considered that the requirement of 10% payment towards pre-deposit thus stood fulfilled. The Revenue objected to this as according to them, such interpretation was incorrect and thus additional 10% was required to be paid in place of 2.5% to comply with the provisions laid down in applicable clause (iii) of the above section 35F for the appeal to be entertained by
the Tribunal.
The Tribunal found that the provisions were in no way ambiguous to interpret that the amount paid under clause (ii) at the time of filing appeal before Commissioner (Appeals) was adjustable/considered paid for the purpose of clause (iii) as well.
The Tribunal in this context relied on the ratio of decision in the case of Greatship (India) Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai-I 2015 (39) STR 754 (Bom) wherein principles of interpretation of taxing statutes were discussed at significant length, at the end of which, the following conclusion was drawn at para 34 relied upon by the Tribunal in the present case.
“34. It would thus appear that it is settled position of law that in taxing statute, the Courts have to adhere to literal interpretation. At first instance, the Court is required to examine the language of the statute and make an attempt to derive its natural meaning. The Court interpreting the statute should not proceed to add the words which are not found in the statute. It is equally settled that if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. It is further settled that an equitable construction, is not admissible in a taxing statute, where the Courts can simply adhere to the words of the statute. It is equally settled that a taxing statute is required to be strictly construed. Common sense approach, equity, logic, ethics and morality have no role to play while interpreting the taxing statute. It is equally settled that nothing is to be read in, nothing is to be implied and one is required to look fairly at the language used and nothing more and nothing less. No doubt, there are certain judgments of the Apex Court which also holds that resort to purposive construction would be permissible in certain situation. However, it has been held that the same can be done in the limited type of cases where the Court finds that the language used is so obscure which would give two different meanings, one leading to the workability of the Act and another to absurdity.”
[emphasis supplied].
In view of the above, the Tribunal upheld the Revenue’s contention that the interpretation by the appellants would not be possible without inserting the words not present therein and therefore it was incorrect to interpret that the amount paid at the first stage-appeal could be adjusted. In effect, the pre-deposit amount required for two-stage appeals would be 7.5% in the first instance and 10% of the confirmed duty/tax at the time of filing the Tribunal appeal.
Having had unambiguous decision/interpretation as above, the fact that monetary limits for adjudication of Show Cause Notice have been revised vide Circular No.1049/37/2016-CX dated 29/09/2016, all cases adjudicated after this date where the amount of duty/service tax/penalty confirmed is below two crore rupees involve two-stage appeals and aggregate amount of 17.5% has to be provided towards mandatory pre-deposit. Indeed this was also clear otherwise on reading of the provisions. Further, TRU letter 10th July, 2014 in Annexure-IV also provided clarification on identical lines both in respect of section 129E of the Customs Act and section 35F of the Central Excise Act. Nevertheless, it must be noted here that vide its Circular No.984/08/2014-CX dated 16/09/2014, CBEC has clarified that payment made during investigation or audit, prior to filing the appeal can be considered to the extent of 7.5% or 10% subject to the limit of Rs.10 crore as deposit towards fulfillment of requirement u/s. 35F of Central Excise Act or section 129E of the Customs Act, 1962.
