Citilights Properties Pvt. Ltd. vs CESTAT

V. Dhanapalan, J.—The order of the first respondent - Customs, Excise and Service Tax Appellate Tribunal (for short, ''CESTAT''), Chennai, in Miscellaneous Order Nos. 40341/2013 and 40342/2013 in ST/S/499 & 500/2012 in ST/607 & 608/2012, dated 7-2-2013, is called in question by the petitioner-Company, seeking to quash the same insofar as it requires the petitioner to make the total pre-deposit of Rs. 2.5 crores (Rs. 67 lakhs + Rs. 183 lakhs) and they also seek for a consequential direction to the CESTAT to entertain the appeals by waiving pre-deposit. The petitioner is a company engaged in construction activities, both residential, complexes and commercial and industrial complexes. During the period from August, 2005 to March, 2009, they have not paid appropriate Service Tax on certain projects executed by them, and therefore, the respondent-authorities demanded Service Tax in respect of two projects, namely "Meadows Residential" and "Pacifica Commercial", indicating the taxable value and Service Tax as follows:

The abovesaid demand of total Service Tax at Rs. 18,92,79,888/-, was confirmed by the second respondent, vide Order-in-Original Nos. 76 and 77 of 2012, dated 22-6-2012, apart from imposing penalty. This order of the second respondent-original authority was taken on appeals before the first respondent - CESTAT along with stay petitions.

It is the contention of the Revenue that the contract cannot be divided into two, one of supply of material, and the other for providing services, by relying Article 366(29-A)(b) of the Constitution of India and the decision of the Apex Court, reported in State of Andhra Pradesh and Others Vs. Larsen and Tourbo Ltd. and Others, . The CESTAT accepted the contention of the Revenue that the petitioner cannot split the value of the contract artificially into material cost and service cost and the impugned goods are not materials sold, but actually materials consumed in rendering the service of construction of complex and so, the differential duty of Rs. 18.25 crores demanded is in accordance with law.

The CESTAT took note of the fact if abatement as provided under Notification 18/2005-S.T., dated 7-6-2005 and Notification 1/2006-S.T., dated 1-3-2006, is allowed, the taxable value of service net of value of input services works out to Rs. 61.38 crores (33% of Rs. 186 crores), as against which, the petitioner claims that the value of service (inclusive of value of input service) is only Rs. 35 crores and the genesis of the dispute is the difference of Rs. 26.38 crores, though either side did not focus on that issue so clearly, and therefore, it observed that the defect in arriving at the difference because of the two figures, is not for same components of costs and is on approximation basis only, based on which, the additional liability on account of dispute about the project cannot he prima facie more than about Rs. 6.2 crores (Rs. 3.26 crores being tax on Rs. 26.38 crores plus the Cenvat credit of Rs. 2.93 crores, which cannot be availed if average abatement of 67% is availed). The CESTAT also noticed another way of presenting the estimate by observing that if 67% abatement is extended, then tax payable will be Rs. 386*0.33*0.1236 = Rs. 7.58 crores and out of this amount, the petitioner has already paid Rs. 1.32 crores leaving about Rs. 6.2 crores in dispute.

The CESTAT also took note of the legal question both on Article 366(29-A)(b) of the Constitution of India and on the decision of the Apex Court reported in State of Andhra Pradesh and Others Vs. Larsen and Tourbo Ltd. and Others, and ultimately came to the conclusion that an assesses cannot choose to pay either VAT or Service Tax as he pleases and discharge of VAT on a particular value cannot be the conclusive proof that the value of material involved corresponded to the value on which VAT was paid and in some cases, Courts and Tribunal have taken such payment as sufficient proof. Therefore, the CESTAT held that it is a matter of expediency and it was of the prima facie view that the Service Tax authorities have every right to look into the issue as to whether the value has been correctly split. The CESTAT further held that this issue had not been looked into at any stage by the lower authority, apparently because adequate documents other than payment of VAT, have not been placed before them, as the issue had been argued more on question of law, rather than question of fact before the lower authority and also during the hearing before the CESTAT for stay, and hence, the CESTAT concluded that the matter needs to be looked into closely during the final, hearing of the appeals.

Ultimately, by the impugned order dated 7-2-2013 in Misc. Order Nos. 40341/2013 and 40312/2013 in ST/S/499 & 500/2012 in ST/607 & 608/2012, the first respondent-CESTAT ordered to pre-deposit of Rs. 67 lakhs on account of Meadows Project and Rs. 183 lakhs on account of Pacifica Project, totalling Rs. 2.5 crores, as a condition for admission of the appeals and accordingly, the petitioner was directed to make such deposit within five weeks and report compliance on 23-3-2013. The CESTAT also observed that subject to such pre-deposit there shall be waiver of requirement of pre-deposit of balance dues for admission of the appeals and its collection stayed during the pendency of the appeals. This order of the CESTAT, dated 7-2-2013 is under challenge in these Writ Petitions.

Mr. K. Doraisami, learned Senior Counsel appearing for the petitioner vehemently contended that the impugned order has been mechanically passed by the CESTAT without considering the valid points raised by the petitioner in justifying the total waiver of pre-deposit and the CESTAT has not taken into account the fact that the petitioner-Company duly paid huge amount of Service Tax on their own much before any enquiry or demand made by the Department. He further contended that the approximation basis arrived at for the taxable turnover and the liability on account, of the dispute, is not on the basis of any legal principle and therefore, the financial burden and undue hardship shown by the petitioner have not been considered by the CESTAT while passing the impugned order of pre-deposit.

On the other hand, Mr. V. Sundareswaran, learned Senior Central Government Standing Counsel appearing for the respondents contended that the differential duty of Rs. 18.25 crores demanded by the authority is based on the impugned goods which are not materials sold, but actually material consumed in rendering the service of construction of complex, and therefore, the first respondent-CESTAT took into consideration the taxable value of the service net of the value of the input service and also took into account the claim of the value of the service and arrived at the difference in the amount, based on which, the CESTAT considered the prima facie case of the petitioner, the balance of convenience, the undue hardship and the financial burden of the petitioner and came to the conclusion of ordering pre-deposit, which cannot be said to be arbitrary.

I have heard the learned counsel appearing for the parties and perused the material documents available on record.

Law is well-settled that the capacity of a party to pay the pre-deposit amount had to be noticed. The cardinal principle of consideration of the waiver of pre-deposit is based on undue hardship, prima facie case, balance of convenience, financial burden and other difficulties expressed by the party before taking the matter on appeal and these factors have to be weighed in relevant circumstances, taking into account all the material facts, which alone can come to the wisdom of the authority to give certain waiver of pre-deposit to the party who is on appeal.

All the above factors have been rightly considered by the CESTAT before ordering pre-deposit so as to take up the appeals for admission. In the instant case, the learned Senior Counsel appearing for the petitioner pointed out that the petitioner-Company themselves have paid the Service Tax at Rs. 6,22,39,617/- on 22-6-2012. However, the CESTAT took note of the fact that if 67% abatement, is extended, then the tax payable will be Rs. 186*0.33*0.1236 = Rs. 7.58 crores, out of which, the petitioner has already paid Rs. 1.32 crores, leaving about Rs. 6.2 crores in dispute.

The CESTAT, while passing the impugned order of pre-deposit, considered all the facts and figures in proper perspective and also took into account, the prima facie case, undue hardship, balance of convenience and the financial burden of the petitioner and observed that the case of the petitioner is a matter of expediency and it was of the prima facie view that the Service Tax authorities have every right to look into the issue as to whether the value has been correctly split and also observed that the lower authority has not looked into the same at any stage, because adequate documents other than payment of VAT have not been placed before the lower authority, as the issue had been argued more on question of law, rather than question of fact before the lower authority and it has also been highlighted before the CESTAT for stay and ultimately, the CESTAT passed the impugned order of pre-deposit.

Considering the facts and circumstances of the case and the submissions made by the learned counsel appearing for the parties, as far as the amount of pre-deposit ordered by the first respondent-CESTAT at Rs. 67 lakhs in respect, of Meadows Project is concerned, the same is accepted by the petitioner, and hence, no interference is called for. As far as the pre-deposit ordered by the first respondent-CESTAT at Rs. 183 lakhs in respect of Pacifica Project is concerned, the same is disputed by the petitioner, which has to be gone into in the appeal before the CESTAT.

In the light of the above stated position and taking into account the prima facie case, balance of convenience, financial burden and the undue hardship expressed by the petitioner, the impugned order of the first respondent-CESTAT directing the petitioner to make a pre-deposit of Rs. 67 lakhs in respect of Meadows Project, is not interfered with; as far as the pre-deposit of Rs. 183 lakhs in respect of Pacifica Project is concerned, the same is interfered with by this Court to the extent of depositing only 75% of Rs. 183 lakhs.

Accordingly, the following directions are issued:

(i) The petitioner is directed to deposit Rs. 67 lakhs as ordered by the CESTAT in respect of the Meadows Project.

(ii) The petitioner is also directed to deposit 75% of Rs. 183 lakhs in respect of the Pacifica Project.

(iii) The above deposits shall be made by the petitioner within a period of three weeks from the date of receipt of a copy of this order.

(iv) on such deposit in respect of both the Projects, the first respondent-CESTAT shall take up both the appeals for hearing and dispose of the same, on merits and in accordance with law, as expeditiously as possible.

With the above modification and directions, the Writ Petitions are disposed of. No costs. The Miscellaneous Petitions are closed.