Elgie Engineering Works vs Commissioner of Central Excise

Indira Banerjee, J.—This appeal is against Stay Order No. S-1371/Kol/2012 dated October 10, 2012 and Order Nos. M-56-57/A-104/Kol/2013 dated April 19, 2013, passed by the learned Customs, Excise and Service Tax Appellate Tribunal, Eastern Zonal Bench, Kolkata, which the appellant claims to have received on April 25, 2013. The appellant is a partnership firm engaged in the fabrication of steel in its factory at Durgapur, for which the appellant is registered with the Central excise authorities since 1989 with Excise Registration No. AAAFE7976RXM001.

Apart from manufacturing activities, the appellant also carries on other activities such as management, maintenance, repair, erection, commission, installation, etc., on behalf of different customers, for which the appellant is liable to pay service tax in terms of the Finance Act, 1994, as amended from time to time. The appellant is registered with the service tax authorities, its service tax registration number being AAAFE7976RST001.

A show-cause-cum-demand notice No. 44/Commr/ST/Bol/09 dated October 16, 2009 was issued to the appellant by the Commissioner of Central Excise, Bolpur Commissionerate, West Bengal, that is the adjudicating authority, alleging that the appellant had short-paid service tax to the extent of Rs. 1,38,00,319 including education cess and secondary and higher education cess for the periods from 2004-05 to 2008-09 in respect of gross amount of Rs. 14,13,09,248 received by the appellant during the aforesaid period, by way of service charges for taxable services rendered by the appellant. Such allegation was apparently based on the balance sheet of the appellant.

The petitioner was thus called upon to show-cause why the aforesaid amount of Rs. 1,38,00,319 should not be recovered from the appellant under the proviso to section 73(1) of the Finance Act, 1994 along with proposed penalty under sections 76, 77 and 78 of the Finance Act, 1994.

By a letter dated March 18, 2010, the appellant replied to the show-cause-cum-demand notice, disputing the calculation of service tax, as made in annexure A to the show-cause-cum-demand notice, and submitted year-wise statements of receipt of service charges during the financial years in question. The contentions of the appellant, were however, not accepted and an Original Order No. 38/Commr/Bol/ST/2010 dated July 26, 2010 was passed by the Commissioner of Central Excise, Bolpur, confirming the demand of service tax amounting to Rs. 1,34,59,362 and imposing penalty of Rs. 100 per day, from the date immediately following the due date of payment of service tax, till 17th of April 2006 and at Rs. 200 per day or at two per cent of the service tax amount per month, whichever was higher, with effect from 18th of April 2006 and till date of payment of service tax.

Being aggrieved, the appellant filed an appeal being Appeal No. ST-355/2010 u/s 86 of the Finance Act, 1994 before the Customs, Excise and Service Tax Appellate Tribunal, East Zonal Bench, Kolkata, along with an application No. SP-854/2010 u/s 35F of the Central Excise Act 1944 for dispensation of the requirement of pre-deposit of service tax and penalty, during the pendency of the appeal.

By an Order No. S-1371/Kol/2012 dated October 10, 2012, the learned Tribunal disposed of the stay application by directing the appellant to pay 25 per cent of the duty involved, less Rs. 10 lakhs already paid. According to the appellant, the order directing payment of 25 per cent was dated October 10, 2012, but the detailed judgment was passed on November 1, 2012.

The appellant filed a miscellaneous application on December 20, 2012 before the learned Tribunal, inter alia, contending that the adjudicating authority had misconstrued the balance sheets and taken the total income of the appellant, as income from service rendered, overlooking the fact that the turnover related to manufacturing and trading work.

By an order dated April 19, 2013, inter alia, impugned in this appeal, the learned Tribunal not only rejected the miscellaneous application, but also dismissed the appeal on the ground of non-compliance of the direction to pre-deposit 25 per cent, as directed by the order dated November 10, 2012.

The short question involved in this appeal is, whether, the learned Tribunal should have, on the facts and in the circumstances of this case, directed pre-deposit of 25 per cent of the duty demanded.

The learned Tribunal prima facie found that the appellant had not paid appropriate service tax during the period in question, and had also not been able to produce documents in support of its claim to the benefit of exemption under SSI Notification No. 8/2003-CE dated March 1, 2003, as also the various other grounds taken in the appeal.

The learned Tribunal also observed that the contentions raised by the appellant involved appreciation of evidence, and could be considered at the time of regular hearing of the appeal. The learned Tribunal was not satisfied with the prima facie case made out by the appellant.

u/s 35F of the Central Excise Act, 1944, a person desirous of preferring an appeal against any order relating to any duty demand or penalty is liable to deposit the duty demanded or the penalty imposed with the adjudicating authority. However, where the Appellate Tribunal is of the opinion that the deposit of the duty demanded or penalty levied would cause undue hardship to such person, the Tribunal might dispense with such deposit, subject to such conditions as the learned Tribunal may deem fit to impose, so as to safeguard the interest of the Revenue.

By reason of section 86(7) of the Finance Act, as it stood at the material time the provisions of the Central Excise Act, 1944 relating to the hearing of appeals is required to be followed in case of appeals before the learned Tribunal relating to service tax under Chapter V of the Finance Act as amended from time to time.

It is now well-settled that undue hardship is not financial hardship alone. Payment under compulsion of money that is not due, also constitutes financial hardship. Reference may in this context be made to the following judgments:

Benara Valves Ltd. and Others Vs. Commissioner of Central Excise and Another,

Indu Nissan Oxo Chemicals Ind. Ltd. Vs. Union of India (UOI) and Others,

Bongaigaon Refinery and Petrochem. Ltd. Vs. Collr. of C. Ex. (A),

There can be no doubt that undue hardship not only covers payment under compulsion where the appellant has a strong prima facie case, but also where the appellant has an arguable case. Where an appellant makes out a very strong prima facie case, and the appellate authority is satisfied that the demand is ex facie unsustainable in law, the requirement of pre-deposit may unconditionally be dispensed with. Where however, the prima facie case is not that strong the interest of the Revenue would necessarily have to be secured, and the appellant would have to be put to terms.

In the instant case, the learned Tribunal has dispensed with deposit of 75 per cent of the duty demanded and the penalty levied. The learned Tribunal was apparently, not satisfied with the prima facie case made out by the appellant. The order of the learned Tribunal, requiring the appellant to deposit 25 per cent of the duty demanded does not, in our view, call for interference in appeal.

We are, however, of the view, that the learned Tribunal ought to have given the appellant another opportunity to deposit 25 per cent of the duty demanded in terms of its earlier order dated October 10, 2012, by extending the time to make the payment, before dismissing the appeal.

The order dated April 19, 2013 is set aside only in so far as the appeal before the learned Tribunal has been dismissed for non-compliance of the requirement to pre-deposit 25 per cent of the duty demanded in terms of the earlier order dated October 10, 2012. In the event the appellant deposits duty in terms of the order dated October 10, 2012, within six weeks from the date of receipt of a certified copy of this order, the appeal shall be adjudicated on the merits.

This appeal is disposed of accordingly.

Let photostat certified copy of this judgment and/or order, if applied for, be supplied to the learned advocates appearing for the parties expeditiously subject to compliance of requisite formalities.

Anindita Roy Saraswati, J.

I agree.