Hoshiarpur Automobiles vs Customs, Excise and Service Tax Appellate Tribunal, New Delhi and Another

Rajive Bhalla, J.—The appellant challenges the order dated March 15, 2013, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (hereinafter referred to as, "the CESTAT"), partly allowing an application filed by the appellant u/s 35F of the Central Excise Act, 1944 (hereinafter referred to as "the Act") by directing the appellant to deposit 50 per cent of the amount claimed by the Revenue. Counsel for the appellant submits that as the CESTAT has recorded a finding that the appellant has an arguable prima facie case on the issue whether its activities fall within the definition of "business auxiliary service", so as to exigible to service tax. The CESTAT should have in view of this finding stayed the entire tax component instead of staying only 50 per cent thereof. It is contended that demand of service tax on incentives received from M/s. Maruti Suzuki India Limited which accrued on account of sale and purchase of goods, are not exigible to service tax. The incentives are a part of the margin of profit allowed to the appellant as the appellant cannot sell goods at prices higher than those fixed by M/s. Maruti Suzuki India Limited. The assessing officer as well as the first appellate authority have wrongly held that the incentives fall within the expression "business auxiliary service" and is, therefore, exigible to service tax. It is further submitted that though show-cause notice was issued on September 16, 2011, service tax has been demanded from April 1, 2006 to March 31, 2011. It is further submitted that the CESTAT has itself held that the appellant has an arguable case, the entire amount of tax component should have been waived. It is further submitted that an application filed u/s 35F of the Act cannot be decided mechanically as it has to be decided after considering the merits of the case, balance of convenience and undue hardship but the CESTAT has not followed these principles. The appeal may, therefore, be allowed, the impugned order may be set aside and the appeal may be directed to be heard by waiving the entire tax component.

Counsel for the Revenue submits that the discretion to waive the tax component, etc., lies with the CESTAT and as the CESTAT has already waived 50 per cent of the tax component and the entire penalty, the appeal, in essence, is misconceived. The CESTAT cannot be said to have committed an error by granting relief with respect to 50 per cent of the tax component as apart from the tax component the CESTAT has also stayed the penalty, thereby in essence, granting relief more than that was due to the appellant.

On the merits, counsel for the respondents submits that the assessing officer as well as the first appellate authority have found as a matter of fact that incentives received by the appellant are exigible to service tax and as this matter has to be finally determined by the CESTAT, the impugned order does not call for any interference much less any relief to be granted to the appellant.

We have heard counsel for the parties, perused the impugned order as well as the orders passed by the assessing officer and the first appellate authority and are in fact surprised that as to why an appeal has been filed.

The CESTAT has while considering the prayer for stay of condition of pre-deposit and upon consideration of arguments advanced, held as follows:

The appellant is an authorised dealer of M/s. Maruti Suzuki India Limited and has been brought within the service tax net in respect of incentives received for achieving targets of sales of cars and provided in relation to promotion and marketing of cars produced and provided by M/s. Maruti Suzuki India Limited. The appellant is seen to have an arguable case on the issue whether its activities fall within the definition of ''business auxiliary service''.

Having regard to the prima facie case and balance of convenience, we consider it appropriate to grant stay of further proceedings pursuant to the impugned order, on condition that the appellant shall deposit 50 per cent of the tax component as assessed, while granting stay of the balance of the duty component and whole of the penalty component. The appellant shall remit the deposit as ordered within six weeks from today. In default of deposit by the appellant within the time stipulated, the stay granted herein shall stand dissolved forthwith on occurrence of the default without further reference to this Tribunal and the respondent-Revenue would thereafter be entitled to pursue appropriate steps for recovery of the entire quantum of duty, interest and penalty as stipulated in the order in original. Stay application is disposed of accordingly.

The total demand of service tax is Rs. 59,59,499 along with penalty of an equal amount and various other penalties. The CESTAT has stayed half of this amount after holding that the appellant has an arguable prima facie case.

Section 35F of the Act, reads as follows:

35F. Deposit, pending appeal, of duty demanded or penalty levied.--Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of Central excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied:

Provided that where in any particular case the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interest of revenue:

Provided further that where an application is filed before the Commissioner (Appeals) for dispensing with the deposit of duty demanded or penalty levied under the first proviso, the Commissioner (Appeals) shall, where it is possible to do so, decide such application within thirty days from the date of its filing.

A perusal of section 35F of the Act, reveals that a person desirous of appealing against an order relating to any duty demanded or any penalty levied shall pending the appeal deposit with the adjudicating authority the duty demanded or penalty levied. The proviso, however, empowers the CESTAT or the Commissioner (Appeals) if the duty demanded or penalty levied causes "undue hardship" to such person to dispense with such deposit subject to such conditions as may be deemed fit so as to "safeguard the interests of the revenue". The CESTAT is, therefore, required to balance the two expressions while recording its opinion with respect to an application filed u/s 35F of the Act. The expression "undue hardship" lies within the special knowledge of an applicant and has to be established as a matter of fact.

A relevant extract from the judgment of the honourable Supreme Court in Benara Valves Ltd. and Others Vs. Commissioner of Central Excise and Another, would be appropriate so as to place the meaning of the aforesaid expressions and the manner in which they are required to be proved and adjudicated in their correct perspective. A relevant extract from the judgment, reads as follows (pages 301 and 302 in 20 VST):

Two significant expressions used in the provisions are ''undue hardship to such person'' and ''safeguard the interests of revenue''. Therefore, while dealing with the application twin requirements of considerations, i.e., consideration of undue hardship aspect and imposition of conditions to safeguard the interest of Revenue have to be kept in view.

As noted above there are two important expressions in section 35F. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this court in S. Vasudeva Vs. State of Karnataka and others, , that under Indian conditions expression ''undue hardship'' is normally related to economic hardship. ''Undue'' means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances.

For a hardship to be ''undue'' it must be shown that the particular burden to have to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it.

The word ''undue'' adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.

The other aspect relates to imposition of conditions to safeguard the interest of revenue. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interest of revenue. Therefore, the Tribunal while dealing with the application has to consider the materials to be placed by the assessee relating to undue hardship and also to stipulate condition as required to safeguard the interest of the revenue.

A perusal of the above extract reveals that it is for the appellant to establish undue hardship and the mere fact that the demand of duty and penalty may appear to be excessive, is irrelevant if the appellant has not been able to establish "undue hardship". The expression "undue hardship" relates not only to the economic well-being of the appellant but also to the merits of the case, thus, requiring the CESTAT to prima facie appraise the merits and record an opinion for or against the appellant.

At this stage, we would like to reiterate an oft repeated principle that an appellate forum while considering legality of an order is confined to ascertaining errors of jurisdiction, a perverse or arbitrary exercise of discretion and whether an error has led to a miscarriage of justice. An appellate forum cannot, where the opinion recorded does not suffer from the aforesaid defects, impose its own perception of the merits of the case whatever be the nature of "undue hardship".

Counsel for the appellant urges that as the service tax demanded does not fall within "business auxiliary expenses", the imposition of service tax and penalty are palpably illegal, the entire demand should have been stayed by the CESTAT. The appellant has not pleaded any financial hardship or financial distress in support of its plea of "undue hardship" and has mainly confined its pleadings to the merits of the demand raised by the revenue. A perusal of the orders passed by the assessing officer and the first appellate authority does not enable, us at this stage, to record an emphatic finding in favour of the appellant that service tax so demanded could not have been imposed. The question with respect to exigibility to service tax would have to be decided after a detailed appraisal of the contract between the appellant and M/s. Maruti Suzuki India Limited, the nature of the incentives, etc., and, therefore, though prima facie the appellant may have an arguable case, we find no error in the order passed by the CESTAT, directing the appellant to pay 50 per cent of the amount demanded by the Revenue and staying the rest of the demand. The CESTAT has balanced the "undue hardship" of the appellant, arising from the merits of the case with the interest of the Revenue and in the absence of any illegal or arbitrary exercise of power or an illegal exercise of jurisdiction, we find no reason to interfere with the impugned order or to grant any relief to the appellant. In view of what has been stated hereinabove, the appeal is dismissed. The appellant is directed to deposit the amount as directed by the CESTAT within one month from receipt of a certified copy of this order.