M/s. Dwarka Das Agarwal vs Commissioner (Appeals)-I, Central Excise and Others

In this writ petition, the petitioner has questioned the Order No. 03 (RDN) CE/ST/2013 dated 21.02.2013 (Annex. 7), as passed by the Commissioner (Appeals), Central Excise, Jaipur-I (''the Appellate Authority'') on its prayer for stay over recovery proceedings during pendency of an appeal against the Order-in-Original No. 01/2012-ST-Addl. Commr. dated 03.01.2012 passed by the Additional Commissioner, Central Excise, Jaipur-I (''the Adjudicating Authority''). By the impugned order dated 21.02.2013, the learned Appellate Authority has directed the petitioner to deposit an amount of Rs. 35,00,000/-towards the demand in question. The subject-matter of this writ petition being confined to the prayer for interim relief until final disposal of the appeal before the said Appellate Authority, suffice would be to notice, in brief, the relevant background aspects of the matter as follows:

The dispute relates to the question of applicability of service tax with respect to road construction work, said to have been executed by the petitioner for M/s. Neyveli Lignite Corporation (''M/s. NLC''), said to be a company engaged in generation of power. The case of revenue had been that the petitioner was engaged in providing taxable services falling under the category "Commercial or Industrial Construction Services"; and had evaded payment of service tax amounting to Rs. 34,56,687/- on an amount of Rs. 3,02,36,757/- received from the said M/s. NLC during the period from 20.05.2005 to 27.04.2007 and also failed to obtain service tax registration. Per contra, the case of the petitioner had been that its services were covered under the exception carved out in Section 65(25b) of the Finance Act, 1994 (''the Act of 1994'').

In its order dated 03.01.2012, the Adjudicating Authority proceeded to consider and reject the reply submitted by the petitioner in response to the show cause notice; and proceeded to impose service tax in the sum of Rs. 34,56,687/- upon the petitioner besides levying penalty of Rs. 100/- per day upto 17.04.2006 and Rs. 200/- per day from 18.04.2006 u/s 76 of the Act of 1994 and a penalty of Rs. 34,56,687/-under Section 78 of the Act of 1994.

Aggrieved of the order so passed by the Adjudicating Authority, the petitioner has preferred an appeal before the Commissioner (Appeals), Central Excise, Jaipur-I. Therein, the petitioner made a prayer for stay over the demand in question and for dispensing with the condition of pre-deposit. By its impugned order dated 21.02.2013, the Appellate Authority has expressed its prima facie view against the contentions of the petitioner and, while declining to waive the entire amount demanded under the impugned order, has directed the petitioner to deposit an amount of Rs. 35,00,000/- within three weeks with the obvious consequential directions that upon making such deposit, the remaining demand shall remain stayed until decision of the appeal but, in case of the petitioner''s failure to comply with the directions within the stipulated period, the appeal shall stand disposed of.

This writ petition against the aforesaid order dated 21.02.2013 was considered by a co-ordinate Bench on 20.03.2013 and, while issuing notices, it was ordered that the petitioner''s appeal would not be dismissed for omission on its part to make the deposit, as ordered, if not already dismissed. It is informed that the appeal remains pending before the said Appellate Authority.

The learned counsel for the petitioner has strenuously contended that the petitioner has a strong prima facie case in its favour and the appeal, being based on substantial grounds, deserves to be considered on merits without forcing the petitioner to make any deposit towards the demand in question. The learned counsel has particularly referred to the Order-in-Appeal No. 124(VC)ST/JPR-I/2013 dated 30.08.2013/07.10.2013 with the submissions that the very same Appellate Authority, in relation to the said power generation company M/s. NLC, has held that the construction of road, being in excluded category, is out of the purview of service tax. It is submitted that in the face of such a finding by the Appellate Authority, it does not appear justified that the petitioner be forced to deposit a huge amount of Rs. 35,00,000/- towards the demand in question.

The learned counsel for the respondents, on the other hand, has duly supported the order impugned and submitted, inter alia, that the condition of pre-deposit being a statutory condition and the Appellate Authority having passed the impugned order after due consideration of all the factual and legal aspects, no interference is called for.

Having given thoughtful consideration to the rival submissions and having examined the record, we are clearly of the view that in the given set of facts and circumstances, even if the condition of pre-deposit is maintained, its rigour deserves to be brought down and softened to the extent of avoiding undue hardship to the petitioner.

The Appellate Authority in its impugned order dated 21.02.2013 has observed and directed as under:--

After giving careful consideration to fact and circumstances, I am of the prima facie view that the construction or repair of public road has only been provided exclusion from the service tax net and in the instant case, roads have exclusively been constructed by the appellant to facilitate to M/s. NLC for their commercial activities. Therefore, case seeks its propensity in the favour of Revenue. This apart, contention of the appellant with regard to seeking abatement under Notification No. 1/2006 is also under shadow and require to be tested on legal footing in view of documentary evidences submitted if any. The issue can be debated further at the final hearing stage. Therefore, in the above factual and legal situation this is not a fit case for waiver of entire amount demanded under the impugned order. I, therefore, consider it appropriate to direct the appellant to deposit Rs. 35,00,000/- (Rupees Thirty Five Lac only) within three week from the date of communication of this order and produce evidence by 18.03.2013. The remaining amount demanded vide impugned order is stayed till the decision of the appeal. In case the appellant fails to comply with the directions within the stipulated period, the appeal shall be disposed of without making further reference to them. No application regarding modification of the stay order will be entertained.

As at present, the respondents are not in a position to dispute the fact that in relation to the principal, i.e., M/s. NLC, the imposition of service tax in relation to the activity of road construction was not approved by the Commissioner (Appeals), Central Excise, Jaipur-I in the aforesaid Order-in-Appeal No. 124 (VC) ST/JPR-I/2013 dated 30.08.2013/07.10.2013. Therein, the Appellate Authority has concluded as under:--

...Therefore, construction of roads being in excluded category of definition given for "Commercial or Industrial Construction Services" is out of purview of service tax and thus is not taxable.

For the view taken by the Appellate Authority in relation to the case of M/s. NLC and then, looking to the fact that the petitioner has an arguable case on merits, it appears just and proper that the petitioner be allowed an opportunity of merit-hearing of the appeal without being forced to deposit an amount equal to the principal demand of service tax. Of course, where the matter would require proper adjudication after hearing the parties and otherwise, pre-deposit remains a statutory requirement, subject to the modification as deemed fit and proper in the case of undue hardship, we are of the view that it would serve the cause of justice if the petitioner is directed to deposit an amount of Rs. 10,00,000/- (Rupees Ten Lacs); and upon making of such deposit, to stay the recovery of remaining amount with directions for hearing of the pending appeal on its merits.

Accordingly and in view of the above, this writ petition is allowed in the manner and to the extent indicated. The directions contained in the impugned order dated 21.02.2013 requiring the petitioner to deposit a sum of Rs. 35,00,000/- (Rupees Thirty Five lacs) to satisfy the condition of pre-deposit shall stand modified in the manner that the petitioner shall deposit a sum of Rs. 10,00,000/- (Rupees Ten lacs) within three weeks from today. Upon such deposit, the recovery of the remaining demand in question shall remain stayed until final disposal of appeal pending before the Commissioner (Appeals), Central Excise, Jaipur-I. It goes without saying that we have not made final comments on the merits of the case either way; and the Appellate Authority shall, obviously, consider the appeal on its merits in accordance with law.