Natvar Construction Co. vs Union of India and Others

M.R. Shah, J.—By way of this petition under article 226 of the Constitution of India, the petitioner herein--original appellant has prayed for an appropriate writ, direction and order quashing and setting aside the impugned Order No. M/14706/WZB/AHD/2013 dated October 3, 2013 passed by the Customs Excise and Service Tax Appellate Tribunal (hereinafter referred to as "the CESTAT"), by which, the learned CESTAT has directed the petitioner to deposit a sum of Rs. 25 lacs only as pre-deposit against the total demand of Rs. 2,89,82,752. The petitioner was issued with a show-cause notice dated October 19, 2012 by the Commissioner, Central Excise, Customs and Service Tax, Surat-I, demanding service tax of Rs. 2,89,82,752 under taxable service provided under the category of works contract service. That after adjudication of the said show-cause notice, vide order in original dated February 28, 2013, the Commissioner confirmed the demand of service tax of Rs. 2,89,82,752 along with interest and penalty of like amount.

Feeling aggrieved and dissatisfied with the order in original passed by the Commissioner, the petitioner preferred an appeal before the learned CESTAT. In the said appeal, the petitioner submitted an application/stay application and prayed for waiver of pre-deposit. It was mainly contended on behalf of the petitioner that they have constructed the houses for the houses for Gujarat State Police Housing Corporation Ltd. and Surat Municipal Corporation. It was submitted that majority of the demand is for construction under Jawaharlal Nehru National Urban Renewal Mission and as per the guidelines issued by the Government of India, Ministry of Urban Development, only urban local body can levy and recover reasonable user charges with an objective to recover full cost of operation and maintenance or recurring cost and that the houses are not sold to the ultimate occupier and therefore, they are not liable to pay the service tax on the same. The petitioner relied upon the stay order granted by the learned CESTAT in the case of M/s. Khurana Engineering Ltd. where stay on similar construction for M/s. Gujarat State Police Housing Corporation Ltd. was given regarding service tax on construction of houses for economically weaker section of the society. That by the impugned order, the learned CESTAT has held that so far as service tax liability on the petitioner for providing services to M/s. Gujarat State Police Housing Corporation Ltd. is concerned, the petitioner has made out a case for waiver of service tax demand of Rs. 53,06,046 and with respect to the balance demand/service tax duty liability, the learned CESTAT has directed the petitioner to deposit a sum of Rs. 25 lakh as pre-deposit and on such deposit there will be no recoveries of the balance amount and penalties till the disposal of the said appeal.

Feeling aggrieved and dissatisfied with the impugned order passed by the learned CESTAT directing the petitioner to make deposit of Rs. 25 lakh as pre-deposit, the petitioner has preferred the present special civil application.

Shri Jigar Shah, learned advocate appearing on behalf of the petitioner, has vehemently submitted that as such the petitioner is not liable to pay any service tax. It is submitted that majority of the demand is for construction under Jawaharlal Nehru National Urban Renewal Mission and for M/s. Gujarat State Police Housing Corporation Ltd. and Surat Municipal Corporation and therefore, they are not liable to pay the service tax on the same. It is submitted that in the similar set of facts and circumstances, the learned CESTAT granted the complete stay in the application of M/s. Khurana Engineering Ltd. It is submitted that while passing the impugned order, the learned CESTAT has not considered the prima facie case on merits and has not considered and has not appreciated the fact that demand of service tax is not justifiable at all. It is submitted that while considering the question of pre-deposit, the learned CESTAT is required to consider whether demand is justifiable or not. It is submitted that while considering the application for stay of pre-deposit, the learned CESTAT is required to consider the prima facie case. It is submitted that prima facie case is relevant factor for deciding of undue hardship. Therefore, it is submitted that the impugned order passed by the learned CESTAT directing the petitioner to deposit a sum of Rs. 25 lakh as pre-deposit which has been passed without considering the prima facie case, deserves to be quashed and set aside.

Shri Jigar Shah, learned advocate appearing on behalf of the petitioner, has heavily relied upon the following decisions of the honourable Supreme Court as well as other High Courts.

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

(2) ITC Limited Vs. CC (Appeals) and CE and Others, .

(3) Mehsana Dist. Co-op. Milk P.U. Ltd. Vs. Union of India (UOI), .

(4) Northern Doors (P) Ltd. Vs. Commissioner of Central Excise, .

(5) M/s. Sony India Limited Vs. Union of India and Others, .

(6) Ruby Rubber Industries Vs. Commissioner of C. Ex., .

Heard Shri Jigar Shah, learned advocate for the petitioner-original appellant at length.

While passing the impugned order, it appears that the learned Tribunal has as such considered the order in original to satisfy itself with respect to prima facie case of complete waiver or not. The learned CESTAT has also observed that detailed arguments made on behalf of the appellant are required to be gone into detail, which can be done only at the time of final hearing of the case. Considering the aforesaid facts and circumstances of the case, it cannot be said that as such the learned CESTAT has committed any error and/or illegality in directing the petitioner-original appellant to deposit an amount of Rs. 25 lakh as pre-deposit, against the duty liability of Rs. 2,89,82,752 and penalty of the like amount.

It is also required to be noted that neither before the learned CESTAT nor even before this court, the petitioner-original appellant has pleaded any financial hardship and/or undue hardship. It is required to be noted that issue involved in the present petition is with respect to pre-deposit/waiver of condition as to pre-deposit u/s 35F of the Central Excise Act, 1944 (hereinafter referred to as "the Act") in an appeal preferred before the CESTAT. Identical question came to be considered by the Division Bench of this court in the case of Explosion Proof Electrical Control v. Commissioner of Central Excise and Customs, Vapi reported in [2012] 2 GLR 1673 and in the said decision the Division Bench has considered the decision of the honourable Supreme Court in the case of Mehsana Dist. Co-op. Milk P.U. Ltd. Vs. Union of India (UOI), and considering the aforesaid decision of the honourable Supreme Court, it is observed that twin requirements at the time of directing pre-deposits u/s 35F are; (a) undue financial hardships of the party; (b) safeguarding interest of revenue.

In the case of Benara Valves Ltd. and Others Vs. Commissioner of Central Excise and Another, , the honourable Supreme Court has carved out the following principles for staying or dispensing with pre-deposit thus:

Principles relating to grant of stay pending disposal of the matters before the concerned forums have been considered in several cases. It is to be noted that in such matters though discretion is available, the same has to be exercised judicially.

The applicable principles have been set out succinctly in Siliguri Municipality and Others Vs. Amalendu Das and Others, and Samarias Trading Co. Pvt. Ltd. Vs. S. Samuel and Others, and Assistant Collector of Central Excise, Chandan Nagar, West Bengal Vs. Dunlop India Ltd. and Others, .

It is true that on merely establishing a prima facie case, an interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of in a routine matter unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this court has indicated the principles that does not give a licence to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen''s faith in the impartiality of public administration, interim relief can be given.

It has become an unfortunate trend to casually dispose of stay applications by referring to decisions in Siliguri Municipality and Others Vs. Amalendu Das and Others, and Assistant Collector of Central Excise, Chandan Nagar, West Bengal Vs. Dunlop India Ltd. and Others, without analysing factual scenario involved in a particular case.

Section 35F of the Act reads as follows:

35F. Deposit, pending appeal of duty demanded or penalty levied.--Where in any appeal under the 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.

Two significant expressions used in the provisions are "undue hardship to such person" and "safeguard the interest 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 35(f). 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" which 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 apex court in the case of Mehsana Dist. Co-op. Milk P.U. Ltd. Vs. Union of India (UOI), also considered this issue in the following manner:

The issue here relates to the order passed by the Commissioner (Appeal), Central Excise and Customs u/s 35F of the Central Excise Act, 1944. By the impugned order, the appellants have been directed to deposit an amount of Rs. 30 lakhs by way of pre-deposit. The reasoning given in support of such order is wholly unsatisfactory. The appellate authority has not at all considered the prima facie merits and has concentrated upon the prima facie balance of convenience in the case. The Appellate authority should have addressed its mind to the prima facie merits of the appellants'' case and upon being satisfied of the same determined the quantum of deposit taking into consideration the financial hardship and other such relevant factors. Considering the aforesaid principles carved out by the honourable '' Supreme Court for staying or dispensing with the pre-deposit, it cannot be said that the learned CESTAT has committed any error and/or illegality in directing the petitioner-original appellant to deposit a sum of Rs. 25 lakh as pre-deposit. From the impugned order, it appears that the learned CESTAT did consider the prima facie case and on considering the findings given by the Commissioner while passing order in original, the learned CESTAT has specifically come to the conclusion that the petitioner-original appellant has not made out a prima facie case of complete waiver.

While passing order u/s 35F of the Act and/or order for staying or dispensing with the pre-deposit, the learned CESTAT is not expected to consider the submissions on merits in detail and give its findings in detail at that stage. While passing order u/s 35F of the Act of staying or waiver of pre-deposit, the learned CESTAT is required to consider the aforesaid principles carved out by the honourable Supreme Court in the case of Benara Valves Ltd. and Others Vs. Commissioner of Central Excise and Another, , more particularly, with respect to undue hardship/financial hardship, if any alleged and prima facie case for waiver of full amount of pre-deposit. If at this stage, any findings in detail are given by the learned CESTAT on merits, the learned CESTAT will be accused of prejudging the appeals. Therefore, the contention on behalf of the petitioner that all the submissions made on behalf of the petitioner-original appellant on merits are not dealt with and considered in detail and there are no findings on merits and therefore, the impugned order of pre-deposit of Rs. 25 lakh only is required to be quashed and set aside, cannot be accepted. Considering the impugned order passed by the learned CESTAT, we are of the opinion that the learned CESTAT has passed the impugned order of pre-deposit of Rs. 25 lakh judiciously. As stated hereinabove, the petitioner herein-original appellant neither before the learned CESTAT nor even before this court has pleaded any undue hardship and/or financial hardship, which are prime consideration, while considering the application for waiver of pre-deposit u/s 35F of the Act.

Under the circumstances and for the reasons stated above, there is no substance in the present petition which deserves to be dismissed and is, accordingly, dismissed. At this stage, Shri Jigar Shah, learned advocate for Shri Anand Nainawati, learned advocate appearing on behalf of the petitioner, has requested to extend the time to make the deposit of Rs. 25 lakh as pre-deposit as ordered by the learned CESTAT, for a further period of three weeks. In the facts and circumstances of the case, the request is accepted and time to deposit the amount of pre-deposit is hereby extended up to January 2, 2014 and on such deposit of Rs. 20 lakh within a period of three weeks, the learned CESTAT shall consider the appeal on merits in accordance with law and on merits. If the aforesaid amount is not deposited within stipulated time as stated hereinabove, the consequences shall follow and the appeal need not be heard on merits.