Thermax Instrumentation Ltd. vs Commissioner of C. Ex. and Cus.

Admit on the following substantial question of law: Whether in the facts and circumstances of the case, the Appellate Tribunal was justified in directing pre-deposit of the balance amount of tax, as confirmed in the order and 25% of the penalty to the Appellants in terms of Section 35F of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994?

By consent, the appeal is taken up for hearing and final disposal.

In this appeal, the Appellant has impugned the orders of the CESTAT dated 12 July 2012 and 15 October 2012 passed on an application for stay.

The Commissioner, Central Excise, Pune-I Commissionerate by an order dated 26 September 2011 confirmed a demand of Rs. 18.08 crores on account of service tax dues together with interest and imposed a penalty in the like amount on the Appellant. The Appellant filed an appeal before the CESTAT. The appeal is pending. On 23 May 2012, when the stay application was taken up, a statement was made on behalf of the Appellant that the entire amount of service tax has been paid. In view of this statement, the Tribunal waived the requirement of pre-deposit of interest and penalty subject to verification of the amount paid. Verification was directed to be made and compliance was to be reported to the Tribunal. The Assistant Commissioner by his report dated 22 June 2012 addressed to the Commissioner stated that the declaration of the Appellant shows that out of the total demand of Rs. 18.08 crores, only an amount of Rs. 6.24 crores has been paid. On 28 June 2012 when the proceedings came up before the Tribunal, it was stated on behalf of the Appellant that the earlier statement before the Tribunal was made on the basis of a certificate of the Chartered Accountant. The Tribunal noted that it was an admitted fact that the Appellant had paid only a sum of Rs. 6.24 crores out of Rs. 18.08 crores. Noting this, the Tribunal recalled its earlier order and directed the Appellant to make a pre-deposit amount of the service tax together with a deposit representing 25% of the penalty imposed within eight weeks. A notice to show was directed to be issued to the Appellant. The Appellant thereupon filed a reply as well as an application for modification of the order dated 28 June 2012. In the reply, the Appellant stated as follows:

The demand of service tax in the present case is only on alleged advances. Appellant respectfully submit that they have paid service tax Rs. 1460.18 lacs against the disputed advances received from customers during the period from April 2006 to March 2011 and balance Rs. 6,24,21,219/- was paid on 22-7-2011 against the unadjusted advances as per books of accounts. Asst. Commr. (STC) seems to have not reported the payment of service tax that was paid over a period of time prior to 22-7-2011. Thus, after payment of a sum of Rs. 6,24,21,219/- the appellants were under belief that they have paid entire amount of service tax on all advances. This is also the statement made by the appellants before the Hon''ble Court. The fact that the appellants filed a certificate (page 105 of the paper book) mentioning the amount of service tax paid by them also proves their bona fide.... On plain perusal of Annexure A to the show cause notice, it is clear that the demand has been computed on the total gross sum received from the customers. This amount is incorrect inasmuch as it includes advances already adjusted on which service tax Rs. 14.60 crores has been paid by the appellants.

The Appellant also produced a certificate of the statutory auditor and an affidavit of the Financial Controller. The Tribunal by its order dated 15 October 2012 held that if the contention of the Appellant were to be accepted that would amount to a review of the order which was not permissible in law. The application for modification was dismissed.

Essentially, the case of the Appellant as set out in the order of the Commissioner, Central Excise, is that the Appellant received advances from its customers generally representing 10% of the contract value against a Bank Guarantee. Invoices are raised on the customers on the basis of the stage of the completion of the contract. A proportionate part of the advances is adjusted against the invoices raised on the customers based on the stage of the completion of the service. Service tax was paid on the total invoice value before the adjustment of the advance. According to the Appellant, service tax on the unadjusted advances of Rs. 6.24 crores was paid on or about 22 July 2012, whereas service tax of Rs. 1460.18 lakhs was paid on the rest of the advances received from customers during April 2006 to March 2011. This submission of the Appellant is also contained in the reply filed before the Tribunal to the notice to show cause.

The Tribunal discharged the notice to show cause that was issued to the Appellant. As a result of the first order of the Tribunal, dated 23 May 2012, a pre-deposit of interest and penalty was waived on the statement of the Appellant that the entire service tax has been paid. The Tribunal recalled that order on 28 June 2012 since it appeared that the Appellant had paid an amount of Rs. 6.24 crores only, out of Rs. 18.08 crores demanded. The contention of the Appellant as set out in the extract reply cited above is that an amount of Rs. 6.24 crores was paid on 22 July 2011 against unadjusted advances, while service tax of Rs. 1460.18 lakhs was paid against the remaining advances received from customers. In our view, it was for the Appellant, to produce sufficient material before the Commissioner of Central Excise, Pune-I Commissionerate either in the form of tax paid challans or otherwise through cogent documentary material for the purposes of establishing that the entire amount of Rs. 18.08 crores which is the subject matter of the demand has been paid. This exercise would have to be carried out by the Commissionerate. The Tribunal has not gone into this aspect, since it felt disabled from doing so on the ground that it would amount to a review of the earlier order. Whether the entire dues of Rs. 18.08 crores have been paid is a matter of verification. We are of the view that the ends of justice would be served by furnishing an opportunity to the Appellant to establish through cogent material, as noted above, to the satisfaction of the Commissioner, Central Excise what part of the demand has been paid.

In the circumstances, we issue the following directions:

(i) The Appellant shall, within a period of two weeks from today, produce before the Commissioner, Central Excise, Pune-I Commissionerate documentary evidence including tax challans in support of the case of the Appellant of having paid the entire dues on account of service tax amounting to Rs. 18.08 crores;

(ii) The Commissioner, Central Excise, Pune-I Commissionerate shall thereafter on or before 20 February 2013, hear the Appellant and shall submit a report on or before 2 March 2013 to the Tribunal upon verifying as to whether the entire service tax dues have been paid as claimed and if not, the extent to which the dues of Rs. 18.08 crores remain outstanding;

(iii) The proceedings shall thereupon be listed before the Tribunal for further orders on 11 March 2013. Upon verification, if it is found that the entire service tax dues of Rs. 18.08 crores have been paid by the Appellant, the Appellant shall then be entitled to a waiver of the pre-deposit of the penalty and interest;

(iv) In the event that if it is found upon verification that the Appellant has failed to pay the entire service tax dues of Rs. 18.08 crores, the Appellant shall, in compliance with the order of the Tribunal dated 28 June 2012 within a period of four weeks of the date of determination by the Tribunal, pay the balance of the dues that are outstanding together with 25% of the penalty demanded as directed by the Tribunal.

In order to enable the Tribunal to pass a fresh order, we set aside the impugned order dated 15 October 2012 passed on the application for modification, and restore the application for consideration afresh in terms of the directions issued above. The question of law shall stand answered accordingly. The appeal is accordingly disposed of. There shall be no order as to costs.