By TIOL News Service

ALLAHABAD, DEC 30, 2014: THE appellant claims to be a proprietorship firm having a registration for service tax under the category of 'Construction Work'. It is further claimed that the appellant is a service provider of maintenance/sanitation services at the factory premises of M/s HAL Korwa, Amethi. It is also alleged that the service rendered by the appellant comes under the category of sanitation, on account of which, it has no liability for payment of service tax as the sanitation service does not fall within the net of service tax, but under some confusion and misguidance, it was issued registration under ST-2 in the category of 'Civil Structure Construction Work'. Four notices were issued requiring it to show cause why outstanding of service tax and short payment of service tax, primary education cess, secondary and higher education cess along with interest and penalty, as per the provisions of service tax laws, be not recovered from it. The said notices were in respect of the outstanding tax liability and shortage in payment of tax and cess for different periods. Appellant submitted its replies. The Assessment Commissioner Excise, Raibarely and Lucknow passed the orders in original on different dates confirming the demand. Aggrieved by the same, the appellant filed four appeals before the Commissioner (Appeals) challenging the orders in original, which were rejected. The appellant thereafter filed appeals before the Customs and Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi, which ordered pre-deposit of 40% of the demand and on failure to make the pre-deposit, the appeals were dismissed for non-compliance.

The assessee is in appeal before the High Court.

The High Court noted that Section 35F of the Act, 1944 prescribes condition of pre-deposit of duty demanded and the penalty levied for maintaining the appeal by the assessee. However, under proviso, the Tribunal has been vested with the powers to dispense with such deposit, on forming an opinion that such deposit may cause undue hardship, subject to such conditions as it may deem fit to impose in order to safeguard the interest of the revenue.

It is well settled that right of appeal is a creature of Statute and if the legislation in its wisdom has imposed certain condition such as pre-deposit for the purpose of maintaining the appeal, normally the Court cannot interfere unless the condition imposed for the exercise of such right are so onerous so as to amount to unreasonable restrictions rendering the said right almost illusory as observed by the Supreme Court in the case of Nand Lal & Anr. Vs. State of Haryana & Ors.,. However, in cases where the legislature has conferred the power upon the appellate authority to waive the condition for maintaining the appeal in a particular situation, the question which arises for consideration is whether the appellate authority is bound to examine as to whether the case of waiver has been made out after examining the issues and condition/situation.

The High Court observed that the question is no longer res integra and has been examined and is being examined by the Courts everyday.

The Court further observed,

The phrase 'undue hardship' has been interpreted to be not only exclusively related to economic hardship but would also cover a case where appellant has a strong prima facie case. For a good or strong prima facie case, it is not necessary for the appellant to satisfy the tribunal that his case is foolproof and is bound to succeed. Strong prima facie case would mean that the case is an arguable one and fit for trial, or prima facie covered by a binding precedent . In such a situation, the tribunal is under a legal obligation to consider the application of waiver taking into account the undue hardship which would require examination of prima facie case, on merits.

The Apex Court in the case of Mehsana Dist. Co-OP. Milk P.U. Ltd. Vs. Union of India - 2003-TIOL-65-SC-CX , while considering the provisions of Section 35F of the Act, 1944, has held as under.

“The issue here relates to the order passed by the Commissioner (Appeals), Central Excise and Customs, under Section 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 predeposit. 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.”

The High Court observed,

In view of the settled position of law by authoritative pronouncements of the Hon'ble Apex Court, it was incumbent upon the Tribunal to have addressed the issue of prima facie case of the appellant and also that of undue hardship. We find that the Tribunal has failed to consider the same much less return any findings on the two issues.

For the aforesaid facts and reasons, we are of the considered view that the impugned orders passed by the Tribunal on the waiver application, are not liable to be sustained and are set aside. As a consequence, the impugned orders passed by the Tribunal dismissing the appeals for non-compliance of the condition of predeposit also stands set aside.

Held: As a result, all the four appeals stand allowed and the matter stand remitted back to the Customs, Excise and Service Tax Appellate Tribunal, New Delhi for redetermining the issue and passing fresh orders on the applications for waiver of the condition of pre-deposit prescribed by Section 35F of the Act, 1944 and the appeals itself thereafter.

(See 2014-TIOL-2412-HC-ALL-ST)