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PJ/Case law/2014-15/2261

Financial hardship is an additional factor to decide quantum of pre-deposit.

Case:-CITY CENTRAL MALL NASHIK P. LTD. VERSUS COMMR. OF SERVICE TAX, NASHIK

Citation:-2014(33) S.T.R. 232 (BOM.)

Brief Facts:-At the instance of the Counsel for the parties, the appeal is taken up for final disposal at the stage of admission. This appeal under Section 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 challenges the order dated 28 October, 2013 passed by the Customs, Excise and Service Tax Appellate Tribunal ("Tribu­nal") [2014 (33) S.T.R. 255 (Tribunal)].

The impugned order was passed on the appellant's application for dispensing with the pre-deposit of demand of Rs. 5.44 crores, interest thereon and equivalent penalty as imposed by order-in-original dated 24 September, 2013 of the Commissioner of Service Tax. This deposit of the amount confirmed by the order-in-original is mandatory unless dispensed with by the Tribunal under the provisions of Section 35F of the Central Excise Act read with Section 83 of Fi­nance Act, 1994. By the impugned order dated 28 October, 2013, the Tribunal directed the appellant to deposit by reversal 35% of the Cenvat credit amount availed in respect of capital goods in addition to an amount of Rs. 1.37 crores being the Cenvat credit taken on input which had already been reversed. This pre-deposit in the form of reversal of Cenvat credit was for the purposes of enter­taining the appellant's appeal on merits from the order-in-original dated 24 Sep­tember, 2013 of the Commissioner of Central Excise.

The appellant has got constructed a shopping mall at Nashik. In the construction of shopping mall, the appellant has inter alia availed of Cenvat cred­it in respect of Excise duty paid on capital goods, on inputs and input services used in/or in relation to the construction of mall. The appellant is now providing output services of renting of immovable properties at its shopping mall. The ap­pellant has utilized the Cenvat credit of tax availed in respect of capital goods, inputs and input services used in the construction of mall to discharge Service Tax on its output service of renting of immovable properties.

On 20 November, 2011, a show cause notice was issued to the appel­lant seeking to disallow the Cenvat credit availed and utilized in respect of capi­tal goods, inputs and input services totally amounting to Rs. 5.46 crores for the period from April, 2007 to March, 2011. The Commissioner of Central Excise by order dated 24 September, 2012 inter alia confirmed the demand of Rs. 5.46 crores besides imposing equivalent penalty and charging interest.

Being aggrieved by the order dated 24 September, 2012 the appellant filed an appeal to the Tribunal along with an application for dispensing with pre­-deposit of Cenvat credit of Rs. 5.46 crores. It is pertinent to note that the appel­lant had already reversed the credit of Rs. 1.37 crores in respect of inputs prior to the filing its appeal. The Tribunal by its impugned order dated 28 October, 2013 while disposing of the application for stay/dispensing with pre-deposit has di­rected the appellant to deposit amount of 35% of the credit availed on capital goods which comes to Rs. 79 lacs. This was in addition to the amount of Rs. 1.37 crores of Cenvat credit which had already been reversed in respect of inputs. This was on the basis of order in Galaxy Mercantile v. Commissioner of Central Ex­cise - 2013-TIOL-1442 = 2014 (33) S.T.R. 39 (Tribunal) passed by a co-ordinate bench of the Tribunal after having made a reference to a third member.

Appellant Contentions:-The grievance of the appellant against the impugned order of pre-deposit is that even though the Tribunal claims to follow its decision in Galaxy Mercantile Limited(supra) yet while directing pre-deposit it failed to follow the operative part of that decision without any reasons. In this case the Tribunal di­rected the appellant to deposit 35% on capital goods ignoring the fact that the appellant had already reversed an amount of Rs. 1.37 crores being the credit tak­en on inputs ignoring the fact that in Galaxy Mercantile (supra) a pre-deposit of 35% of the credit availed on the capital goods and inputs in the aggregate was directed to be deposited/reversed for the appeal being entertained on merits. Besides the appellant's plea of financial hardship (accumulated losses of Rs. 18.59 crores) was not considered in impugned order while directing pre-deposit.
 
Respondent Contentions:-As against the above, it is contended by the revenue that facts of the appellant's case are slightly different from the facts in the Galaxy Mercantile(su­pra) and therefore, the variation in the order of pre-deposit. It is submitted that in this case the appellant had engaged in the service of contractor to construct a mall. The contractor in turn availed the benefit of Notification No. 1/2006-S.T., dated 1 March, 2006 allowing payment of the Service Tax at a concessional rate subject to the condition that no Cenvat credit of duty on inputs and capital goods would be taken by the contractor. Therefore, in these circumstances, the order of the Tribunal is fair and no interference is called for.
 
Reasoning of Judgment:-We have considered the rival submissions. The Tribunal in the mat­ter of Galaxy Mercantile (supra) was dealing with the situation similar to that in the present case. In that case also a mall had been constructed by a contractor. The Service Tax on, the construction of the mall was paid at concessional rate un­der Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 on the condition that the contractor would not avail credit of duty paid on inputs used by him in the construction. The Tribunal in the case of Galaxy Mercantile (supra) took a view that reversal of credit/pre-deposit to the extent of 35% of the credit involved on inputs and capital goods would be sufficient for the purpose of entertaining the appeal on merits. At the prima facie stage we are of the view that the decision of the Tribunal in Galaxy Mercantile (supra) is applica­ble to the facts of this case. The distinction sought to be drawn by the revenue would be appropriately considered at the time of final hearing of the appeal. In the circumstances, as of now there is no justification to apply a different yard­stick from that applied in Galaxy Mercantile (supra) by the Tribunal at the stage of pre-deposit.

One more factor to be borne in mind in this case is that the appel­lant had pleaded financial hardship in pre-depositing the amount of demand as it had accumulated losses the extent of Rs. 18.59 crores as on 31 March, 2013. In the case ofGalaxy Mercantile (supra) there was no financial hardship pleaded be­fore the Tribunal.This is an additional factor which impels us to modify the im­pugned order so as to be in line with the earlier order of the Tribunal in Galaxy Mercantile (supra). We therefore direct that on the appellant depositing 35% of the credit availed on capital goods and inputs in the aggregate, (that is also con­sidering the amount of Rs. 1.37 crores already deposited), the Tribunal would hear the appeal on merits.

Time to make the deposit is extended upto 30 January, 2014. On the Tribunal being satisfied that the deposit as directed by this Court has been made, the appeal would be taken up for final disposal, in its turn by the Tribunal.

Accordingly, the appeal is disposed of in the above terms. No order as to costs.

Decision:-Appeal disposed off.

Comment:- The gist of this case is that for deciding the quantum of pre-deposit, apart from considering the prima facie case, the plea of financial hardship is also equally required to be examined. Due to the reason that there were financial losses, the pre-deposit of 35% of the total credit was ordered in light of the decision given in similar circumstances in the case of Galaxy Mercantile.

Prepared by: Hushen Ganodwala

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