Whether Pre – deposit of penalty amount is required to be made when there is Composite order of demand, duty, interest and penalty?

PJ/CASE LAW/2015-16/2987

Case:- SHARE MICROFIN LTD. versus COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE TAX, HYDERABAD-III

Citation:- 2015 (38) S.T.R. 457 (A.P.)

Brief facts:-The relevant facts of the case are that the Central Excise Appeal No. 94 has been filed impugning the order of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore dated 23-5-2013, by which the learned Tribunal has directed an assessee to make a pre-deposit of the liability amount as assessed by the three adjudication orders and that too within a time frame. The said order was clarified by the Tribunal by its miscellaneous order No. 25998 of 2013, dated 4-4-2014, confirming that the appellant should deposit the entire amount as directed in the stay order including the interest and penalty amounts and not just the actual tax involved. The appellant was given time upto 17-7-2014 to make the payment and report compliance. Aggrieved by the subsequent order, the appellant filed C.E.A. No. 80 of 2014.Accordingly; both the appeals have been taken for consideration.

Appellant’s contention: -Shri G. Vidya Sagar, appearing on behalf of appellant submits that the appeal is admitted for hearing and the order of the assessment is under scrutiny, unless the order of assessment reaches its finality, the question of initiation of penalty proceedings does not and cannot arise. The appellant further submits that the power of dispensation of pre-deposit has been given under proviso to Section 35F of the Central Excise Act, 1944, which reads as follows:

"...PROVIDED that where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of the 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 interests of revenue...?
Appellant clarifies the said notification that in view of insertion of the word ‘or’ the Tribunal cannot ask for the pre-deposit of the penalty and accordingly the pre-deposit of the penalty amount would be required only when the order of the penalty alone is under challenge. But in case of Composite order which comprises of tax component along with interest and also penalty as in the present case, the direction for pre-deposit of any portion of the penalty amount would result in injustice as well as hardship.
The appellant submits that by taking the above facts into consideration, the direction for pre-deposit of the penalty component of the order has to be deleted and the rest of the order would remain same.
The appellant further submits and directs the Tribunal to decide the appeal as early as possible, preferably within a period of eight weeks from the date of pre-deposit in terms of this order. In view of pendency of the matter, we grant extension of time to deposit the tax and interest components within a period of four weeks from date. In the event, the appellant carries out the order of the learned Tribunal read with our order within four weeks from date, our order would remain but in case of failure, the learned Tribunal may pass appropriate orders upon expiry of the time aforestated.
Respondent’s contention:- Shri Jalakam Sathyaram appearing on behalf of respondent claims that pre-deposit of penalty should be provided to the revenue.

Reasoning of judgment:- Oncareful consideration of submission made by both sides, the tribunal held that pre-deposit of penalty component in the original order will get deleted and the rest of the order will remain same. Since the power of dispensation of pre-deposit has been given under proviso to Section 35F of the Central Excise Act, 1944 which specifically contains the word “or”, due to which the decision taken by tribunal is reasonable that pre-deposit of any portion of the penalty amount would result in injustice as well as hardship and accordingly appeal disposed off.

Decision: -Appeals are accordingly disposed off.

Comment:- The crux of the case is that the department is raising a demand regarding pre-deposit of penalty amount even though the order in original does not specify such condition to make payment regarding pre-deposit of penalty. Accordingly, assessee clarifies the Para 35 F of C.E. Act regarding power of dispensation of pre-deposit and submits that the said para contains “or”, due to which assessee is not liable to pay any pre-deposit of penalty amount. Therefore, case went in favour of assessee and all similar miscellaneous applications stands closed.

Prepared by: - Manish Satyani

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PJ/CASE LAW/2015-16/2987

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