Whether the assessee on filing of second appeal before Tribunal is required to make an additional pre-deposit of 10% of the duty and penalty in dispute, over and above 7.5% pre-deposit made before the Commissioner (Appeals)?

Case:SANTANI SALES ORGANISATION Versus CESTAT, NEW DELHI
Citation:2018 (13) G.S.T.L. 144 (Del.)

Issue:Whether the assessee on filing of second appeal before Tribunal is required to make an additional pre-deposit of 10% of the duty and penalty in dispute, over and above 7.5% pre-deposit made before the Commissioner (Appeals)?

Brief facts: Question raised in the present writ petition is whether as per Section 35F of the Central Excise Act, 1944 the petitioner-assessee on filing of second appeal before the Central Excise, Customs and Service Tax Appellate Tribunal (Tribunal, for short) is required to make an additional pre-deposit of 10% of the duty and penalty in dispute, over and above 7.5% pre-deposit made for filing of first appeal before the Commissioner (Appeals).

Appellant’s contention:
Applicant submits that the petitioner has challenged validity of Circular dated 27th April, 2017 issued by the Tribunal, based on the Larger Bench decision of the Tribunal in In Re: Quantum of Mandatory Deposit,reported as 2017 (349) E.L.T. 477(Tri.-LB), stipulating that while preferring an appeal against an order of Commissioner (Appeals), the appellants are required to deposit 10% of the amount of duty and penalty imposed and confirmed separately and over and above pre-deposit of 7.5% for filing first appeal before Commissioner (Appeals).
Second contention of the petitioner is that requirement of pre-deposit mandated vide Section 35F of the C.E. Act, does not apply to service tax appeals preferred under Sections 85 and 86 of the Finance Act, 1994.
M/s. Santani Sales Organisation has preferred second Appeals Bearing Nos. ST/52898/2016 and ST/50372/2017 before the Tribunal against the orders passed in the first appeal by the Commissioner (Appeals). Disputed duty demand including Education and Secondary and Higher Education Cess confirmed by Commissioner (Appeals) under challenge in Appeal No. ST/52898/2016 is Rs. 15,05,046/- and Rs. 27,46,819/-, and in Appeal No. ST/50372/2017 is Rs. 24,44,138/-. The petitioner had deposited 7.5% of the total duty and cess demand, amounting to Rs. 3,19,000/- and Rs. 1,83,310/- respectively for the two appeals, as a pre-deposit before the Commissioner (Appeals). While filing the second appeal before the Tribunal, the petitioner made a further deposit of 2.5% of the duty and cess demand under challenge of Rs. 1,06,296/- and Rs. 61,000/- respectively in order to reach a figure of 10% of the disputed tax demand.

Respondent’s         Contention:
The contention of the respondent-Revenue is that in terms of Section 35F of the C.E. Act, which is applicable to appeals before the Tribunal against adjudication orders-in-original and appeals against the first appellate orders, there has to be a fresh and separate deposit of 10% of total tax demand and/or penalty in dispute. In other words, in case of second appeal, the assessee would have to deposit 10% of the disputed duty demand and penalty in addition to the pre-deposit of 7.5% already made before the first appellate authority. Therefore, 17.5% of the duty demand and penalty has to be paid.
Section 35F of the C.E. Act after amendment made vide Finance (No. 2) Act, 2014. reads :-
“35F. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal.- The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal -
(i)    under sub-section (1) of section 35, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Principal Commissioner of Central Excise or Commissioner of Central Excise;
(ii)   against the decision or order referred to in clause (a) of subsection (1) of section 35B, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;
(iii) against the decision or order referred to in clause (b) of subsection (1) of section 35B, unless the appellant has deposited ten per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against :
        Provided that the amount required to be deposited under this section shall not exceed rupees ten crores :
Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No. 2) Act, 2014.
        Explanation. - For the purposes of this section “duty demanded” shall include, -
(i)    Amount determined under section 11D;
(ii)   Amount of erroneous Cenvat credit taken;
(iii) Amount payable under rule 6 of the Cenvat Credit Rules, 2001 or the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.”
Section 35F requires mandatory deposit of specified percentage of duty demanded or penalty imposed before filing an appeal and stipulates that the Tribunal or Commissioner (Appeals) shall not entertain any appeal, unless pre-deposit of 7.5% or 10%, as the case may be, has been made. The said provisions are not applicable to stay applications or appeals pending before any appellate authority prior to commencement of the Finance (No. 2) Act, 2014.
In order to interpret these clauses and the requirements stipulated therein, we would like to first reproduce Section 35B(1) of the C.E. Act, which reads as under :-
“Section 35B. Appeals to the Appellate Tribunal.- (1) Any person aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order -
(a)   a decision or order passed by the Principal Commissioner of Central Excise or Commissioner of Central Excise as an adjudicating authority;
(b)   an order passed by the Commissioner (Appeals) under Section 35A;
(c)   an order passed by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) (hereafter in this Chapter referred to as the Board) or the Appellate Principal Commissioner of Central Excise or Commissioner of Central Excise under Section 35, as it stood immediately before the appointed day;
(d)   an order passed by the Board or the Principal Commissioner of Central Excise or Commissioner of Central Excise, either before or after the appointed day, under Section 35A, as it stood immediately before that day :

As per clause (a) to Section 35B(1), any person aggrieved by an order or decision of the Principal Commissioner of Central Excise or Commissioner of Central Excise as the adjudicating authority, can file an appeal before the Tribunal. In terms of clause (ii) of Section 35F, the appellant, while filing an appeal against order referred to in clause (a) of sub-section (1) of Section 35B, is required to deposit 7.5% of the duty, or duty and penalty, or penalty, which is in dispute.
As per clause (b) to sub-section (1) of Section 35B, an assessee can also file an appeal before the Tribunal against an order passed by the Commissioner (Appeals), which is the first appellate authority in some cases. As per clause (iii) of Section 35F, where an appeal is preferred against an order referred to in clause (b) to sub-section (1) of Section 35B, the appellant has to deposit 10% of the duty, or duty and penalty, or penalty, which is in dispute in pursuance of the decision and order appealed against. The distinction between clause (ii) and clause (iii) of Section 35F is predicated on whether an appeal has been preferred against the order-in-original or against the order passed by the first appellate authority, i.e., Commissioner (Appeals). In the former case, 7.5% of the duty and penalty which is in dispute is to be pre-deposited. In the latter case, 10% of the duty and penalty in dispute has to be pre-deposited. Thus, Section 35F draws distinction on the quantum of pre-deposit depending on whether the appeal is the first or the second appeal. In case decision of the first appellate authority is challenged before the Tribunal, the pre-deposit is to be at the higher figure of 10%, as opposed to a pre-deposit of 7.5%, which is required to be made when the order-in-original is challenged in the first appeal before the Tribunal.
Clause (1) of Section 35 relates to appeals before Commissioner (Appeals). Section 35(1) of the C.E. Act reads as under :-
“Section 35. Appeals to Commissioner (Appeals).- (1) Any person aggrieved by any decision or order passed under this Act by a Central Excise Officer, lower in rank than a Commissioner of Central Excise, may appeal to the Commissioner of Central Excise (Appeals) hereafter in this Chapter referred to as the Commissioner (Appeals) within sixty days from the date of the communication to him of such decision or order :
Provided that the Commissioner (Appeals) may, if he is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of sixty days, allow it to be presented within a further period of thirty days.”
As per clause (i) of Section 35F, the appellant-assessee is required to deposit 7.5% of the duty and penalty in dispute pursuant to the order passed by an officer below the rank of Principal Commissioner or Commissioner of Central Excise.
It is clear from the aforesaid provisions that a graded scale of pre-deposit has been provided. In case of first appeal, whether before the Tribunal or before the Commissioner (Appeals), 7.5% of the duty and penalty in dispute must be deposited. In case of second appeal before the Tribunal, the amount gets enhanced from 7.5% to 10%.
An appeal, whether first or second, is continuation of original proceedings. Further, appeal being a substantive right created by the statute can be circumscribed by the conditions imposed by the Legislature, including condition of pre-deposit.
Language of Section 35F of the C.E. Act is unchallenging and meaning of words and conditions placed is plain and lucid. Requirement is to pre-deposit 7.5% of the duty and penalty in dispute; and in case of the second appeal pre-deposit of 10% of the duty and penalty in dispute is mandated.
In this context, two decisions of the Supreme Court in Lakshmi Ammal(supra) and Gujarat State Financial Corporation(supra) on strict construction of statutes relating to Court fee and charging section of tax enactments are relevant and support our interpretation on pre-deposit of tax. In Sita Ram and Others (supra) it was observed.
It was submitted that CBEC’s Circular dated 16-9-2004 (sic) indicates the clear intention of legislature. On reading the said Circular we find in Paragraph No.2.1, the Circular only states that in the event of appeal of appellant against order of Commissioner (Appeals) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals). In fact, the clarification given by the Board does not indicate what is in the mind of the law makers enacting while the provisions of Section 35F of the Central Excise Act, 1944 and Section 129E of the Customs Act, 1962. Be that as it may, we find that the said provisions of pre-depositing an amount for preferring 1st appeal against the adjudication order needs to be done so, at the rate of 7.5% of the duty confirmed or the penalty imposed as the case may be. This would mean that the first appeal can be entertained only deposit of such an amount and on conclusion of the proceedings, he has option to go further in appeal before first appellate authority or if the appeal is disposed of, amount pre-deposited by him which is equivalent to 7.5% of the duty confirmed or penalty imposed as the case may be, needs to be refunded in accordance with law.
As regards the second appeal preferred against the first appellate authority’s order, the quantum of pre-deposit has been set at 10% instead of 7.5% of the duty confirmed or penalty imposed. In our view both the appellate proceedings i.e. before the first appellate authority and before the Tribunal, it is to be treated as an independent provisions then deposits as mandated needs to be made. In short, in order to prefer an appeal before the Tribunal, an assessee/appellant needs to deposit 10% of the amount of duty confirmed or the penalty imposed as the case may be irrespective of the amounts equivalent to 7.5% deposited by them for preferring an appeal to the first appellate authority. On reading of provisions of pre-deposits under Central Excise Act, 1944 and Customs Act, if an assessee or importer wishes to exercise his statutory right of second appeal, then the said exercise of right it needs to be considered as an independent right and proceeding subsequent to pre-deposit of the amount to exercise first appeal needs to be considered as having come to closure. In that case, an assessee or importer as the case may seeks legal remedies available to them, as regards mandatory pre-deposits made before first appellate authority, it needs to be decided in accordance with law.”
However, similar view in favour of the Revenue was expressed by the Tribunal, Eastern Zonal Bench, Kolkata in Hindalco Industries Limited and Others v. Commissioner of Central Excise, Kolkata-II, 2016-TIOL-3050-CESTAT-KOL = 2017 (49) S.T.R. 590(Tri.-Kol.).

Reasoning of Judgment:
The Tribunal in the aforesaid paragraph records that the success rate of departmental cases before the Tribunal was very poor. This was the reason why pre-deposit of 7.5% in case of first appeal, and 10% in case of second appeal, was required to be made. Higher deposit of 10% was justified as the demand had survived test of first appeal. Reasoning observes that the assessee would not be at loss even if they were asked to pay an additional amount of 10%, for the amount would be refunded to the assessee with applicable interest in case they succeed.
Contention of the petitioner relating to inapplicability of Section 35F of the C.E. Act, i.e. Central Excise Act, to appeals preferred before the Tribunal under Section 86 of the Finance Act, is however, without merit and has to be rejected.
Reliance was placed by counsel for the petitioner on decision of the Delhi High Court in M/s. Glyph International Limited v. Union of India - 2014 (34) S.T.R. 727(Delhi). In the said case the Tribunal had ruled that an appeal in respect of refund or rebate claim was not maintainable before them in view of Section 35EE of the C.E. Act, which section finds mention in Section 83 of the Finance Act after its amendment in the year 2011 (sic, 2012). The said ruling was overturned and set aside, observing that the Parliament had always intended that the remedy should be available in respect of refund or rebate claims and amendment of Section 83 in 2012 did not disturb the appeal remedy under Section 86 of the Finance Act. The amendment did not limit the appellate power in any manner whatsoever and reliance was placed upon the decision of the Supreme Court in Subal Paul v. Malina Paul and Another (2003) 10 SCC 361, wherein it has been held as under :
Section 86 of the Finance Act provides for an appeal before the Tribunal and Section 83 of the Finance Act makes Section 35F of the C.E. Act equally applicable. Section 35F of the C.E. Act is the provision which relates to pre-deposit, a mandatory provision for the appeal to be maintainable and heard. If the interpretation given by petitioner is accepted we would be rendering a part of Section 83 of the Finance Act referring to Section 35F of the C.E. Act altogether otiose and redundant. Decision is Glyph International Limited(supra) is in different context of right to appeal before the Tribunal given vide Section 86 of the Finance Act, and whether the right to appeal before the Tribunal was subsequently taken away and withdrawn. The court felt that reference to Section 33EE of the C.E. Act in Section 83 of the Finance Act would not make any difference and the Tribunal continues to possess jurisdiction vide Section 86 of the Finance Act to decide matters relating to rebate or refund. This decision is of no avail and does not help us to decide the controversy in question. Second contention raised by the petitioner is accordingly decided against them.
Accordingly, they allowed the present writ petition and set aside the order and direction of the Tribunal that the petitioner must deposit additional 10% of the duty and penalty in dispute for the second appeal to be heard and adjudicated. We would also quash the circular dated 27th April, 2017 issued by the Tribunal. It is directed that the petitioner and others on filing second appeal before the Tribunal are required to deposit 10% of the amount of duty/penalty as confirmed by the first appellate authority inclusive of 7.5% pre-deposit made for the first appeal. 10% would not be in addition to and over and above 7.5% of pre- deposit made for the first appeal. However, contention that Section 35F of the C.E. Act does not apply to service tax appeals and therefore no pre-deposit is required to be made is rejected. In the facts of the case there would be no order as to costs.
Decision: The Advance Authority of Ruling partly allowed the application submitted by the applicant.
Comment: The analogy of the case is, it is concluded that the applicant have to deposited 10% of the amount of Duty/penalty which would be inclusive of 7.5% pre deposit made in first Appeal when filing second appeal. In addition to this, Section 35F of Central Excise Act would be applicable on Service tax appeal and have to pay pre- deposit amount of Duty/ penalty.

Prepared By: Pushpa Choudhary

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