2013 (12) TMI 1473 - HC - Service Tax

Order for Pre-Deposit Set Aside, Emphasizing Financial Capacity & Merits

The court set aside the order directing pre-deposit under Section 35F of the Central Excise Act, emphasizing the need for considering the appellant's ... Waiver of pre dpeosit - services of liaisoning and monitoring of movement of coal to the plants of cement manufacturing companies - Assessee applied for surrender of license - Rejection of request - Classification under Business Auxiliary service or clearing and forwarding service - held that:- Where an assessee has a good prima facie case, and the disputed duty and/or penalty has apparently been charged wrongfully, the requirement of pre-deposit of the disputed tax and/or penalty is liable to be waived, since pre-deposit of tax not payable by an assessee, would in itself was hardship to that assessee, as held by this Court in a Bongaigaon Refinery & Petrochem Ltd. v. Collector of Central Excise (A), Cal. reported in [1992 (4) TMI 56 - HIGH COURT AT CALCUTTA]. - Where there is a very good prima facie case, pre-deposit would have to be waived altogether. Where the appellant has an arguable case, pre-deposit might be waived on such conditions as would protect the interest of Revenue. In fact, the Commissioner (Appeals), was conscious of his duty to consider the prima facie case and accordingly recorded a finding that the service rendered was covered under the definition of business auxiliary service. The Commissioner (Appeals), however, did not consider whether the purported demand was barred by limitation. Commissioner (Appeals) has cursorily considered the merits of the case. The learned Tribunal has not at all considered the question of limitation. Admittedly, the demand was not raised within one year but almost after five years by invoking the extended period of limitation. The justification of such invocation has not at all been considered. - The Commissioner (Appeals) has not at all considered whether there was any fraud, misrepresentation or suppression with intent to defraud revenue to justify the invocation of the extended period of limitation. - Moreover, after the writ petition was filed the appeal has been dismissed on 9th April, 2012 without any further notice to the petitioner and without opportunity to the petitioner to make pre-deposit - The impugned order cannot be sustained and the same is set aside and quashed - Decided in favour of assessee. Issues Involved:1. Validity of the order directing pre-deposit under Section 35F of the Central Excise Act.2. Classification of services rendered by the petitioner under the Service Tax regime.3. Invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994.4. Justification of penalties imposed on the petitioner.Issue-wise Detailed Analysis:1. Validity of the Order Directing Pre-deposit under Section 35F of the Central Excise Act:The petitioner challenged the order dated 9th February 2012, by the Commissioner (Appeals), directing a pre-deposit of Rs. 30 lakhs under Section 35F of the Central Excise Act, 1944, applicable to Service Tax appeals by virtue of Section 83 of the Finance Act, 1994. The Commissioner (Appeals) dismissed the appeal on 10th April 2012 due to non-compliance with the pre-deposit order. The court emphasized that Section 35F provides for waiver of pre-deposit in cases of extreme hardship and that the Appellate Authority must consider the prima facie merits of the case and financial capacity of the appellant. The court found that the Commissioner (Appeals) did not adequately consider whether the demand was barred by limitation and whether the petitioner had a prima facie case, thereby setting aside the impugned order and directing a fresh consideration of the stay application.2. Classification of Services Rendered by the Petitioner under the Service Tax Regime:The petitioner provided services as a 'Coal Loading Supervisory Representative,' which included obtaining consent for coal loading, supervising the loading process, and ensuring proper quality and quantity of coal. Initially, the petitioner was registered under 'Clearing and Forwarding Agent Service' but later contended that their services should be classified under 'Business Auxiliary Service' as defined in Section 65(19) of the Finance Act, 1994. The CESTAT held that the services were classifiable under 'Clearing and Forwarding Agent.' The petitioner argued that their services did not fall within the purview of 'Commission Agent' for 'Business Auxiliary Service' until the definition was expanded in 2005. The court noted that the Commissioner (Appeals) cursorily concluded that the services fell under 'Business Auxiliary Service' without adequately addressing the petitioner's submissions.3. Invocation of the Extended Period of Limitation under Section 73(1) of the Finance Act, 1994:The show-cause notice issued on 22nd September 2009 invoked the extended period of limitation, alleging that the petitioner evaded Service Tax amounting to Rs. 48,47,784/- for the period September 2004 to June 2005. The court highlighted that the extended period of limitation under Section 73(1) can only be invoked in cases of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax. The court found that the Commissioner (Appeals) did not consider whether there was any fraud, misrepresentation, or suppression justifying the invocation of the extended period. The court referred to the Supreme Court's rulings in Nestle India Ltd. and Aban Loyd Chiles Offshore Limited, emphasizing that there must be a positive act of withholding information to invoke the extended period.4. Justification of Penalties Imposed on the Petitioner:The Additional Commissioner of Service Tax confirmed the demand of Rs. 48,47,784/- and imposed an equivalent penalty under Section 78 of the Finance Act, 1994, along with other penalties under Sections 77(1)(a) and 77(2). The petitioner contended that the same activities were registered and taxed under 'Commission Agent' services from 16th June 2005 onwards, and thus could not be retrospectively taxed under 'Business Auxiliary Service.' The court noted that the Commissioner (Appeals) did not consider the justification for imposing 100% penalty and failed to disclose reasons for directing the lump sum deposit of Rs. 30 lakhs. The court set aside the order of pre-deposit and the dismissal of the appeal, directing a fresh consideration of the stay application and the merits of the case.Conclusion:The court quashed the impugned order directing pre-deposit and the subsequent dismissal of the appeal for non-compliance. The Commissioner (Appeals) was directed to reconsider the stay application and the appeal, taking into account the observations regarding the prima facie merits, financial capacity, and the question of limitation. The court emphasized the need for detailed reasoning in orders directing pre-deposit and the importance of considering undue hardship and the prima facie case of the appellant.