2013 (4) TMI 203 - HC - Service Tax

High Court Reduces Pre-Deposit Requirement in Tax Appeal, Considers Financial Hardship

M/s. Foxteq Services India Ltd. Versus The Commissioner of Service Tax

M/s. Foxteq Services India Ltd. Versus The Commissioner of Service Tax - (2013) 40 STT 211, [2014] 67 VST 333 (Mad) Issues Involved:1. Classification of the appellant's transaction under Business Auxiliary Services.2. Applicability of sales tax and service tax being mutually exclusive.3. Consideration of undue hardship in the pre-deposit order.4. Tribunal's discretion under Section 35F of the Central Excise Act.5. Adequacy of the Tribunal's order directing 50% pre-deposit.Issue-Wise Detailed Analysis:1. Classification of the appellant's transaction under Business Auxiliary Services:The appellant contended that their commercial transaction with HP was purely a sale of goods and not a service. The Revenue classified the operations under Business Auxiliary Services, specifically under sub-clause (iv) of Clause (19) of Section 65 of the Finance Act 1994, which pertains to the procurement of goods or services on behalf of the client. The core issue to be adjudicated by the Tribunal was whether the appellant's transaction with HP falls under this classification and is liable for service tax.2. Applicability of sales tax and service tax being mutually exclusive:The appellant argued that the receipt/consideration on which service tax was levied had already been subjected to sales tax by the State, making the levy of service tax outside the legislative competence of the Union. The appellant claimed that the entire consideration received had suffered VAT/Sales Tax, and service tax should be levied only after excluding the value of goods sold, as per Notification No. 12/2003.3. Consideration of undue hardship in the pre-deposit order:The appellant asserted that the Tribunal did not consider 'undue hardship' while directing a 50% pre-deposit. The appellant had not collected any service tax on the bona fide belief that the transactions were purely sales and thus not liable for service tax. The appellant also highlighted financial difficulties, including a loss of Rs. 6.53 lakhs for the year ended March 31, 2012, arguing that the pre-deposit condition would make the appeal illusory.4. Tribunal's discretion under Section 35F of the Central Excise Act:Section 35F mandates pre-deposit of the duty demanded or penalty levied but grants discretionary power to dispense with such deposit if it causes undue hardship to the appellant. The Tribunal directed a 50% pre-deposit, finding that the appellant failed to make a prima facie case for waiver of the entire amount. The Tribunal's order was based on the interpretation that the agreement prima facie supported the Revenue's submission.5. Adequacy of the Tribunal's order directing 50% pre-deposit:The Tribunal's order was challenged on the grounds that it did not adequately consider the appellant's financial hardship and the nature of the transaction. The appellant sought a further reduction in the pre-deposit percentage, arguing that the Tribunal's direction impeded access to a forum meant for redressal of grievances.Conclusion:The High Court modified the Tribunal's order, directing the appellant to deposit 25% of the tax demanded instead of 50%, considering the appellant's financial hardship and loss in business. The appeal was taken up for hearing on merits without further delay, ensuring substantial justice. The decision balanced the interest of the Revenue and the undue hardship claimed by the appellant.