High Court Quashes Duty Demand Order, Sets Rs.20 Lakh Pre-Deposit

The High Court held that the Appellate Commissioner erred in demanding the petitioners to deposit the entire duty demand amount as pre-deposit under section 35F of the Central Excise Act. The court found that the petitioners had already deposited a significant sum and had a prima facie case regarding the remaining service tax amount. The court allowed the petition, quashed the order, and directed the petitioners to deposit Rs.20 lakhs by a specified date for further consideration of the appeal by the Appellate Commissioner. Failure to comply would lead to automatic dismissal of the appeal.

---

---

Issues involved:
Challenge to order under section 35F of the Central Excise Act for duty demand of service tax, waiver of pre-deposit/stay, interpretation of service tax on TDS and lease charges, discretionary power of the Appellate Commissioner, prima facie case determination.

Analysis:
The petitioners challenged an order passed by the Appellate Commissioner under section 35F of the Central Excise Act, which directed them to deposit the entire duty demand amount as pre-deposit. The petitioners, a Multi-State Cooperative Society of Farmers' Society, had a duty demand of Rs.26.68 lakhs confirmed by the adjudicating authority, out of which Rs.15.28 lakhs was already deposited concerning service tax on TDS. The remaining amount of Rs.11.40 lakhs pertained to service tax on a railway wagon leased to railway authorities. The petitioners argued that this demand was not justified under the relevant provision of the Finance Act, 1994, as per a departmental circular. The department contended that there was no prima facie case in favor of the petitioners, and the Appellate Commissioner had discretion in the matter.

The High Court found that the Appellate Commissioner erred in requiring the petitioners to deposit the entire amount as pre-deposit. The court noted that a substantial sum had already been deposited by the petitioners and that the question of whether the remaining service tax was payable required further consideration. The court held that the petitioners did have a prima facie case, contrary to the Commissioner's view. Consequently, the court allowed the petition, quashed the impugned order, and directed the petitioners to deposit Rs.20 lakhs before a specified date. Failure to comply would result in the automatic dismissal of the appeal, while compliance would lead to a hearing on the appeal's merits by the Appellate Commissioner.

---