Pre-deposit reduction in service tax classification dispute upheld after bona fide belief and debatable limitation were considered.

The Bombay HC considered whether a Tribunal's pre-deposit order in a service tax classification dispute should be reduced where the assessee had begun paying tax under the newly introduced renting of immovable property category from 1 June 2007 and the revenue had accepted that position, supporting a bona fide belief that the earlier activity was not taxable and making extended limitation debatable. The Court also noted that the Tribunal's prima facie view that the services could fall within business support service was not shown to be perverse at the pre-deposit stage. Balancing these factors, it held that complete waiver was unwarranted but the deposit requirement should be reduced, and modified the pre-deposit from 50% to 25% of the service tax demand.

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Issues: Whether the Tribunal's direction to pre-deposit 50% of the service tax demand should be interfered with and reduced in view of the prima facie case on classification and the debatable invocation of the extended period of limitation.

Analysis: The appellant had started paying service tax under the newly introduced category of renting of immovable property from 1 June 2007 and the revenue had accepted that position without objection. On that basis, the appellant's stand that the activities were not taxable prior to that date disclosed a bona fide belief, and the issue of extended limitation was at least debatable. At the same time, the Tribunal's prima facie view that the services could fall within business support service was not shown to be perverse at the pre-deposit stage. Balancing these considerations, a complete waiver was not warranted, but the quantum of deposit required interference.

Conclusion: The direction of 50% pre-deposit was modified and reduced to 25% of the service tax demand.

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