Pre-deposit in service tax appeal may be moderated where full deposit causes undue hardship despite revenue protection concerns.

In a service tax appeal, the Court considered whether a pre-deposit order requiring deposit of the entire disputed amount should be reduced. It noted that service tax collected from the recipient but not credited to the Central Government remained recoverable under Section 73A of the Finance Act, 1994, and rejected full waiver because the dispute with the recipient and claimed exemption did not displace the revenue's claim. At the same time, the Court found that insisting on the full deposit at the interlocutory stage would cause undue hardship in the peculiar facts. The pre-deposit was therefore reduced in part, balancing hardship against protection of revenue.

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Issues: Whether the order directing deposit of Rs. 5 crores as pre-deposit in a service tax appeal should be interfered with and the amount reduced in the facts of the case.

Analysis: The petitioner had collected service tax from the recipient and did not credit it to the Central Government account. In view of Section 73A of the Finance Act, 1994, the amount collected as service tax was recoverable from the petitioner, and the contention that the dispute with the recipient or the claimed exemption would justify full waiver was not accepted. The petitioner had also not pleaded any financial hardship, and the principle governing pre-deposit required consideration of both undue hardship and protection of revenue. Even so, the Court found that directing payment of the entire Rs. 5 crores at the interlocutory stage would cause undue hardship in the peculiar facts.

Conclusion: The challenge to the pre-deposit order succeeded only in part. The pre-deposit was reduced from Rs. 5 crores to Rs. 3 crores, and the appeal was to be heard on merits upon compliance.

Ratio Decidendi: In a pre-deposit matter, where tax collected from the recipient has not been deposited under Section 73A of the Finance Act, 1994, the Court may still moderate the amount if the facts show that insisting on the full deposit would cause undue hardship while adequately protecting the revenue.

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