Court upholds service tax demand, penalties, and pre-deposit rule; stresses judicious exercise of Article 226 power.

The court dismissed the petition, upholding the demand for service tax and penalties, the constitutional validity of the mandatory pre-deposit requirement under the amended Section 35F, and its retrospective application to the petitioner's case. The court emphasized that the power under Article 226 of the Constitution to dispense with the pre-deposit requirement remains intact but should be exercised judiciously.

---

---

Issues Involved:
1. Demand of service tax and penalty.
2. Constitutional validity of the mandatory pre-deposit requirement under Section 35F of the Central Excise Act, 1944, as amended.
3. Retrospective application of the amended Section 35F.

Issue-wise Detailed Analysis:

1. Demand of Service Tax and Penalty:
The petitioner provided construction services to the Varanasi Development Authority between 2007-08 and 2011-12. On 19 September 2013, the Additional Commissioner, Central Excise, Customs and Service Tax, Allahabad, issued a show cause notice demanding Rs. 34.02 lacs as service tax, along with interest and penalties under Sections 70, 76, 77, and 78 of the Finance Act, 1994. The demand was confirmed on 31 March 2015.

2. Constitutional Validity of the Mandatory Pre-deposit Requirement:
The petitioner challenged the constitutional validity of the amended Section 35F of the Central Excise Act, 1944, which mandates a pre-deposit of 7.5% of the duty or penalty for first appeals and 10% for second appeals. The court upheld the validity, stating that the right of appeal is a statutory right and can be conditioned by the legislature. The court referred to several precedents, including Elora Construction Company vs. Municipal Corporation of Greater Bombay and Anant Mills Company Ltd. vs. State of Gujarat, which upheld similar pre-deposit requirements. The court concluded that the pre-deposit requirement is not unduly onerous and does not violate Article 14 of the Constitution.

3. Retrospective Application of the Amended Section 35F:
The petitioner argued that the amendment to Section 35F, effective from 6 August 2014, should not apply retrospectively to appeals arising from notices issued before this date. The court referred to the Constitution Bench judgment in Garikapatti Veeraya vs. N. Subbiah Choudhury, which established that the right of appeal is a vested right governed by the law prevailing at the date of the institution of the suit or proceeding. However, the court noted that the amended Section 35F explicitly states that it applies to all appeals filed on or after its enforcement date. The second proviso of the amended section exempts only those appeals and stay applications pending before any appellate authority prior to the commencement of the Finance (No.2) Act, 2014. Therefore, the court held that the amended provisions apply to the petitioner's appeal, as it was filed after the enforcement date.

Conclusion:
The court dismissed the petition, upholding the demand for service tax and penalties, the constitutional validity of the mandatory pre-deposit requirement under the amended Section 35F, and its application to the petitioner's case. The court emphasized that the power under Article 226 of the Constitution to dispense with the pre-deposit requirement remains intact but should be exercised judiciously.

---