Pre-deposit in service tax dispute reduced where taxable value was prima facie overstated and only profit component was arguably liable.

In a service tax pre-deposit dispute, the HC reduced the deposit requirement because the record showed a strong prima facie case that the taxable base had been overstated. The adjudicating authority had accepted that the full land value could not be included, yet the demand was computed on the entire receipt. The Court also found a serious prima facie issue whether any taxable service had been rendered at all, and, if so, whether tax could attach only to the profit component rather than the full amount. Applying prima facie merits and balance of convenience, it modified the Tribunal's order and reduced the pre-deposit to 5% of the profit component.

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Issues: Whether the pre-deposit ordered by the Tribunal should be modified in view of the appellant's prima facie case on the nature of the activity and the computation of taxable value for service tax purposes.

Analysis: The demand arose from the Tribunal's direction to deposit 25% of the service tax demand. The Court found that the adjudicating authority had itself accepted that the entire value of land could not be included in the taxable value, yet the demand had been computed on the whole amount received. The Court further noted that the record raised a serious prima facie question whether the appellant had rendered taxable services at all, and if so, whether the entire receipt or only the profit component could be treated as the taxable base. Taking into account the prima facie case and the balance of convenience, the Court held that the original pre-deposit was excessive for the purpose of the appeal.

Conclusion: The pre-deposit condition was reduced to 5% of the profit component identified by the Court, and the Tribunal's order was modified accordingly.

Ratio Decidendi: In deciding a stay or pre-deposit application, the court may calibrate the deposit amount on the basis of a strong prima facie case and the balance of convenience, and may take into account the portion of receipt that appears arguable as the taxable base rather than the full demand.

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