Pre-deposit in Cenvat dispute: partial deposit ordered and balance recovery stayed where levy on exempt services was doubtful.

In an appeal concerning alleged failure to maintain separate accounts for taxable and exempted output services, the Tribunal held that the stay request should be assessed on a prima facie basis and that only the Cenvat credit attributable to the disputed non-taxable output service, with proportionate interest, needed to be deposited. It noted that restaurant service and short-term accommodation service were not taxable during the relevant period and that, without a valuation mechanism for such services, the levy position was doubtful. Accordingly, partial pre-deposit was directed and recovery of the remaining adjudicated demand was stayed pending disposal of the appeal, subject to compliance.

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Issues: Whether, in an appeal against confirmation of demand arising from alleged non-maintenance of separate accounts for taxable and exempted output services, the appellant was required to make a pre-deposit under the stay jurisdiction and whether recovery of the balance demand should be stayed pending disposal of the appeal.

Analysis: The demand was founded on the allegation that Cenvat credit had been taken without maintaining separate accounts and that 6%/8% of the value of the exempted output service was payable under the Cenvat Credit Rules read with the Finance Act, 1994. The Tribunal found a prima facie case in the appellant's favour to the extent that restaurant service and short-term accommodation service were not taxable during the relevant period and that, in the absence of a valuation mechanism for such services, the levy position was doubtful. On that basis, the Tribunal considered that pre-deposit of only the Cenvat credit attributable to the so-called non-taxable output service, together with proportionate interest, would satisfy the statutory requirement for stay.

Conclusion: Pre-deposit of Rs. 20.34 lakhs together with proportionate interest was directed, and recovery of the remaining adjudicated liability was stayed during the pendency of the appeal, subject to compliance.

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