2025 (3) TMI 7 - HC - Central Excise

Delhi HC allows petition after CESTAT wrongly dismissed appeal for pre-deposit non-compliance under Section 35F

M/s. DD Interiors Versus Commissioner Of Service Tax & Anr.

Delhi HC allowed petition challenging CESTAT's dismissal of appeal for non-compliance with pre-deposit condition under Section 35F of Central Excise Act, ... Dismissal of appeal due to non-compliance of the pre-deposit condition mandated under Section 35F of the Central Excise Act, 1944 - HELD THAT:- There is no dispute about the fact that 7.5% was initially deposited before the Commissioner (Appeals) at that time when the integrated portal did not exist. Thereafter, while approaching the CESTAT, the remaining 2.5%has been deposited by the Petitioner. Thus, in effect the entire 10% which is the pre-deposit amount, stood deposited. The appeal could not have been rejected merely on the ground that it was deposited on a wrong account especially when the said integrated portal was not even available for the Petitioner at the time of the initial deposit. Following the decision of the Bombay High Court in Sodexo India Services Pvt. Ltd. vs. Union of India [2022 (10) TMI 264 - BOMBAY HIGH COURT], this Court is, therefore, inclined to direct that the appeal would now be heard by CESTAT on merits without any further deposit being insisted upon. The deposit already made shall be treated as satisfaction of the pre-deposit condition. Conclusion - The appeal would be heard by CESTAT on merits without any further deposit being insisted upon. The deposit already made was deemed sufficient to satisfy the pre-deposit condition. The order dated 08th November, 2024 passed by CESTAT is set aside - petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an appellate authority may return/dismiss an appeal for non-compliance with the pre-deposit condition under Section 35F of the Central Excise Act, 1944 where the appellant demonstrably made the requisite pre-deposit but in an account/form subsequently asserted to be 'wrong' by the authority. 2. Whether pre-deposits made prior to the operationalisation of the CBIC-GST integrated portal (or through DRC-03/GSTR modalities) must be treated as insufficient as a matter of law, or whether such deposits satisfy the statutory pre-deposit condition in light of later administrative clarifications. 3. Whether dismissal or return of an appeal without adjudication on merits, where a bona fide pre-deposit was made and confusion existed about the mode/place of deposit, amounts to denial of substantial justice warranting remand/hearing on merits. 4. What relief is appropriate where the entire statutory pre-deposit (10%) has, in effect, been made by a combination of deposits at different times/accounts and the appellate tribunal has refused to entertain the appeal on technical grounds. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of returning/dismissing appeal where pre-deposit was made in a 'wrong' account Legal framework: Section 35F of the Central Excise Act, 1944 requires a pre-deposit as a condition for filing an appeal before the Customs, Excise & Service Tax Appellate Tribunal. Administrative directions from CBIC and the operational modalities of payment systems (integrated portal, DRC-03, GSTR forms) govern the practical manner of making pre-deposits. Precedent treatment: The Court followed the reasoning of a High Court decision (Bombay High Court in Sodexo) and an appellate authority (CESTAT, Allahabad) which held that where deposit was made but in a manner later characterized as improper, the appeal should not be dismissed without consideration of merits; administrative confusion required clarification and remedial treatment. Interpretation and reasoning: The Court examined the actual facts - documentary proof of deposits on specified dates and an acceptance of earlier deposits by the Commissioner (Appeals) - and the contemporaneous absence/limited functionality of the integrated portal when the initial deposit was made. Given that the taxpayer deposited amounts that, in aggregate, equalled the statutory pre-deposit, a mere finding that part of the deposit was in a 'wrong account' could not justify rejection of the appeal. The Court emphasized that technical non-compliance in the context of systemic or administrative unavailability of the prescribed payment mechanism must be assessed in light of fairness and the substantive compliance achieved by the taxpayer. Ratio vs. Obiter: Ratio - An appeal cannot be rejected solely on the ground that a pre-deposit was made in a particular account/form where (a) the deposit was actually made and (b) the prescribed integrated mechanism was not available or functional at the time; such a dismissal would be impermissible. Obiter - observations about anticipated administrative clarifications and expectations from CBIC for guidance on payment modes. Conclusion: The Court held that where the pre-deposit was actually made (even if in a different account/form) and the integrated portal was not available at the relevant time, the appellate authority erred in returning/dismissing the appeal solely on that ground. Issue 2 - Effect of administrative instructions and timing of portal operationalisation on sufficiency of pre-deposit Legal framework: The statutory requirement (Section 35F) is subject to administrative mechanisms for payment. CBIC circulars/instructions (including those dated 28.10.2022 and 18.04.2023 as referenced) address the mode of making pre-deposits and clarify the acceptability of certain forms (e.g., DRC-03) and treatment of deposits made prior to the integrated portal's full functioning. Precedent treatment: The Court relied on the Bombay High Court's approach and the CESTAT Allahabad decision which interpreted administrative instructions to treat earlier deposits via DRC-03 or other available modes as sufficient compliance when the integrated portal was not available, especially where later instructions clarified acceptability. Interpretation and reasoning: The Court accepted the factual concession in the departmental counter-affidavit that the integrated portal and new payment system were not available in 2018 when the initial deposit was made. The Court further noted subsequent administrative clarifications which remedied uncertainty and, when read prospectively, supported treating prior deposits as satisfying the pre-deposit condition. The Court applied a purposive and pragmatic construction of the statutory precondition, purposeful to avoid penalising taxpayers for systemic unavailability and for following then-reasonable payment procedures. Ratio vs. Obiter: Ratio - Pre-deposits made before the operationalisation of the integrated portal, in a mode that was then accepted/available, cannot be treated as per se deficient simply because a later-administered mechanism exists; subsequent CBIC clarifications can be applied to validate such deposits. Obiter - detailed commentary on the proper sequencing of administrative guidance and taxpayers' expectations. Conclusion: Deposits made prior to the availability of the integrated portal and through the modes practicably available at the time (including DRC-03) shall be treated as compliance with Section 35F where documentary proof exists and administrative guidance supports such treatment. Issue 3 - Whether non-hearing on merits due to alleged defective pre-deposit amounts to denial of substantial justice Legal framework: Principles of natural justice and statutory entitlement to adjudication on merits require appellate authorities to decide appeals on their substance unless a genuine statutory bar exists. Administrative strictness must yield where non-compliance is technical and corrective alternatives (e.g., refund and re-deposit) are available. Precedent treatment: The Court followed earlier holdings (Bombay High Court and CESTAT Allahabad) that dismissing an appeal in limine for alleged procedural defect in the mode of pre-deposit, when the deposit exists and confusion prevailed, amounts to denial of substantial justice and is an excessive exercise of technicality. Interpretation and reasoning: The Court reasoned that where the Commissioner (Appeals) had earlier accepted part of the pre-deposit and where the taxpayer had made the balance, dismissing the appeal without adjudication on merits deprived the petitioner of a hearing and decision on substantive issues. The Court observed that the appellate authority could have granted interim relief such as refund of wrongly-made payments and allowed re-deposit by prescribed route, rather than rejecting the appeal outright. Ratio vs. Obiter: Ratio - Dismissal of an appeal purely on the ground of the manner of pre-deposit, when the taxpayer has in substance complied and where systemic confusion prevailed, constitutes denial of substantial justice and warrants remand for decision on merits. Obiter - suggestions that appellate authorities should avail remedial options (refund/permit re-deposit) rather than summarily rejecting appeals. Conclusion: The Court held that returning/dismissing the appeal without addressing merits amounted to denial of substantial justice. The correct course is to accept the appeal for adjudication on merits where pre-deposit in substance has been made, reserving technical remedies if necessary. Issue 4 - Appropriate relief where the statutory pre-deposit has been effectively satisfied by combined deposits Legal framework: Section 35F conditions the filing of appeal on payment of prescribed pre-deposit. Where the statutory amount has, in aggregate, been paid, equity and statutory purpose favour treating the condition as satisfied rather than permitting procedural forfeiture. Precedent treatment: The Court applied the remedial pattern adopted in authoritative decisions which remanded matters for adjudication on merits and treated existing deposits as fulfilling pre-deposit obligations rather than imposing further deposits. Interpretation and reasoning: The Court found that the petitioner had initially deposited 7.5% when the integrated portal did not exist and subsequently deposited the remaining 2.5% (via DRC-03) - rendering the total 10% paid. Given documentary proof and departmental acceptance of the timeline, the Court concluded that insisting on fresh deposit would be inequitable and unnecessary. The Court ordered the impugned return to be set aside, restoration of the appeal to CESTAT's original number for hearing on merits without further pre-deposit, and permitted re-presentation of returned papers within a specified period without being time-barred. Ratio vs. Obiter: Ratio - Where the total statutory pre-deposit has been made (even by combination of earlier and later payments, and irrespective of the payment medium used when the integrated portal was non-functional), appellate authorities shall treat the condition as satisfied and proceed to hear the appeal on merits. Obiter - procedural directions permitting re-presentation and refraining from coercive steps pending adjudication. Conclusion: The Court set aside the return/dismissal, directed that the existing deposits be treated as satisfying the pre-deposit requirement, restored the appeal for hearing on merits without any further pre-deposit, and permitted re-presentation of records within a stipulated time without limitation objection.