HC waives Rs. 17.2 lakh pre-deposit under service tax rules, appeal to be heard on merits

The HC granted the petitioner a waiver of the pre-deposit amounting to approximately Rs. 17.2 lakh, despite a total service tax demand of Rs. 13.66 crore, of which Rs. 5.36 crore had already been deposited. The court held that the petitioner's appeal before the CESTAT should be heard on merits and not dismissed for non-payment of the balance pre-deposit. The HC recognized its discretionary power to waive pre-deposit requirements in rare cases and directed the CESTAT to list the appeal on 26 August 2025. The petition was disposed of accordingly.

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ISSUES:

Whether services provided under composite works contracts, specifically construction of complex services and commercial or industrial construction services, are liable to service tax.Whether pre-deposit under Section 35F of the Central Excise Act, 1944 should consider amounts already deposited prior to issuance of Show Cause Notices (SCNs) or only the short-paid amounts specified in the SCNs.Whether the Court has the discretion to waive the requirement of pre-deposit of service tax demands or penalties in rare and deserving cases.

RULINGS / HOLDINGS:

On the question of liability, the Court refrained from deciding whether the composite works contract services are liable to service tax, noting that this issue is to be adjudicated by the appellate authority on merits.The Court held that the pre-deposit requirement under Section 35F must be assessed in light of the amounts short-paid as per the SCNs and not the total tax demand, but also recognized that the Petitioner had already deposited a substantial portion (approximately 39.28%) of the gross tax demand.The Court exercised its discretion to grant waiver of the pre-deposit amount of Rs. 17,21,477/- demanded by the CESTAT, relying on established principles that pre-deposit can be waived in "rare and deserving cases" where clear justification exists.The appeal before the CESTAT shall be heard on merits and shall not be dismissed on the ground of non-payment of the balance pre-deposit amount.

RATIONALE:

The Court applied the statutory framework under Section 35F of the Central Excise Act, 1944, which mandates pre-deposit for filing appeals before the CESTAT.It relied on precedent from a Coordinate Bench which recognized judicial discretion to waive pre-deposit requirements in "rare and deserving cases," citing decisions where waiver was granted due to lack of reasons in penalty imposition, potential paralysis of business, or limited financial means.The Court distinguished between amounts already deposited pursuant to self-assessment and the short-paid amounts identified in the SCNs, emphasizing that pre-deposit should focus on the latter but also considering the substantial prior deposits in the overall assessment of waiver.The Court declined to enter into the substantive question of service tax liability at this interlocutory stage, reserving it for the appellate authority's determination on merits.

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