2025 (9) TMI 1605 - AT - Service Tax

Appeal remanded for fresh merits adjudication after appellant made statutory 10% pre-deposit under Section 35F

CESTAT allowed the appeal by way of remand, finding the impugned order did not decide the matter on merits due to initial failure to make the mandatory ... Rejection of appeal - failure of the appellant to make the mandatory pre-deposit in terms of the provisions of Section 35F of the Central Excise Act, 1944 - HELD THAT:- The impugned order has not passed on merits of the case, the matter needs to be remanded for reconsideration by Commissioner (Appeals) as the appellant has deposited the entire amount required to be deposited as mandatory pre-deposit for consideration of the appeal by this Tribunal i.e. 10% of the disputed amount as prescribed by Section 35F of the Central Excise Act, 1944. Since the impugned order do not considers the appeal filed by the appellant on merits, no decision has been rendered on merits by Commissioner (Appeals). Matter needs to be remanded back to the Commissioner (Appeals) for decision on merits. Appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether an appeal dismissed by the First Appellate Authority solely for non-payment of the mandatory pre-deposit under Section 35F of the Central Excise Act, 1944 can be reopened/remanded where the appellant has in fact made the required pre-deposit (including where payment was made under a wrong accounting head due to clerical error). 2. Whether the Commissioner (Appeals) was justified in not considering the appeal on merits when the appellant produced evidence of having deposited the mandatory pre-deposit. 3. Whether payments made to Government accounts under a wrong accounting code (clerical/accounting error) should be treated as valid deposit for purposes of statutory pre-deposit requirements, and what remedial approach applies. 4. Whether the Tribunal may direct remand for de novo consideration and impose conditions on withdrawal/refund of pre-deposit pending remand. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of dismissal for non-payment where pre-deposit was in fact made Legal framework: Section 35F of the Central Excise Act, 1944 prescribes mandatory pre-deposit (10% of disputed amount) as condition for consideration of appeals by the Tribunal; the appellate forum may reject/entertain appeals based on compliance with statutory pre-deposit requirements. Precedent treatment: The Tribunal relied on departmental clarifying Circular No. 58/7/2003 (20.05.2003) and judicial decisions expressing the principle that where payment has been made but applied under wrong accounting head, the matter should be sorted with PAO and the assessee should not be required to re-pay; decisions cited include Pepsico India Holding Pvt. Ltd., Arcadia Share & Stock Brokers Pvt. Ltd., and the Gujarat High Court in Devang Paper Mills Pvt. Ltd. Interpretation and reasoning: The Court scrutinized the impugned order and found dismissal was based solely on alleged failure to make the pre-deposit. Both parties agreed (and record showed) that the appellant had deposited the required amount; the only issue was deposition under an incorrect accounting head (clerical error). The Tribunal held that such a clerical/accounting mistake does not extinguish the fact of payment to Government account and cannot justify a dismissal that precludes adjudication on merits. The Circular directs departmental reconciliation with PAO rather than requiring fresh payment; the Gujarat High Court decision supports recognizing credit where the Government account reflects receipt despite wrong code. Ratio vs. Obiter: Ratio - Where the only ground for dismissal is non-deposit, but the appellant has in fact made the statutory pre-deposit (even if misallocated to a wrong accounting code), the appellate authority should not dismiss the appeal and must have regard to departmental procedures (PAO reconciliation); misapplication to wrong head does not render payment invalid. Obiter - observations on administrative remedy sequencing and the exact mechanics of PAO credit adjustments are explanatory. Conclusions: Dismissal for non-payment was not justified; the appeal must be remanded for adjudication on merits because the mandatory pre-deposit requirement was effectively complied with. Issue 2 - Duty to decide appeal on merits where first appellate order did not consider merits Legal framework: Principles of statutory appeal: where an appeal is dismissed on procedural grounds without consideration of merits, appellate or revisional authority may remand for de novo consideration if procedural compliance is established. Precedent treatment: The Tribunal invoked earlier CESTAT decisions and the Circular emphasizing that the assessee need not pay again if amounts are shown as deposited; authorities direct departmental accounting correction and substantive justice vindication by remand where appropriate. Interpretation and reasoning: The impugned order did not address substantive issues; having found statutory pre-deposit satisfied, the Tribunal concluded a remand for de novo consideration by Commissioner (Appeals) was necessary. The Tribunal mandated natural justice observance and time-bound disposal to cure the failure to reach merits at first instance. Ratio vs. Obiter: Ratio - When an appeal is rejected solely for alleged non-compliance but the appellant has complied with the statutory pre-deposit, the proper remedy is remand for de novo consideration on merits; procedural compliance cannot be a subterfuge to avoid adjudication. Obiter - directions on timelines and emphasis on natural justice are procedural guidance but consistent with appellate supervisory powers. Conclusions: Matter remanded to Commissioner (Appeals) for fresh adjudication on merits, with directions to follow natural justice and decide within a specified timeframe. Issue 3 - Effect of clerical/accounting error in head of payment and departmental obligation Legal framework: Administrative law principles and departmental circulars govern treatment of payments misapplied to wrong accounting codes; statutory objective of pre-deposit is to ensure payment into Government accounts, not to entrap by technical accounting code mistakes. Precedent treatment: Circular No. 58/7/2003 directs that when amounts are deposited under wrong accounting codes, the matter should be resolved with the PAO and the assessee must not be required to pay again; Gujarat High Court in Devang Paper Mills held that wrong code entries do not invalidate an undisputed payment and directed departmental accounting correction and credit. Interpretation and reasoning: The Tribunal adopted these authorities to conclude that a clerical wrong-code payment was still a payment into Government account and so should be recognized as satisfying the pre-deposit requirement. The First Appellate Authority's strict approach - treating the payment as nonexistent because of wrong head - was held to be unwarranted and inconsistent with administrative instructions and judicial precedent. Ratio vs. Obiter: Ratio - Payment into Government account, albeit under a wrong code, constitutes compliance for pre-deposit purposes where no separate liability corresponding to that incorrect code exists; administrative rectification (PAO) is the appropriate remedy, not dismissal. Obiter - practical instructions on interaction with PAO and refund mechanics are ancillary guidance. Conclusions: Wrong accounting head due to clerical error does not vitiate the pre-deposit; the department must reconcile/pay-credit rather than compel fresh deposit or penalize the assessee. Issue 4 - Conditions on pre-deposit pending remand and time-bound disposal Legal framework: Appellate supervisory powers permit the Tribunal to attach conditions to remand to protect revenue interest and prevent pre-deposit abuse; simultaneous obligation to ensure that appellants do not frustrate proceedings by withdrawing deposits. Precedent treatment: The Tribunal referenced practice of imposing conditions that preclude withdrawal or refund claims pending final adjudication on remand to preserve status quo and ensure effective remedy. Interpretation and reasoning: To balance interests, the Tribunal allowed remand but directed that the appellant shall not withdraw any part of the pre-deposited amount or claim refund until Commissioner (Appeal) disposes of the remand proceedings. The Tribunal also directed prompt disposal within three months, following natural justice, given the age of the appeal. Ratio vs. Obiter: Ratio - When remanding an appeal where pre-deposit compliance is contested or rectified post hoc, the Tribunal may prohibit withdrawal/refund of the pre-deposit during remand and prescribe a reasonable time for adjudication. Obiter - the specific three-month timeline is a case-specific directive to expedite justice, not a general rule for all cases. Conclusions: Remand granted subject to condition that pre-deposit not be withdrawn/refunded until renewal disposal; Commissioner (Appeals) directed to decide de novo within three months observing natural justice.