04 October, 2014

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Service tax: Pre-Deposit of penalty under Section 35F is Required only if penalty order is challenged by the Appellant.


Section 35 F Deposit, pending appeal, of duty demanded or penalty levied under Chapter VIA Appeals of the Central Excise Act, 1944 says that:

“Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of Central Excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied

In the case of Spandana Spoorthy Financial Ltd. v. Commissioner of Customs, Central Excise & ServiceTax, Hyderabad-IV, The assessee received an order from the Central Excise and Service Tax Tribunal, Hyderabad, dated 10-7-2013 by which the learned Tribunal has directed to make pre-deposit of the following:

· basic tax component,

· as well as 50% of the penalty under Sec. 78 and

· discrepancy of Rs. 12.00 lakh between the petitioner's own assessment of tax liability and the adjudicating authority's determination.

The assessee is of the view that the tribunal cannot order it to make a pre-deposit of all the three amounts mentioned above. As per law the tribunal can ask it to pay only the duty amount as section 34 F clearly states that “deposit with the adjudicating authority the duty demanded or the penalty levied”

A writ petition has been filed against the above order of the learned tribunal dated 10-07-2013 to which Kalyan Jyoti Sengupta, CJ has replied that the tribunal cannot ask the assessee to make a pre-deposit of both the duty demanded and the penalty levied. In the view of the CJ penalty cannot be pre-deposited unless the order of the penalty alone is under challenge.

However, where there is a composite order namely assessment order, tax component and also penalty order, direction for pre-deposit of any portion of the penalty amount would result in injustice as well as hardship. Under this circumstance, CJ is of the view that the direction for pre-deposit of penalty component of the order has to be deleted and is deleted and the rest portion of the order would remain. (as per priviso to Sec. 35F of the Central Excise Act, 1944)

2014 (35) S.T.R. 183 (A. P.)

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