(Ramesh Ranganathan, J.)
This appeal, under
Section 35-G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994, is against the order of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore (CESTAT) in
ST/Stay/771/2010 in ST/1337/2010 dated 14.2.2011.
The appellant, a public limited company engaged in the development of software, and providing IT services etc., is registered under the Finance Act, 1994 as a service provider of commercial training or coaching services. The respondent issued show cause notice dated 23.10.2008 demanding Rs.6,91,96,898/- as service tax towards various services allegedly rendered by the appellant during the period 15.9.2003 to 31.12.2007. This amount included Rs.5,39,13,757/- towards services allegedly rendered under the category “business auxiliary services” (BAS); Rs.1,13,64,536/- towards “man power supply services”; Rs.16,42,899/- towards “maintenance or repair services”, and Rs.22,75,707/- towards “management consultancy services”. The service tax demanded was in relation to the project undertaken by the petitioner, from 19.5.2003 to 18.5.2008, for the Madhya Pradesh State Agricultural Marketing Board for their e-Krishi Vipanan Project.
It is the appellant’s case that they did not collect service tax from their clients; the respondent had passed the order on 31.12.2009, a copy of which was received by the appellant on 31.3.2010, confirming the service tax demanded in the show cause notice; in addition, interest was levied under Section 75 of the Finance Act 1994; and penalty of Rs.6,91,96,898/-, equal to the demand, was imposed in terms of Section 78 of the Finance Act. Aggrieved by the said order, the appellant carried the matter in appeal to the CESTAT. They filed an application seeking waiver of pre-deposit of the entire service tax demanded, along with interest and penalty.
Before the CESTAT, the appellant contended that they had a strong prima facie case on merits. Though, in the application filed seeking waiver of pre-deposit under Section 35F of the Central Excise Act, 1944 (for short the “Act”) financial hardship was not pleaded, the appellant, in their written arguments, contended that they were going through severe financial difficulties; they had suffered a net loss of Rs.28.11 crores for the year 2008-09, Rs.20.17 Crores for the year 2009-10 and the accumulated loss as on 31.3.2010 was Rs.61.16 Crores. They also furnished copies of the relevant extracts from the published balance sheets.
The CESTAT, in its order dated 14.2.2011, observed that the appellants had agreed, before the adjudicating authority, that the duty liability of Rs.3.73 crores needed to be re-quantified; the issue involved in the case needed to be gone into in detail with reference to the evidence produced before the adjudicating authority, which could only be done at the stage of final disposal of the appeal; and the appellant had not made out a prima facie case for complete waiver of the amounts adjudged. The appellant was directed to pre-deposit 2.00 Crores within a period of eight weeks.
Thereafter, the appellant submitted an application under Rule 41 of the CESTAT (Procedure) Rules, 1982 seeking further time to make payment of the pre-deposit, as directed by the CESTAT, of Rs.2.00 crores. They requested that Rs.50.00 lakhs paid by them be treated as part of the pre-deposit; Rs.40.00 lakhs paid by them as service tax during the impugned period be considered as part of the pre-deposit; and they be granted four months (16 weeks) for payment of the balance Rs.1.10 crores.
In its order dated 18.4.2011, the CESTAT observed that they had carefully considered the submissions made by both sides, and had perused the miscellaneous application, the balance sheet, and the chartered accountant’s certificate; and the applicant was required to be given some time to deposit the balance amount. The miscellaneous application, seeking extension of time for pre-deposit of the balance amount, was allowed; extension of eight weeks was granted; and the appellant was directed to report compliance on 17.6.2011. The CESTAT observed that failure to comply with the terms of the stay order would result in dismissal of the appeal without further indulgence.
Sri G. Mohan Rao, Learned Counsel for the appellant, would contend that the appellant had a very strong case on merits; they were not liable to pay service tax claimed to be due by the respondent; they had not collected service tax from their clients; the CESTAT had not taken the appellant’s financial hardship into consideration; and, as financial hardship is one of the essential considerations which ought to have been kept in kind while deciding an application seeking waiver of pre-deposit, the CESTAT had erred in directing the appellants to pay Rs.2.00 Crores as pre-deposit for the appeal to be entertained. Learned counsel would rely on Benara Valves Ltd v. Commissioner of Central Excise ((2006) 13 SCC 347).
Section 35B(1)(a) of the Act enables any person aggrieved by a decision or order passed by the Commissioner of Central Excise as an adjudicating authority to appeal to the Appellate Tribunal against such order. Under Section 35F, where in any appeal the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of the central excise authorities or any penalty levied under the 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. Under the proviso to Section 35F where, in any particular case, the Tribunal is of the opinion that deposit of the duty demanded or penalty levied would cause undue hardship to such person, it may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the interests of revenue.
The impugned order of the CESTAT is in an application filed by the petitioner seeking waiver of pre-deposit under Section 35-F of the Act. While dealing with the primary challenge in the appeal, which is to the order relating to pre-deposit, this Court would not go into the merits and express its views thereon. (Union of India v. Adani Exports Ltd., ((2007) 13 SCC 207)). We see no reason, therefore, to go into the merits of the appeal pending before the CESTAT or to examine whether the respondent was justified in levying service tax, interest and penalty under the Finance Act, 1994 with regards the services allegedly rendered by the appellant during the period 15.09.2003 to 31.12.2007. Suffice to note that the CESTAT, in the order under challenge herein, has observed that the appellant had not made out a prima facie case for complete waiver of the amount adjudged.
Before examining the contentions of Sri G. Mohan Rao, Learned Counsel for the appellant, regarding the validity of the impugned order of CESTAT it is necessary to note that the law presumes that public authorities function properly and bonafide with due regard to public interest. This Court would be circumspect in granting interim orders of far-reaching dimensions or orders preventing collection of public revenue for no better reason than that the parties had come to the Court alleging prejudice, inconvenience or harm and that a prima facie case has been shown. There can be and there are no hard and fast rules. But prudence, discretion and circumspection are called for. There are several other vital considerations apart from the existence of a prima facie case. There is the question of balance of convenience. There is the question of irreparable injury. There is also the question of public interest. (CCE v. Dunlop India Ltd., ((1985) 1 SCC 260)).
In matters relating to grant of stay, pending disposal of appeal, the CESTAT must exercise discretion judicially, and should pass an order which is fair, legal and in public interest. (Benara Valves Ltd. (Supra)). On merely establishing a prima facie case, interim order of protection should not be passed. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen's faith in the impartiality of public administration, interim relief can be given. Petitions for stay should not be disposed of in a routine matter unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters, and the order has to be passed keeping in view the factual scenario involved. (Indu Nissan Oxo Chemicals Industries Limited v. Union of India ((2007) 13 SCC 487)). The petitioner has no absolute right of stay. He can obtain stay of realisation of tax levied or penalty imposed in an appeal subject to the limitations of Section 35-F of the Act, which gives discretion to the authority to dispense with the obligation to deposit in case of ‘undue hardship’. That discretion must be exercised on relevant material, honestly, bona fide and objectively. (Bhavya Apparels (P) Ltd. v. Union of India ((2007) 10 SCC 129)).
Two significant expressions, used in Section 35-F of the Act, are "undue hardship to such person" and "safeguard the interests of revenue". While dealing with an application filed under Section 35-F these twin considerations must be kept in view. The word "undue" adds something more to “hardship”. It means an excessive hardship or a hardship greater than the circumstances warrant. "Undue hardship" is normally related to economic hardship. "Undue" means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances. For a hardship to be “undue”' it must be shown that the particular burden to observe, or perform the requirement, is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive in complying with it. “Undue hardship” is a matter within the special knowledge of the applicant for waiver, and has to be established by him. A mere assertion of undue hardship would not suffice. Imposition of conditions, to safeguard the interest of revenue, is an aspect which the CESTAT has to bring into focus. It is for the CESTAT to impose such conditions as are deemed proper to safeguard the interest of revenue. The CESTAT, while dealing with the application, has to consider the material placed by the assessee relating to undue hardship, and should stipulate conditions required to safeguard the interest of revenue. (Benara Valves Ltd. (Supra); S. Vasudeva v. State of Karnataka (AIR 1994 SC 923); Monotosh Saha v. Special Director, Enforcement Directorate ((2008) 12 SCC 359)).
The following principles should be kept in mind while considering the applications for stay or for dispensing with the requirement of pre-deposit under Section 35F of the Act:-
1) Three aspects to be focused while dealing with the applications for dispensing of pre-deposit are: (a) prima facie case, (b) balance of convenience, and (c) irreparable loss;
2) Interim orders ought not to be granted merely because a prima facie case has been shown;
3) The balance of convenience must be clearly in favour of making of an interim order and there should not be the slightest indication of a likelihood of prejudice to the interest of public revenue;
4) While dealing with the applications, the twin requirements of consideration i.e., consideration of undue hardship, and imposition of conditions to safeguard the interests of revenue must be kept in view;
5) When the Tribunal decides to grant full or partial stay, it has to impose such conditions as may be necessary to safeguard the interests of the revenue. This is an imperative requirement; and
6) An Appellate Tribunal, being a creature of the statute, cannot ignore the statutory guidance while exercising general powers or expressly conferred incidental powers.
(Commissioner of Central Excise, Guntur v. Sri Chaitanya Educational Committee ((2011) 38 VST 292 (AP))).
Bearing in mind the principles aforementioned, let us now examine the contentions urged on behalf of the appellant. The primary contention is that the CESTAT, while granting conditional waiver of pre-deposit, did not take into consideration the financial hardship of the appellant. As noted hereinabove, the twin requirements which Section 35-F of the Act requires the CESTAT to consider are the financial hardship of the appellant, and the manner in which the interest of revenue is to be protected. As against the service tax demanded of Rs.6,91,96,898/-, and penalty imposed for a like amount, i.e., a total sum of nearly 14 crores, the CESTAT has merely directed the appellant to deposit Rs.2.00 crores. While the submission of Sri G. Mohan Rao that the order of the CESTAT does not reflect the petitioner’s financial hardship having been taken into consideration cannot be said to be without merit, it needs also to be borne in mind that the other essential requirement of Section 35-F of the Act is that the interest of the revenue should be protected. How the requirement of pre-deposit of Rs.2 crores, as against the total tax and penalty demanded of nearly Rs.14 crores, would safeguard the interests of revenue is difficult to fathom. But then the Revenue has not come in appeal before us, and it is only the assessee who is aggrieved by the order of the CESTAT requiring them to deposit less than 15% of the tax and penalty demanded under the order of the respondent. While Section 35-G of the Act requires the CESTAT to consider, and form an opinion, whether deposit of duty demanded or penalty levied would cause undue hardship to the appellant, it does not mandate the CESTAT to waive pre-deposit in every case of undue hardship. As the CESTAT has also to consider protecting the interest of revenue, discretion exercised by CESTAT in granting partial waiver of deposit, and directing the appellant to deposit less than 15% of the total tax and penalty, would not justify interference by this Court. It is only if the exercise of discretion by CESTAT, substantially waiving the requirement of pre-deposit in the present case, is patently illegal would interfere by this Court, under Section 35-G of the Act, be justified. The order, requiring the appellant to deposit Rs.2 crores, which is less than 15% of the tax and penalty demanded of nearly Rs.14 crores, cannot be said to be a patently illegal exercise of discretion by the CESTAT. We are satisfied that the order of the CESTAT does not necessitate interference in an appeal filed by the appellant herein under Section 35-G of the Act. The only relief which the appellant is entitled to is for extension of time to deposit the said amount of Rs.2.00 crores. In case the appellant deposits the said amount within three weeks from today, the CESTAT may entertain their appeal, and adjudicate thereupon in accordance with law. Except to this limited extent, the appeal fails and is, accordingly, dismissed.