Departmental clarification on mandatory Pre-Deposit of Demand
Honorable Finance Minister in the union budget speech shared his thoughts on various matters concerning social, economical, political, business and other reforms. One very crucial information shared is that “Tax demand of more than Rs.4 lakh crore is under dispute and litigation before various Courts and Appellate authorities.” Yes, you have read it right it is Rs. 4,00,000,00,000,000/- that is under dispute. (Please take a minute to count those zeroes). For your information, this amount is almost equivalent to the indirect tax collection of a whole financial year 2013 -14 of our nation meaning that our country can be free from plethora of all indirect taxes for one full financial year if this amount could be easily collected. However, easier said than done we all are aware of the length of time it takes for a litigation case to move from one stage to another. However, one step has been taken forward by our government in the union budget 2014 - 15 to ensure speedy litigation process.
The concept of mandatory pre-deposit of full demand and the discretionary power vested with the adjudicating authority for waiver of the same led to lot of time and energy being washed out on stay proceedings only to decide whether or not any pre-deposit is to be made. In order to bring an absolute end to it and to ensure that matters in appeal are directly dealt on merits of the case, an amendment was brought in Section 35F of the Central Excise Act, 1944 (also applicable for Service Tax vide Section 83 of the Finance Act, 1994) and Section 129E of the Customs Act, 1962 in the union budget 2014-15. Now this amendment prescribes for mandatory pre-deposit of 7.5% of duty demanded or penalty imposed or both for first stage of appeal to the Commissioner (appeal) or Appellate tribunal and mandatory pre-deposit of 10% of duty demanded or penalty imposed or both for second stage of appeal to the Appellate tribunal. Provided that the amount required to be deposited shall not exceed rupees ten crores
Once the pre-deposit as per the amended provision is made an appeal can be heard directly on merits of the case and no unnecessary stay proceedings will be required. With this we can safely say that no stay proceedings will be entertained upto tribunal level for the appeals that are filed after August 6, 2014. However, all pending appeals/stay applications filed prior to August 6, 2014 shall be governed by the erstwhile provisions.
This amendment may look harsh to the one with a strong case and soft to the one with a weak case but that only depends on which side of the case one is. Having said that this amendment was generally accepted as a welcome move by trade bodies, industry associations and professionals. However, for practical application of the amended provisions various issues emerged which needed immediate departmental intervention. Therefore, in this regard CBEC by way of Circular No 984/08/2014-CX dated the 16th September, 2014 has issued clarification on various matters and this article intends to analyse the said clarifications and bring out the detailed intricacies on the same as follows:
1. Quantum of pre-deposit in terms of Section 35F of the Excise Act and Section 129E of the Customs Act
Issue: There was a confusion that if an appellant has already deposited 7.5% in first stage of appeal then, is the appellant also required to deposit another 10% in second stage of appeal or differential 2.5% only?
Clarification: It has been clarified that “In the event of appeal against the order of Commissioner (Appeal) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeal). This need not be the same as the amount of duty demanded or penalty imposed in the Order-in-Original in the said case.”
The prescribed amount of pre-deposit of 10% would be computed on the duty or penalty as confirmed in the Order-in-Appeal issued by the Commissioner (Appeal). If such order of Commissioner (Appeal) has reduced or increased the amount of duty/penalty, the amount of 10% pre-deposit would be computed on such reduced or increased amount of duty/penalty, as the case may be. However, the clarification does’nt seem to clearly clarify what happens to the 7.5% pre-deposit when the order of the lower authority merges with the order of the Commissioner (Appeals), and if appellant is required to pay 10% of the duty determined by the Commissioner (Appeals) then what happens to the 7.5 percent already deposited with the department? Will it be available as refund?
In any case, these are the questions that still remain even after the clarification of the board. Further, this is not for the board to decide; if this was their intention, they should have made it clear in statute itself. The board is not a super parliament which can add to the legislation, its own belated wisdom. It seems that this will be an issue for litigation in CESTAT as well as several High Courts and eventually the Supreme Court.
It has been further clarified that, where penalty alone is in dispute and penalties have been imposed under different provisions of the Act, the pre-deposit would be calculated based on the aggregate of all penalties imposed in the order against which appeal is proposed to be filed.
Board further clarifies that “In case of any short-payment or non-payment of the amount stipulated under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962, the appeal filed by the appellant is liable for rejection”. The moot question here is how can a circular issued by CBEC decide whether or not any appeal to be rejected by the appellate authority. Is it not for the appellate authority to decide whether or not it would accept or reject the appeal? Can the Board impose its views through a circular on the appellate authorities, especially to the Tribunal?
2. Payment made during investigation
Issue: There has been confusion whether any voluntary payments made during the course of audit or investigation before filing of appeal shall be adjusted from the mandatory pre-deposit?
Clarification: It has been clarified that “Payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10%, subject to the limit of Rs 10 crores, can be considered to be deposit made towards fulfillment of stipulation under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962. Any shortfall from the amount stipulated under these sections shall have to be paid before filing of appeal before the appellate authority. As a corollary, amounts paid over and above the amounts stipulated under Section 35 F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962, shall not be treated as deposit under the said sections.
Since the amount paid during investigation/audit takes the colour of deposit under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962 only when the appeal is filed, the date of filing of appeal shall be deemed to be the date of deposit made in terms of the said sections.”
Its a good move that the prior payments made even before the application of appeal are allowed for adjustment from the mandatory pre-deposit. However, the careful reading of the clarification also implies that no interest will be paid for amounts paid in excess than required to be pre-deposited and also even though payments are made before the date of filing of appeal but interest required to be paid if any, shall be calculated only from the date of filing of appeal since such amounts paid earlier partakes the colour of pre-deposit only from the date of filing of appeal. With this department wants to make it clear that the account with department is not a savings bank account where we continue to get the interest for the all the adhoc amounts deposited and therefore it is important to ensure that “Right amounts are deposited by right time” to avoid unnecessary opportunity cost in the form of interest.
3. Recovery of the amounts during the Pendency of Appeal
Issue: Once mandatory pre-deposit as per the required statutory provision is made, Does department still possess any powers and can it take any coercive measures during the course of the appeal and demand higher amounts to be pre-deposited?
Clarification: Earlier Board’s circular No.967/1/2013 dated 1 January 2013 has mandated for coercive recovery of the dues if stay has not been obtained within the prescribed time. However, as per this circular it has been clarified that department cannot take any coercive measures to ask for higher amounts to be deposited once the mandatory amounts as stipulated in the statute are deposited and during the pendency of the appeal the party/assessee shows to the jurisdictional authorities the proof of payment and the copy of appeal memo. Therefore, it is utterly important for the appellants to ensure that the pre-deposit challans are preserved and properly documented as it acts as a proof of payment and saves appellant from any coercive actions of department. Thus this clarification indeed brings a lot of relief to the assesses as they can be rest assured that once mandatory pre-deposit as stipulated by the statute is deposited, department again cannot say “Yeh Dil Maange More!!!”
4. Refund of pre-deposit
Issue: If the case if decided partially or fully in the favour of the assessee then whether the amount pre-deposited can be claimed as refund? Do appellant needs to follow the cumbersome refund procedure as per section 11B of excise act or section 27 of the customs act?
Clarification: It has been clarified that:
- a favourable order to assessee is eligible for refund of pre-deposit;
- Simple letter to the department is sufficient to claim the refund;
- Time-limit of 15 days is kept for the department to process and remit the refund from the date of receipt of letter;
- Pre-deposit shall be refunded along with interest even in case where matters are remanded back to the lower authorities;
- Partial refund shall be available in case only a portion of duty is confirmed;
- Further, department cannot hold back the pre-deposit only on the grounds that it shall challenge the order of the adjudicating authority at higher forum.
Department actually deserves an applause for this clarification as it simplifies the refund procedure. How often do we see time-limits being kept for the department that too through a departmental circular? Does it have something to do with Modi magic? whatsoever the reason may be but the change can be seen in the attitude of the Board towards the taxpayer. All we just hope is that…………. “It Continues”.
Apart from above, the Circular has also clarified on procedure and manner of making the pre-deposit and procedure for claiming the refund of the pre-deposit. Follow the given link for detailed circular http://cbec.gov.in/excise/cx-circulars/cx-circ14/984-2014cx.htm
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Tags :Service Tax