Service Tax - Appeal - Pre-deposit - Pay or Perish?
DDT could not resist the temptation of starting this edition with an expression of deep gratitude to Justice Narasimha Reddy of the AP High Court for his recent marvellous order understanding the plight of the taxpayers who are routinely asked to pay pre-deposit of huge amounts for filing appeals.
It is common for the Department to issue Show Cause Notices even in cases where no tax/duty is payable and adjudicating authorities with predictable certainty confirm the huge demands made in these Show Cause Notices with penalties under all available sections. While CESTAT had been generally fair and just in waiving whole or part of the pre-deposit required for filing the appeals, on occasions, even the Tribunal is very harsh in ordering pre-deposit of the whole amount with interest and penalty.The High Courts are known to extend some concessions like reducing the pre-deposit amount or giving more time for the appellant to pay the amount or on occasions asking the Tribunal to consider the appeal without insisting for a pre-deposit. Most of the assessees will find it a back breaking exercise to pay such huge amounts of pre-deposit and will have to simply close down business. And when the assessee wins the case, it is almost impossible to get back the pre-deposit unless they prepare themselves for the second round of the battle and justify that there has not been any unjust enrichment. Does the economy really need such an exercise?
It is a miracle of Indian psyche that in spite of such impossible and vitally damaging conditions, the Indian businessmen continue to do business and bear with a grin the perpetual harassment in the name of Government, which in the first place came into existence for the welfare of society - a fact that is almost forgotten and today Government is perceived as an unavoidable nuisance and burden, for the existence of which YOU WILL have to pay. How long can the Government continue with its brutal killing of the geese that lay the proverbial golden eggs? Can this last forever?. How long can you make laws full of flaws and then punish the taxpayers for your mistakes while drawing fat salaries and perks from the taxes they pay? Recently some assessees approached the department and wanted a clarification whether they were liable to pay Service Tax. If they were, they wanted to pay up under VCES. The Department gave them a few Board Circulars and extracts from the Act and told them to proceed as per law!
In such a chaotic situation, comes like a whiff of fresh air, the judgement delivered by Justice Reddy.
In a service tax appeal, the adjudicating authority had confirmed a demand of about Rs. 33 Crores. The service was in relation to irrigation projects of the Government of Andhra Pradesh. The assessee would have been under the genuine impression that no Service Tax was payable as many identically placed assessees were not paying any tax - Nay, in fact nobody was paying the tax; the department targeted some contractors and issued notices. There was confusion with some parties getting relief at appellate stages and some not getting such benefit. In this case, the CESTAT ordered pre-deposit of about Rs. 30 Crores (of the 33 Crores demand) of tax and also ordered payment of interest in addition. Penalty was mercifully waived.
What does an assessee do when he is hit with such a pre-deposit order? Normally no assessee would have that kind of money to make pre-deposit - it is almost impossible to collect this amount from the clients after about six years - had the Department woken up a little earlier, perhaps the damage could have been a little less. If he does not make the pre-deposit, the appeal will be dismissed and all the time the department will be breathing down his neck to collect the ‘arrears' especially in the targeted months of January-March.
The assessee approached the High Court and with masterly precision and concise expression reminding one of scientific formulae, in less than 200 words, Justice Reddy hit the nail on the head of this malaise called pre-deposit.
Justice Reddy noted that the indiscriminate denial of the power of waiver is like telling the party to pay or perish. He observed that while collecting taxes is a sovereign power, adjudication of disputes is a duty.
The following words of Justice Reddy should be a guide/checklist for all tax appellate authorities and they should read these six sentences before delivering every order on pre-deposit.
The condition as to pre-deposit of the entire amount involved would certainly put heavy burden on the assessee. |
Whatever may be the justification in enacting such a provision, the remedy of appeal for a citizen cannot be made so dearer, nor can it be kept beyond the reach of an assessee. |
Indiscriminate denial of the power of waiver would result in a situation where an aggrieved party would be indirectly told "pay or perish". |
Just as levy of taxes is an attribute of sovereign power, adjudication of disputes is equally an important attribute of the same species. |
The only difference is while the former partakes the character of the right of the sovereign Government, the latter is in the form of its duty. |
Unless it is tempered with an element of reasonableness, the adjudicatory mechanism is prone to be just an eye-wash. |
Interestingly, in spite of these observations, the High Court ordered pre-deposit of 50 per cent of the tax demanded.
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