By TIOL News Service

NEW DELHI , APRIL 26, 2017: PURSUANT to the introduction of the Finance (No.2) Bill, 2014 on 10 th July 2014, the JS(TRU-I) had come out with the following communique - D.O.F.No. 334/15/2014-TRU New Delhi, the 10th July, 2014 wherein at Annex IV, under the caption, LEGISLATIVE CHANGES, the following was mentioned -

Amendments in the Central Excise Act, 1944

13) Section 35F is being substituted with a new section to prescribe a mandatory fixed predeposit of 7.5% of the duty demanded or penalty imposed or both for filing appeal with the Commissioner (Appeals) or the Tribunal at the first stage and another 10% of the duty demanded or penalty imposed or both for filing second stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of Rs.10 crore.

The word "another" was a cause of much heartburn and consternation amongst the trade.

This is because -

While appealing to the Commissioner (Appeals), an amount of 7.5 percent of the duty/penalty must have already been deposited. Now the doubt is whether the 10 percent deposit for appeal to the Tribunal is in addition to the 7.5 percent already deposited or is it inclusive of that?

In DDT 2394 we mentioned -

"…There is a doubt on payment of another 10 percent for the second appeal. Though the TRU letter states that another 10 percent, the amendment does not say so clearly. So, there is a doubt whether the pre-deposit at the second appellate stage is 10 percent or 17.5 percent. Even if it is 17.5 percent, what will happen to the 7.5% deposited with the Commissioner (A)?. Shouldn't that also be considered as pre-deposit? This also needs clarification statutorily."

The clarification came from the Board under a Circular 984/08/2014-CX . dated 16 September 2014 and it said -

2. Quantum of pre-deposit in terms of Section 35F of Central Excise Act, 1944 and Section 129E of the Customs Act, 1962:

2.1 Doubts have been expressed with regard to the amount to be deposited in terms of the amended provisions while filing appeal against the order of Commissioner (Appeals) before the CESTAT. Sub-section (iii) of Section 35F of the Central Excise Act, 1944 and Section 129E of the Customs Act, 1962 stipulate payment of 10% of the duty or penalty payable in pursuance of the decision or order being appealed against i.e. the order of Commissioner (Appeal). It is, therefore, 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.

DDT 2439 commented -

There is absolutely no doubt about this, but the doubt is what happens to the 7.5 percent already deposited? Will it be refunded? When the order of the lower authority merges with the order of the Commissioner (Appeals), and the appellant is required to pay 10 percent of the duty determined by the Commissioner (Appeals), where is the question of retaining the 7.5 percent with the Department?

In any case, this is not for the Board to decide; if this was their intention, they should have made it clear in the Law passed by Parliament.

This will be an issue for litigation in CESTAT as well as several High Courts and eventually the Supreme Court.

True to the prediction, the issue snowballed into a major controversy in the years that followed the amendment.

The Tribunal in the cases of Hindalco Industries Ltd. and ors. - 2016-TIOL-3050-CESTAT-Kol and ASR Multimetals Pvt. Ltd. and ors - 2016-TIOL-3154-CESTAT-AHM held that pre-deposit of 10% of the amount of the duty and penalty and as the case may be needs to be deposited over and above the amount mandated to be deposited before the first appellate authority.

However, the Delhi Bench of the Tribunal in the case of Balajee Structural (India) Pvt. Ltd. vs. Commissioner of Central Excise, Raipur held that deposit of 10% of the amount of duty and penalty as the case may be for preferring an appeal before the Tribunal against Commissioner (Appeals) order is inclusive of 7.5% deposited at the time of preferring appeal before the first appellate authority from the adjudication order.

The Larger Bench was, therefore, constituted for resolving the issue as to quantum of mandatory deposit in the case of 2nd appeal preferred before the Tribunal against Commissioner (Appeals) order.

None appeared on behalf of the Bar Associationsdespite notices.

The ARs appearing on behalf of Revenue submitted that the plain reading of provisions indicate that the appellant, if he wants to prefer a 2 nd appeal has to deposit additional 10% of the amount of duty/penalty, as the case may be, over and above the amount of mandatory deposit made for preferring appeal before the first appellate authority. It is the submission that the pre-deposit before first appellate authority and second appellate authority are independent. Reliance is placed on the decision in the case of ASR Multimetals Pvt. Ltd. (supra) and the CBEC Circular No. 984/8/2014 dated 16.09.2014.

The Larger Bench after considering the submissions extracted the provisions of section 35F of the CEA, 1944 and section 129E of the Customs Act, 1962 and inter alia observed thus -

++ On reading the said Circular,we find in paragraph No.2, more specifically 2.1, the Circular only states that in the event of appeal of appellant against order of Commissioner (Appeals) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals). In fact, the clarification given by the Board does not indicate what is in the mind of the law makers enacting while the provisions of Section 35F of the Central Excise Act, 1944 and Section 129E of the Customs Act, 1962. Be that as it may, we find that the said provisions of pre-depositing an amount for preferring 1st appeal against the adjudication order needs to be done so, at the rate of 7.5% of the duty confirmed or the penalty imposed as the case may be. This would mean that the first appeal can be entertained only on deposit of such an amount and on conclusion of the proceedings, he has option to go further in appeal … or if the appeal is disposed of, amount pre-deposited by him which is equivalent to 7.5% of the duty confirmed or penalty imposed as the case may be, needsto be refunded in accordancewith law.

++ As regards the second appeal preferred against the first appellate authority's order, the quantum of pre-deposit has been set at 10% instead of 7.5% of the duty confirmed or penalty imposed. In our view both the appellate proceedings i.e. before the first appellate authority and before the Tribunal, if is to be treated as an independent provisions then deposits as mandated needs to be made. In short, in order to prefer an appeal before the Tribunal, an assessee/appellantneeds to deposit 10% of the amount of duty confirmed or the penalty imposed as the case may be irrespective of the amounts equivalent to 7.5% deposited by them for preferring an appeal to the first appellate authority.

Concluding that the decision of the Division Bench of the Tribunal in the case of ASR Multimetals Pvt. Ltd. (supra) is correct and the appellant is required to deposit separately 10% of the amount of the duty confirmed/ penalty imposed, for preferring of appeal before the Tribunal against the order of Commissioner (Appeals), the reference was answered accordingly.

(See 2017-TIOL-1414-CESTAT-DEL-LB)