Calcutta High Court
Smt. Renuka Prasad vs The Commissioner Of Central Excise on 22 April, 2014
Author: Harish Tandon
Bench: Harish Tandon
In The High Court At Calcutta
Constitutional Writ Jurisdiction
Original Side
Present :
The Hon'ble Justice Harish Tandon.
W. P. No. 619 of 2013
Smt. Renuka Prasad
-vs-
The Commissioner of Central Excise, Bolpur
Commissionerate & Ors
For the Petitioner : Mr. Runu Mukherjee
Judgment on : 22.04.2014
HARISH TANDON, J.:
By show-cause notice-cum-demand dated 18.09.2009, the Commissioner of Central Excise, Bolpur intended to impose a service tax to the tune of 3,13,41,209 together with Education Cess of Rs. 6,26,826/- and further sum of Rs. 88,666/- under S & HE Cess under proviso to Section 73 (1) of Chapter V of the Finance Act, 1994, interest at the rate applicable under Section 75 of the said Chapter as well as the penalty under Section 76, 77 & 78 of the said Chapter.
The facts narrated in the said show-cause notice are that the petitioner is providing taxable services under " Commercial or Industrial Construction Services" to one M/s Dong Fang Electrical Corporation as Sub-Contractor. The Sub-Contractor providing the aforesaid services is brought within the purview of service tax under the Circular No. 96/7/2007-ST dated 23.08.2007 as a taxable service. It is further alleged that in course of an inquiry, it was revealed that the service providers to M/s Durgapur Steel Plant are not paying the proper service tax for Town maintenance which includes the petitioner as well. From the scrutiny of the balance sheet submitted by the petitioner, it is detected that various sums received under the contract, which attracts service tax, have not been paid. It was further detected that the petitioner registered himself in the month of August 2007 under "Commercial or Industrial Construction Services" but neither paid the service tax prior thereto nor thereafter. In reply to the said show-cause notice, the petitioner took various pleas which was not accepted by the authority and eventually, the demand was confirmed by an order dated 24.08.2010.
Admittedly the petitioner assailed the said order before the Custom Excise and Service Tax Appellate Tribunal (CESTAT) by filing a statutory appeal and also filed an application for stay of the impugned order and further prayed for waiver of the pre-condition of deposit of the service tax and penalty. The said application came to be disposed of by the CESTAT on 17.04.2013 directing the petitioner to deposit 25% of the Service Tax within a period of eight weeks. Both the orders i.e. order dated 24.08.2010 passed by the respondent no.1 and the order dated 17.04.2013 passed by the CESTAT, the respondent no.2 herein is the subject matter of the instant writ petition. The main challenge thrown to the aforesaid orders as culled out from the pleadings of the writ petition, is that the authorities cannot make out a new case divorced from the show cause notice and to impose the service tax followed by the penalty and the interest. According to the petitioner, the service tax was demanded under the category of (Commercial or Industrial Construction Services) whereas the respondent no.1 have imposed the duty under the category of Works Contracts Services. The order of the CESTAT is impugned on the plea that the Tribunal could not have directed the payment of 25% of the service tax when a strong prima facie case is made out and, therefore, the said order is an outcome of non-application of mind.
On the basis of the aforesaid pleadings, the learned Advocate appearing for the petitioner submits that the initiation of the proceeding is founded on the show cause notice and the fact, which is not mentioned therein, the Commissioner could not have made out a new case and placed reliance upon a judgment of the Supreme Court in case of Commissioner of Central Excise, Nagpur -vs- Ballarpur Industries Ltd. reported in 2007 (215) ELT 489 (SC), Commissioner of Central Excise, Chandigarh -vs- Shital International reported in (2011) 1 SCC 109 and Commissioner of Central Excise, Bhubaneswar-I -vs- Champdany Industries Ltd. reported in 2009 (241) E.L.T. 481 (SC). He further submits that the CESTAT, while considering an application for stay or the waiver on pre-deposit of duty and penalty having found to good prima facie case, should have invoked the discretion by waving the pre-deposit condition which is one of the facet under the undue hardship. In support of the aforesaid condition, reliance is placed upon a judgment of this Court in case of J.N. Chemical Pvt. Ltd. -vs- CEGAT reported in 1991 (53) ELT 543 (Cal), Bongaigaon Refinery & Petrochem Ltd. -vs- Collector of Central Excise (A), Cal reported in 1994 (69) ELT 193 (Cal), ITC Ltd. -vs- Commissioner (Appeals), Custom and Central Excise, Meerut-I reported in 2005 (184) ELT 347 (All.) and Sri Krishna -vs- Union of India reported in 1998 (104) ELT 325 (Delhi). It is further submitted that the circulars, which is oppressive in nature, should be applied prospectively whereas the beneficial circulars should be applied respectively by placing reliance upon a judgment of the Supreme Court in case of Suchitra Components Ltd. -vs- Commissioner of Central Excise, Guntur reported in 2007 (208) ELT 321 (SC).
Lastly it is submitted that while considering an application for waiver of pre-deposit condition, when a good prima facie case is made out, it would be unjust and caused undue hardship if the assessee is directed to deposit the tax so assessed and, therefore, the order passed by the CESTAT is not sustainable.
Per contra, the learned Advocate appearing for the respondents submits that the original order passed by the respondent no.1 is an appellable one and in fact, the petitioner has availed the said statutory right by filing an appeal before the CESTAT. The said order cannot be assailed in the writ petition when the said appeal is still pending. It is further submitted that the CESTAT, after considering the matter for the purpose of exercising the discretion, have granted the relief by waiving the pre-deposit of 75% of the service tax and, therefore, such discretionary order is not capable of being assailed in writ jurisdiction. Lastly it is submitted that the order of the CESTAT is an appellable one before the Division Bench of this Court and the writ petition is not maintainable.
In reply the petitioner submits that the alternative remedy is not an absolute bar and the jurisdiction under Article 226 can be invoked and placed reliance upon a judgment of the Delhi High Court in case of Union of India -vs- Classic Credit Ltd. reported in 2009 (236) ELT 12 (Del.) and a single bench decision of this Court in case of Ruby Rubber Industries -vs- Commissioner of Central Excise, Cal-II reported in 1998 (104) E.L.T. 330 (Cal.).
Undisputedly the petitioner had not only assailed the original order passed by the Commissioner of Central Excise, Bolpur but have also challenged the order passed by the CESTAT by which an application for stay by way of waiver/dispensation of the pre-deposit condition is disposed of. Section 35F of the Central Excise Act requires the deposit of the duty demanded or the penalty levied as pre-condition to file an appeal. However, provisos inserted therein vested the discretionary power on the Commissioner (Appeals) or the Appellate Tribunal to dispense with such deposits subject to such conditions, it may deem fit to impose so as to safeguard the interest of revenue. Such discretion is to be exercised, if the condition of pre-deposit would cause undue hardship to the appellant. The discretionary power is normally to be exercised on providing the sound and cogent reasons and not arbitrarily or whimsically. The expression "undue hardship" came up for consideration before the Division Bench of this Court in case of J.N. Chemical Pvt. Ltd (supra) where it is held that it must relate to a good prima facie case justifying the dispensation of the pre-condition deposit in these words:
"7. Against the aforesaid background, in our opinion it was impossible for the Tribunal to arrive at the conclusion that it could not be said that the appellant had a good prima facie case so as to justify the dispensation of the requirement of pre-deposit of the disputed amount of duty and penalty in question. On the facts and in the circumstances of the case, there was full justification for the exercise of the power vested in the Tribunal to dispense with the requirement of pre-deposit in as much as the case of the appellant was fully covered by the decision of a Special Bench of the Tribunal and still to insist upon the deposit of duty demanded and penalty levied would indubitably cause undue hardship to the appellant. The power to dispense with such requirement is conferred on the Tribunal to be exercised precisely in cases like these and, if it is not exercised under such circumstances, this Court will require it to be so exercised."
Subsequently, the single bench of this Court in case of Bongaigaon Refinery & Petrochem Ltd.(supra) while defining the expression undue hardship held:
"31. As already seen the phrase "under hardship" would cover a case where the appellant has a strong prima facie case. The phrase also in my view covers a situation where there is an arguable case in the appeal. In the former case the Appellate Authority should dispense with the pre-deposit altogether on the basis of the authorities referred to earlier. In the later case the authority would have to safeguard the interest of the revenue. The Collector has not applied his mind to this aspect of the matter at all. He had to consider whether, if the deposit were waived, the interest of the revenue would be jeopardized. There was no suggestion or even allegation that there would be any jeopardy to the revenue if the pre-deposit were waived in the petitioner's case. Keeping in view the mandate that a discretionary power must be exercised in favour of the assessee unless there was good reasons to the contrary, no reason has been disclosed by the Collector for refusing to exercise his discretion in favour of the petitioner particularly when the revenue's interest was not said to be un-safeguarded. It is to be remembered that this Court, while remanding the matter back to the Collector had directed the petitioner to give an undertaking to this Court that it would not deal with or dispose of any of its assets except in the usual course of business or with the leave of the Court. This undertaking is still subsisting. The Collector did not reject this safeguard as inadequate. The demand relates to a period for the clearance had already been made. There is no question of the petitioner recovering the amount from its customers."
The Allahabad High Court in case of ITC Ltd. (supra) held that the Tribunal while considering the plea raised before it, should have considered whether a prima facie case on merit is made out and, thereafter, to strike a balance between the right of the individual and the state. It is further held that the expression "undue hardship" has a wider connotation and swipes within its ambit not only the existence of a good prima facie case but also the financial hardship vis-à-vis the interest of the revenue in the following words:
"35. In view of the above, the aforesaid authorities make it clear that the Court should not grant interim relief/stay of the recovery merely by asking of a party. It has to maintain a balance between the rights of an individual and the State so far as the recovery of sovereign dues is concerned. While considering the application for stay/waiver of a pre-deposit, as required under the law, the Court must apply its mind as to whether the appellant has a strong prima facie case on merit. In case it is covered by the judgment of a Court/Tribunal binding upon the Appellate Authority, it should apply its mind as to whether in view of the said judgment, the appellant is likely to succeed on merit. If an appellant having strong prima facie case, is asked to deposit the amount of assessment so made or penalty so levied, it would cause undue hardship to him, though there may be no financial restrain on the appellant running in a good financial condition. The arguments that appellant is in a position to deposit or if he succeeds in appeal, he will be entitled to get the refund, are not the considerations for deciding the application. The order of the Appellate Authority itself must show that it had applied its mind to the issue raised by the appellant and it has been considered in accordance with the law. The expression "undue hardship" has a wider connotation as it takes within its ambit the case where the assessee is asked to deposit the amount even if he is likely to exonerate from the total liability on disposal of his appeal. Dispensation of deposit should also be allowed where two views are possible. While considering the application for interim relief, the Court must examine all pros and cons involved in the case and further examine that in case recovery is not stayed, the right of appeal conferred by the legislature and refusal to exercise the discretionary power by the authority to stay/waive the pre-deposit condition, would be reduced to nugatory/illusory. Undoubtedly, the interest of the Revenue cannot be jeopardized but that does not mean that in order to protect the interest of the Revenue, the Court or authority should exercise its duty under the law to take into consideration the rights and interest of an individual. It is also clear that before any goods could be subjected to duty, it has to be established that it has been manufactured and it is marketable and to prove that it is marketable, the burden is on the Revenue and not on the manufacturer."
The similar view is echoed in the Division Bench judgment of the Delhi High Court in case of Sri Krishna (supra). What could be deduced from the above reports that the Tribunal or the Commissioner (Appeals) while considering the case of waiver and/or dispensation of pre-deposit condition must record its satisfaction not only on the existence of a good prima facie case but simultaneously, should take into consideration the interest of the revenue by maintaining a balance. The discretion must be exercised on sound logic and within the settled para-meters of law and not whimsically or capriciously. The Tribunal should also record the reasons well acceptable in the legal parlance which should justify elucidately and/or expressly why such discretion is exercised.
The person may not have any financial hardship but if a good prima facie case is made out than directing the person to deposit the duty demanded, would cause undue hardship.
On the above proposition of law laid down in the above noted reports, let me find out whether the petitioner have been able to make out a strong prima facie case for a total waiver. The Commissioner while confirming the demand observed that the petitioner registered themselves under the category of " Banking and Other Financial Services" in the month of February 2007 and subsequently got themselves registered under the category of "Commercial or Industrial Construction Services" in the month of August 2007 and, therefore, the demand on the aforesaid two categories cannot be said to be unjustified. It is further held that supply of equipments on monthly rental basis and the charges received therefor, though as may not come under the purview of "Commercial or Industrial Construction Services" but they come under the new taxable services supply of "Tangible Good Services"
and since they have not got themselves registered under the said category, it amounts to a suppression with an intention to evade service tax. The authorities further held the contract for supply of manpower attracts service tax under the category of "Manpower Recruitment and Supply Agency Services". Broadly on the above findings, the demand was confirmed by the authorities which is assailed before the tribunal.
Though the order of the Commissioner is also challenged in this writ petition, even after, having challenged the same before the tribunal, this Court does not intend to interfere with such order by invoking the power of judicial review. The order of the Commissioner may assume importance for the purpose of arriving at a finding over the prima facie case and not beyond with. The clear exposition of the fact narrated in the show cause notice and the finding made by the Commissioner manifest that the Commissioner has found certain services attracting the service tax under a different category than the one indicated in the show-cause notice.
There lies a distinction between prima facie case and arguable case. In former, any direction for deposit of the demand would make undue hardship on the assessee but in later, the authorities may exercise discretion by putting conditions as to the deposit of the demand.
To arrive at a finding whether a prima facie case is made out, one has to look into the legal position of law where the action of the authorities in imposing the duty under certain categories which do not find place in the show-cause notice or in other words beyond the show-cause notice.
In case of Ballarpur Industries Ltd. (supra), the Supreme Court held that invocation of any provisions dehors the show-cause notice is impermissible in these words:
"21. Before concluding, we may mention that, in the present case, the second and the third show cause notices are lone remitted. The first show cause notice dated 21-5-1999 is set aside as time- barred. However, it is made clear that Rule 7 of the Valuation Rules, 1975 will not be invoked and applied to the facts of this case as it has not been mentioned in the second and the third show cause notices. It is well settled that the show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest. If there is no invocation of Rule 7 of the Valuation Rules 1975 in the show cause notice, it would not be open to the Commissioner to invoke the said rule."
In case of Champdany Industries Ltd; (supra), the Apex Court reiterated the aforesaid principles in the following:
"50. Apart from that, the point on Rule 3 which has been argued by the learned counsel for the Revenue was not part of its case in the show-cause notice. It is well settled that unless the foundation of the case, is made out in the show-cause notice, Revenue cannot in Court argue a case not made out in its show-cause notice. [See Commissioner of Customs, Mumbai -v- Toyo Engineering India Limited- (2006) 7 SCC 592)]"
Most recently in case of Shital International (supra), the Supreme Court did not permit the revenue to raise the plea not taken in the show- cause notice, the aforesaid observations can be aptly quoted as under:
"19. As regards the process of electrifying polish, now pressed into service by the Revenue, it is trite law that unless the foundation of the case is laid in the show-cause notice, the Revenue cannot be permitted to build up a new case against the assessee. (See Commr. Of Customs v. Toyo Engg. India Ltd., CCE v. Ballarpur Industries Ltd; and CCE v. Champdany Industries Ltd.) Admittedly, in the instant case, no such objection was raised by the adjudicating authority in the show-cause notice dated 22-6-2001 relating to Assessment Years 1988-1989 to 2000-2001. However, in the show-cause notice dated 12-12-2000, the process of electrifying polish finds a brief mention. Therefore, in the light of the settled legal position, the plea of the learned Counsel for the Revenue in that behalf cannot be entertained as the Revenue cannot be allowed to raise a fresh plea, which has not been raised in the show-cause notice nor can it be allowed to take contradictory stands in relation to the same assessee."
The principle behind the issuance of the show-cause notice is not only to make aware the person against whom the action is intended to be taken but it must contain the language in precision which on reading thereof, make the person understand, the case which he has to defend. The show-cause notice is the foundation of an action and, therefore, a plea, which is not taken, shall not be permitted, as the person did not have an opportunity to meet the same. In the instant case, the show- cause notice was issued on the plea of non-deposit of the service tax for the services rendered under the "Commercial or Industrial Construction Services" as a Sub-Contractor amounting to the deliberate suppression.
There is no whisper in the said show-cause notice that the services rendered by the petitioner under the "Manpower Recruitment and Supply Agency Services" or under the supply of "Tangible Good Services"
or under the "Cleaning Activity". The Cleaning Activity Service was introduced with effect from 16.06.2005 and the demand was confirmed even for a period prior thereto. The Supreme Court in case of Suchitra Components Ltd;(supra) held that the circular which is beneficial in nature operates retrospectively but the circular which is oppressive-in-
nature should be applied prospectively in following words:
"2. We have heard Mr. A.R. Madhav Rao, learned counsel for the appellant and Mr. K. Radhakrishna, learned Senior Counsel for the respondent. We have perused the orders passed by the lower Authorities and also of the Tribunal. The point raised by the learned counsel for the appellant is covered by the recent judgment of this Court in Civil Appeal No. 4488 of 2005, Commissioner of Central Excise, Bangalore v. M/s Mysore Electrical Industries Ltd; reported in 2006 (204) E.L.T. 517 (S.C.). In the said Judgment, this Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against, the assessee, they have right to claim enforcement of the same prospectively."
Unless the Amended Act is expressed to apply retrospectively, ordinarily, it would be deemed to apply prospectively and, therefore, imposition of tax for the period when such amendment was not brought in the statute book is illegal and invalid. The Commissioner did not consider the aforesaid aspect and have simply proceeded in casual and mechanical manner to say that the full case of waiver is not made out and directed 25% of the service tax to be deposited. Though the petitioner have been able to make out a strong prima facie case that the Commissioner has gone beyond the scope of the show cause notice but equally I cannot lose sight of that certain amounts which attract service tax under the "Banking and Financial Activities" and "Commercial or Industrial Construction Services" for which the registration is obtained by the petitioner but have not been paid.
Another point is taken by the respondent that the impugned order passed by the tribunal is capable of being assailed before the Appellate Court. There is no absolute bar in entertaining the writ petition under Article 226 of the Constitution despite existence of an alternative efficacious remedy. This Court finds that there has been a manifest injustice apparent on the face of the record. This Court does not feel that the jurisdiction under Article 226 of the Constitution is completely ousted. Since a strong prima facie case is made out by the petitioner, the deposit of 25% of the demand would certainly cause an undue hardship.
Simultaneously, this Court also finds that the petitioner have been found guilty of suppressing the facts and have not paid the service tax under the category in which the registration is obtained. The interest of the revenue would be safeguarded if the petitioner is directed to deposit 10% of the demand confirmed in the impugned order within eight weeks from the date of the order.
Needless to mention that the observations and/or findings made in this order is prima facie and tentative one, the tribunal shall decide the appeal independently without being swayed by such observations or findings. In the event, the deposit is made within the time indicated herein above, the tribunal shall decide the appeal within six months from the date of the communications of this order.
With these observations, the writ petition is disposed of. However, there shall be no order as to costs.
Urgent photostat certified copy of the judgment, if applied for, be given to the parties on priority basis.
(Harish Tandon, J.)