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Vol. 11 Issue 4.1 April 2, 2015
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Provisions mandating pre-deposit for filing central excise appeals
are not applicable to proceedings initiated prior to August 6, 2014
A Single Member Bench of Kerala High Court (“HC”) in the case of M/s Muthoot
Finance Ltd vs UoI (“taxpayer”), has held that the mandatory pre-deposit under
Section 35F of Central Excise Act 1944 as amended by Finance (No.2) Act, 2014
will not be applicable for proceedings initiated before August 6, 2014 (“August
2014 amendment”).
Background of the Case
The taxpayer was engaged in the business of lending money to customers,
against gold that was pledged by their customers. The Commissioner of Central
Excise, Customs and Service Tax, Kochi demanded service tax (apparently during
the year 2012) on certain transactions undertaken by the taxpayer. Aggrieved by
the Order the taxpayer filed a Writ petition before the HC challenging the Order.
HC Ruling
The HC declined to examine the merits of the petition, being of the view that the
taxpayer has an alternate remedy under the provisions of the Finance Act, 1994
by way of appeal before the Customs, Excise and Service Tax Appellate Tribunal
(“Tribunal”). The only point considered by the HC was whether the taxpayer has
to make a mandatory pre-deposit of 7.50 percent as a condition for pursuing the
appellate remedy before the Tribunal as required by the August 2014 amendment.
On this aspect the HC held that the lis (dispute) had commenced prior to the
August 2014 amendment and therefore the mandatory pre-deposit condition will
not apply to the case of the taxpayer. The HC referred to a recent interim order in
the case of K Rama Mohanarao & Co by the Division Bench of the High Court of
Telengana & Andhra Pradesh (“T&AP HC”) wherein similar prima facie view was
held in respect of a proceeding where show cause notice was issued in the year
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The HC concurred with the opinion of the T&AP HC that the right of appeal that is
vested (with the taxpayer) is to be governed by the law prevailing at the date of
institution of the suit or proceeding, and not by the law that prevails at the date of
its decision or at the date of filing of the appeal. The HC thus held that the tax-
payer would not be required to deposit the amount of 7.50 percent as a pre-
condition for filing the appeal. The HC also held that, in the event an appeal was
preferred before the Tribunal, it shall consider the application for waiver of pre-
deposit and stay of recovery of the amounts on merits, and thereafter, proceed to
hear the appeal itself in due course.
In terms of the legal position emanating from the decision of the HC, therefore, it
is the date on which the lis commenced and not the date on which the appeal is
filed before the Tribunal, which will decide whether or not the August 2014
amendment for mandatory pre-deposit will be applicable.
BMR Comments
The HC ruling is based on a settled principle that that the right to appeal is a
substantive right. The Supreme Court in the case of Hoosein Kasam Dada
(India) Ltd 1983 (13) ELT 1277 (SC), while dealing with similar facts, albeit
in the context of sales tax law, observed that for the purposes of the accrual
of the right of appeal the critical and relevant date is the date of initiation of
the proceedings. On that ground it was held that the right of appeal is to be
governed by the law prevailing at the date of institution of the suit or
proceeding, and not by the law that prevails at the date of its decision or at
the date of filing of the appeal. On this premise it has been declared by the
HC that the August 2014 amendment will not govern cases where the lis has
commenced prior to that date. Furthermore, the principle in Hoosein Kasam
Dada (India) Ltd has already been applied in the context of Central Excise
and Customs laws In A.S. Bava 2 ELT 333 (SC).
As a contrast, however, there is a distinct and settled line of judicial thought
that appeal is a creature of statute and no one has a vested right to insist
upon a particular forum or mechanism of appellate remedy. [Vijay Prakash D
Mehta 39 ELT 178 (SC) in context of imposing pre-deposit condition for
Customs appeal before Tribunal]. Further the legislature is well empowered
to change appellate procedure for even past transactions. On this and other
accounts it will be interesting to observe the subsequent developments on
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+91 22 6135 7025 [email protected]
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this aspect as it is very likely that this decision of the HC is challenged
before higher forums.
In fact, contrary views on this aspect have already been expressed by the
Kolkata Tribunal in the case of Ai Champdany Industries Ltd and others vs
CCE 2015-TIOL–576–CESTAT–KOL. The Tribunal considered the Ruling
in Hoosein Kasam Dada (India) Ltd and still concluded that pre-deposit is
mandatory for appeals filed in respect of orders passed prior to August,
2014 Amendment. The Revenue had referred to the decision in Vijay
Prakash D Mehta in support of its arguments. The Tribunal relied on the
decision of the Mumbai Tribunal in the case of Bhatia Global Trading Ltd
and others vs CC 2014-TIOL-2637-CESTAT-MUM and held that the law and
the legislative intent was clear and unambiguous. The Tribunal has also
observed that it is a creature of the statute and accordingly bound by the
statute, thereby implying that it is bound to apply the August, 2014
Amendment even to pending lis.
In terms of the law declared by the HC, one is required to rigorously
ascertain the date of commencement of lis. On the one hand one could
have been guided only by the date of the order sought to be appealed
against so as to determine the applicable procedure for appeal, making it
easy to ascertain. However, there are also a set of Rulings holding that the
lis commences on the date when return is filed or is required to be filed
[Khazan Chand Nathi Ram 136 STC 261 (P&H), Oswal Agro Mills Limited
139 STC 51 (P&H) and Star Rice Industries Private Limited 76 VST 120
(P&H)].
This task is not easy and the issue is capable of drawing multiple
conclusions in seemingly identical factual positions as evident from the
decision of the Constitution Bench of Supreme Court in Vitthalbhai
Narainbhai 12 STC 219 (SC) and Full Bench of Tamil Nadu Sales Tax
Appellate Tribunal in Hugs Advertising (119 STC 591).
From a taxpayer perspective, the HC Ruling may be beneficial or oppressive
based on specific facts and circumstances. The underlying and stated intent
of the August, 2014 Amendment is “freeing appellate authorities from
hearing stay applications and to take up regular appeals for final
disposal”. One would therefore hope that a clear and definite position on
this aspect is explicated at the earliest.
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