Facts of the Case

The petitioner, M/s. Sai Sudha Technologies, is a registered taxable person. The Department issued a show cause notice alleging non-payment of service tax amounting to ₹6,38,700 for the period 2016-17 (up to 30.06.2017). After adjudication, the Department passed an Order-in-Original confirming the demand along with applicable interest and penalty.

Aggrieved by the adjudication order, the petitioner preferred an appeal before the Commissioner (Appeals) under Section 85 of the Finance Act, 1994 read with Section 35F of the Central Excise Act, 1944. However, the appeal was rejected at the admission stage solely on the ground that the petitioner had not made the mandatory statutory pre-deposit of 7.5% at the time of filing the appeal.

During the pendency of the writ petition before the Telangana High Court, the petitioner deposited the required statutory pre-deposit and requested that the appeal be restored and decided on merits.

 

Issues Involved

  1. Whether an appeal can be rejected permanently for non-payment of the mandatory pre-deposit at the time of filing under Section 35F of the Central Excise Act, 1944.
  2. Whether subsequent compliance with the statutory pre-deposit requirement can regularise the appeal already filed.
  3. Whether the appellate authority should decide the appeal on merits after the mandatory pre-deposit has been made.

 

Petitioner's Arguments

  • The petitioner submitted that although the statutory pre-deposit had not been made when the appeal was filed, the required amount was subsequently deposited.
  • It was argued that once the mandatory pre-deposit requirement stood complied with, there was no justification to deny adjudication of the appeal on merits.
  • The petitioner requested the Court to direct the appellate authority to entertain the appeal and decide the matter in accordance with law.

 

Respondents' Arguments

  • The Department contended that Section 35F clearly mandates payment of the prescribed pre-deposit before filing an appeal.
  • Since the petitioner had failed to comply with this mandatory statutory requirement at the relevant time, the Commissioner (Appeals) rightly rejected the appeal as not maintainable.
  • According to the Department, compliance after filing could not cure the initial defect.

 

Court Findings / Order

The Telangana High Court observed that Section 35F indeed requires the mandatory pre-deposit before filing an appeal.

However, the Court also noted that the petitioner had subsequently deposited the required amount during the pendency of the writ proceedings.

The Court held that:

  • The purpose of the statutory pre-deposit stood fulfilled once the amount was deposited.
  • The earlier filing of the appeal without the required deposit should be treated only as an irregularity and not as a fatal defect.
  • Since the statutory requirement had now been complied with, the appeal deserved to be decided on merits.
  • The issue of limitation would not arise because the appeal had already been filed within time; only the procedural requirement of pre-deposit had remained incomplete initially.

Accordingly, the High Court directed the Commissioner (Appeals) to take the appeal on record and dispose of it on merits in accordance with law.

The writ petition was disposed of without any order as to costs.

 

Important Clarification

This judgment clarifies that although statutory pre-deposit under Section 35F is mandatory, subsequent compliance during the pendency of proceedings may regularise the appeal where the interests of justice require adjudication on merits.

The decision recognises that failure to make the pre-deposit at the initial stage constitutes a procedural irregularity capable of being cured, rather than an incurable defect leading to permanent dismissal of the appeal.

 

Sections Involved

  • Section 35F of the Central Excise Act, 1944
  • Section 85 of the Finance Act, 1994
  • Article 226 of the Constitution of India

Link to download the order -

https://mytaxexpert.co.in/uploads/1782968056_112compressed.pdf

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