Leave us a Message

HC Order against CESTAT on Pre Deposit of Service Tax

Back to News

The Delhi High Court in Air India V. Commissioner Adjudication, Service Tax on 3rd May 2013 allowed the appeal petition of Air India against the order of Custom Excise & Service Tax Appellate Tribunal (CESTAT) that had directed Air India to pre-deposit 8 crore rupees out of 15 crore rupees of the service tax that was demanded by the Commissioner of Service Tax earlier. The Tribunal had asked Air India to deposit the said sum within 8 weeks from the date of the order.

The matter pertained to the demand of service tax by the Commissioner of Service Tax against the Appellants for the financial year of 2006-2007. The Commissioner of Service tax had held the Appellants were liable to a service tax of rupees 65, 48, 52,240 crore. The Appellants had appealed this demand to the Tribunal which had held that the Appellants were liable to rupees 15.53 crores out of this demand and had directed pre-deposit of the same.

The questions involved in the case were with respect to the interpretation of section 66 A of the Finance Act. The tribunal had held that in view of section 66 A of Finance Act read with Rule 21(d) (iv) of the Taxation Rules, 1994 that the Appellants were liable to the tax demand. This demand was in respect to the payments made by the appellants to General Sales Agents or GSA who were appointed by the appellants in various foreign jurisdictions for rendering services to the appellants that included representing the appellants abroad or undertaking sale promotion activities for promoting sale services of the appellants. The tribunal had held that since this service was being used by the Appellants in India for business that was located in India and was provided from outside and received in India, the appellants were liable as service recipient to pay service tax for the same.

The appellants submitted before the Delhi High court that this pre-deposit of the amount ought to have been waived in view of difficult financial position of the appellants which had also been recognized in the earlier orders of tribunal and submitted further that the said contract of GSA was entered outside India (Hong Kong) and the services were also received and rendered outside India clearly leading to no question of tax payment in India. The Appellants submitted that the ultimate beneficiaries of the services were also located outside India.

The Delhi High Court held in favour of the appellants and modified the order of the Tribunal and observed:

"Provisions of section 66 A shall require interpretation and the issue is not so clear-cut and is debatable."

The court further said that the entire amount of tax, penalty and interest demanded ought to have been waived as a condition for hearing the appeal in view of the financial hardship faced by appellant that had already been recognised by the Tribunal in other orders dated 29.11.2011 and 12.10.2012.

The court thus held that there shall be full waiver of the requirement to pre-deposit the tax, penalty and interest and observed that the appeal of the appellant before the Tribunal shall be heard without insisting on any pre-deposit.