The Uttarakhand High Court has held that the mandatory pre-deposit made at the first appellate stage must be taken into account while determining compliance with the statutory 10% pre-deposit requirement for filing a second appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). 

The Bench of Chief Justice Manoj Kumar Gupta and Justice Subhash Upadhyay consequently set aside the orders of both the CESTAT and the Commissioner (Appeals), which had dismissed the assessee’s appeal on technical grounds without examining the case on merits. 

The appellant challenged an order of the CESTAT, which had dismissed his service tax appeal on the ground that he had failed to comply with the mandatory pre-deposit requirement prescribed under Section 35F of the Central Excise Act. According to the Tribunal, the appeal before it was not maintainable because the appellant had not made the required 10% pre-deposit in the manner contemplated under the applicable CBIC Circular dated June 24, 2019. 

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The assessee, however, contended that he had already deposited 7.5% of the disputed amount while filing the first appeal before the Commissioner (Appeals) and had deposited only the remaining 2.5% before approaching the Tribunal, thereby completing the statutory requirement of a cumulative 10% pre-deposit. 

The Tribunal nevertheless held that the earlier deposit could not be counted for the second appeal and further observed that the mode of payment was inconsistent with departmental instructions issued in October 2022 read with the 2019 Circular. 

While admitting the appeal, the High Court framed two substantial questions of law, including whether the CESTAT was justified in ignoring the amount already deposited by the appellant while determining compliance with the mandatory pre-deposit requirement and whether, once the statutory amount had been deposited, the Tribunal ought to have decided the appeal on merits instead of dismissing it on technical grounds. 

During the hearing, counsel appearing for the Revenue informed the Court that the Department had reconsidered the issue and accepted that the 7.5% pre-deposit made before the Commissioner (Appeals) forms part of the overall 10% mandatory pre-deposit required for maintaining a second appeal before the CESTAT.

The Department relied upon the CESTAT Circular dated July 9, 2018, which clarified that The mandatory pre-deposit for a second appeal is 10% of the duty or penalty confirmed by the Commissioner (Appeals). The 10% requirement is inclusive of the 7.5% already deposited at the first appellate stage. An appellant is not required to make a fresh 10% deposit in addition to the earlier 7.5%. The earlier contrary view reflected in the CESTAT Circular dated April 27, 2017 stands rescinded. The interpretation adopted by the Delhi High Court in Santani Sales Organization v. CESTAT is to be followed by all Benches. 

The Department further acknowledged that, in the present case, the appellant had deposited the mandatory amount of ₹77,500 before filing the appeal before the Tribunal and had therefore complied with the statutory requirement. 

Taking note of the Revenue’s stand, the High Court observed that the Commissioner (Appeals) had dismissed the first appeal solely on the ground that the pre-deposit did not conform to the 2019 Circular and had not examined the case on merits. Since the Tribunal had also confined itself to the issue of maintainability, both orders deserved to be set aside.

Accordingly, the Court quashed the CESTAT’s order dated September 27, 2024, as well as the order of the Commissioner (Appeals), and remitted the matter back to the Commissioner (Appeals) for fresh adjudication on merits. 

The Bench clarified that its decision was based on the specific stand adopted by the Department in the present case. Consequently, it deliberately left open the larger legal question of whether the pre-deposit must necessarily be made in the manner prescribed under the CBIC Circular dated June 24, 2019, observing that the issue could be decided in an appropriate future case. 

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