Service Tax: Delhi High Court Waives Balance Pre‑Deposit; Directs CESTAT to Hear Appeal on Merits

Service Tax: Delhi High Court Waives Balance Pre‑Deposit; Directs CESTAT to Hear Appeal on Merits

The current dispute is regarding the payment of service tax, which the department assumes that the company did not pay; however, the company had already done with paying a large amount of tax (much more than the amount asked by the authorities). The department asks the company to still pay the extra amount.

The current writ petition is being filed by MCM Construction and Real Estate Pvt. Ltd. (the Petitioner) in the Delhi High Court under Articles 226 and 227 of the Constitution of India. Here, the company is challenging two orders dated September 27, 2024, and May 15, 2025, respectively, passed by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT).

Earlier, the Central Goods and Service Tax (CGST) Department issued two Show Cause Notices (SCNs) to MCM, one dated March 07, 2008, relating to the period between 2005-06 and 2006-07, and the other dated November 28, 2008, relating to the period between 2007-08. These notices claimed that the company did not pay its service tax for certain construction-related services (“construction of complex” and “commercial/industrial construction”). The department alleged those services were taxable, and MCM had not paid tax on them.

On this point, the company argued that their service involved “composite works contracts,” which means the work includes both goods and services, and according to them, such contracts are not charged with service tax separately. They claimed exemption under certain notifications (Notification 18/2005-ST, Notification 15/2004-ST, and Notification 1/2006-ST).

However, the department did not accept these claims and issued a final order dated January 05, 2024, demanding a tax of Rs. 8.35 Crore (including cess). Some amount had already been paid, so the company was asked to pay the remaining balance.

MCM finds this unfair and hence raised an appeal in CESTAT against the order. Law says, before CESTAT can hear such appeals, the appellant is required to pay a pre-deposit (pay a certain percentage of the tax demanded) under Section 35F of the Central Excise Act. However, the Registry found that the company had not deposited the required pre-deposit.

Later, on September 27, 2024, CESTAT passed an order directing MCM to deposit Rs. 17,21,477 more. MCM then filed a rectification application asking CESTAT to correct or reconsider this direction, but that was also rejected on May 15, 2025. Then, MCM approached the Delhi High Court, challenging both the orders issued by the CESTAT.

In the high court, MCM argued that they had already paid a substantial amount of tax of around 39%, much more than the required pre-deposit, i.e., usually 7.5% or 10%. Further, it says their service is not taxable and requests the high court to adjust the pre-deposit amount that has already been paid and that they should not be asked to pay more.

The government (respondent) in this context argued that the amount already paid by MCM was voluntary/self-assessed and was not related to the shortfall mentioned in the SCNs. Therefore, only the short-paid amount (as per the SCNs) was under dispute, and pre-deposit is required separately on that shortfall; earlier payments cannot be adjusted.

When HC examined the entire matter, it found that the total tax demand was Rs. 13.66 Crore. The company has already paid Rs. 5.36 Crore (39.28%), and the remaining amount in dispute was Rs. 8.29 Crore. The company was required to pay a pre-deposit amount of Rs. 17.21 Lakhs.

The court noted that the company has already paid a large amount, i.e., Rs. 5.36 Crore, and the amount now demanded is small, i.e., Rs. 17.21 Lakh, in comparison. After observing all, the high court waived the requirement for MCM to deposit Rs. 17.21 Lakhs, considering the large amount already paid and the nature of the legal dispute. The fact that refusal to hear the appeal on a technicality (non-deposit) would be unfair. It directed CESTAT to hear the appeal on merits, without dismissing it for not depositing Rs. 17.21 Lakhs. The appeal will now be heard by CESTAT on August 26, 2025.