$~9 * IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: December 15, 2014 + CEAC612014 COMMISSIONER OF SERVICE TAX Through: ..... Petitioner Ms.Sonia Sharma and Ms.Neha Sharma, Advocates versus JAPAN AIRLINES INTERNATIONAL CO. LTD, ...... Respondent Through: Mr.J.K.Mittal, Advocate with Mr.Rajveer Singh and Ms.Swapna Jumde, Advocates CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J (ORAL) 1. In this appeal filed by the Commissioner of Service Tax, the following substantial question of law stands admitted for hearing:
“Whether the Custom Excise Service Tax Appellate Tribunal was right in dismissing the appeal of the Revenue on the ground that the Committee of the Chief Commissioners had mechanically granted permission for filing of appeal without due application of mind; and whether the said aspect can be examined and made subject matter before the aforesaid Tribunal in an appeal under Section 86 (2) of the Finance Act, 1994?.”
2. Learned counsel for the appellant-Revenue has relied upon decision dated 20th March, 2014 in CEAC No.20/2014, titled Commissioner of Service Tax versus L.R. Sharma („L.R. Sharma-1‟, for short) wherein, the following observations have been made:
“7. The Court has considered the submissions of the parties. The scope of enquiry of a Court into administrative acts is limited. This is all the more so when the act in question is neutral (i.e. the filing of an appeal), rather than an order placing a demand upon the assessee or otherwise prejudicial to the interests of the assessee. An order under Section 86(2) is for the filing of an appeal, which will be considered on merits by the CESTAT. Whilst there is a requirement for a meaningful procedure to be followed in all administrative acts, including the present one, the Court must view the deliberation by the concerned authority in context. In this case, the respective Superintendents of the two Chief Commissioners prepared detailed notes concerning the facts, law applicable and the need for a reconsideration of the order of the Commissioner. This is not disputed. Equally, it is not disputed that these notes were placed before the Chief Commissioners. The fact that this was done independently for the two Chief Commissioners, who did not sit together, is, as indicated above, not in question and does not affect the legality of the impugned order. The Chief Commissioners endorsed these proposals, and thus, the appeal was filed. The fact that the Chief Commissioners did not, on the record, record independent reasons for concurring with their respective subordinates does not render the authorization void. There is no such requirement in Section 86(2), and this Court does not propose to add another layer to these administrative proceedings. Rather, it is important to view the proceedings as a whole - detailed notes considering the issue of appeal were prepared by those in the office of the Chief Commissioner delegated with such tasks, and the final decision or approval was taken by the Chief Commissioner. Short of requiring the Chief Commissioner himself to record independent reasons, there is no deficiency in the administrative action. Indeed, the rationale for Section 86(2) was considered by the Supreme Court in Collector of Central Excise v. Berger Paints, (1990) 2 SCC439 in the following words:
“6. Having regard to the purpose of these rules as we conceive it, namely, to ensure that there was an application of mind to the points in respect of which the question for filing an appeal arose and that the appeal was duly authorised by the Collector, and was filed by the person authorised by the Collector in order to ensure that frivolous and unnecessary appeals are not filed, we are of the opinion that in the present context and in view of the terms of the rules and the purpose intended to be served, the appeal was competent and was duly filed in compliance with the procedure as enjoined by the rules. It has to be borne in mind that the rules framed therein were to carry out the purposes of the Act. By reading the rules in the manner canvassed by Dr. Pal, counsel for the respondent, before us which had prevailed over the tribunal, in our opinion, would defeat the purposes of the rules. The language of the relevant Section and the rules as we have noticed, do not warrant such a strained construction.”
3. On the other hand, learned counsel for the respondent-assessee has relied upon an earlier decision of this Court in Commissioner of Central Excise, Delhi-I versus Kundalia Industries 2012 (279) E.L.T. 351 (Del), wherein, it has been held as under:
“4. The aforesaid order of the CESTAT is under challenge in the present appeal. In order to show that the Commissioner (Appeals) was not legal and proper, appeal should be filed. The noting in the relevant record are produced. A perusal thereof would reveal that after the receipt of the copy of order passed by the Commissioner (Appeals), the matter was examined in the Department at the level of Superintendent (Rev.) and Assistant Commissioner (Rev.) who had vide note dated 4th February, 2007 had given their reasons stating "in view of the above grounds, Order-in-Appeal No.116/C.E./DLH/2007 dated 15-10-2007 of Commissioner (Appeals) appears to be incorrect, illegal, unfair and merits to be reviewed for filing appeal before the Hon'ble CESTAT. Submitted for consideration by the Committee of Commissioners of Central Excise, Delhi-I and II constituted vide Notification No.25/2005-C.E. (NT)" 5. This was the opinion of the aforesaid two officers who rightly submitted the matter for consideration by the Committee of Commissioners. However, the Commissioner of Central Excise-I and Commissioner of Central Excise-II who allegedly constitute the Committee of Commissioners, simply appended their signatures to the aforesaid note on 7th January and 8th January, 2008 respectively. This shows that there was no meeting of the aforesaid two officers to consider the case. The record also does not disclose that these two officers applied their mind to the issue and recorded any opinion, as per the requirement of Section 35B of the Central Excise Act that the order of the Commissioner (A) was not legal or proper and warranted to be challenged by filing an appeal”.
4. The aforesaid decisions were on statutory appeals filed before the High Court under the Central Excise Act, 1944 in the case of Kundalia Industries (supra) and relevant provisions of the Finance Act, 1994 read with the Central Excise Act, 1944 in the case of L.R. Sharma-1 (supra). CEAC612014 Subsequent to the decision of the Kundalia Page 5 of 12 Industries (supra), it appears that the Central Board of Excise and Customs had issued Circular dated 23rd November, 2012, which has been relied upon by the learned counsel for the assessee.
5. The decision of Kundalia Industries (supra) was cited before the Division Bench of this Court in L.R.Sharma-1 (supra) and was distinguished, giving the following reasoning:
“8. The reason for the introduction of Section 86(2), rather than permitting the filing of appeals by lower officers themselves, is to ensure that frivolous and unnecessary appeals are not filed. Indeed, in this case, as in all cases, the merits of the case will be decided by the CESTAT, and if there presents no reasonable argument from the Revenue, the matter will be dismissed. The assessee has every opportunity to contradict the case of the Revenue before the CESTAT. By allowing appeals such as the present one, and inquiring into minute details of the authorization provided under Section 86(2), the result is the addition of another layer of litigation in the matter on the legality of the authorization. This runs contrary to the very purpose of Section 86(2), if the authorization under that section - which is to remove additional litigation - is the cause of further disputes. Therefore, given the underlying rationale behind Section 86(2), unless the manner in which the authorization has been granted by the Committee of Chief Commissioners is arbitrary or based on irrelevant information, the Court ought not to interfere with the administrative functioning of the concerned authority, nor impose a new and onerous requirement of an independent detailed and personal consideration by the Chief Commissioners themselves, ignoring the context, i.e. the detailed consideration of the issue by the subordinate officers also involved in the process. The cases relied upon by the Respondent are of no assistance. Neither Kundalia (supra), which concerned authorization under Section 35 of the Central Excise Act, 1944 (requiring the Chief Commissioners to be of the opinion that the order in question is illegal and improper, as opposed to only objecting to the order under Section 86(2)), nor ITC Limited (supra), deal with the standards for review under Section 86(2) or the law as laid down in Berger (supra). In fact, recently in Commissioner of Central Excise v. Ufan Chemicals, 2013 (290) ELT217(All), the Allahabad High Court, while considering a similar issue, observed that the precise method and manner of obtaining authorization is not an issue, but only a limited inquiry was permitted to determine whether such authorization was given in accordance with law, which, as discussed, is clearly the case in these proceedings”.
6. The aforesaid reasoning indicates that case of Kundalia Industries (supra) was distinguished on the ground that it was concerned with Section 35 of the Central Excise Act, 1944, but, the learned counsel for the assessee-respondent submits that Section 86(2) of the Finance Act, 1994 is identically worded, and there is no distinction in the language of the two provisions. With reference to the observations in paragraph No.7 in L.R.Sharma-1 (supra), it is submitted that it is difficult to reconcile the reasoning therein with the reasoning given in Kundalia Industries (supra).
7. On the second aspect, our attention is drawn to Section 86 of the Finance Act, 1994 which confers statutory right to appeal. Revenue submits that any appeal before the Tribunal as per Sub-Section (2) and (2A) would lie against the order passed under Section 73 or 83A and 85. Per se, orders passed by the Committee of Chief Commissioners/ Commissioners under Sub-Section (2) and (2A) of Section 86 of the Finance Act, 1994, cannot be made a subject matter of an appeal before the Tribunal. Section 86 of the Finance Act, 1994 in Sub Section (2) and (2A) confers power to the Committee of Chief Commissioners/ Commissioners to authorize filing of an appeal to the Appellate Tribunal against orders passed under Section 73 or 83A, and under Section 85, respectively. Relevant portions of the provision are reproduced hereunder:
“86. Appeals to Appellate Tribunal – (1) xxx (2)The Committee of Chief Commissioners of Central Excise may, if it objects to any order passed by the Commissioner of Central Excise under section 73 or section 83A, direct the Commissioner of Central Excise to appeal to the Appellate Tribunal against the order. Provided that where the Committee of Chief Commissioners of Central Excise differs in its opinion against the order of the Commissioner of Central Excise, it shall state the point or points on which it differs and make a reference to the Board which shall, after considering the facts of the order, if is of the opinion that the order passed by the Commissioner of Central Excise is not legal or proper, direct the Commissioner of Central Excise to appeal to the Appellate Tribunal against the order. (2A) The Committee of Commissioners may, if he objects to any order passed by the Commissioner of Central Excise (Appeals) under section 85, direct any Central Excise Officer to appeal on his behalf to the Appellate Tribunal against the order: Provided that where the Committee of Commissioners differs in its opinion against the order of the Commissioner of Central Excise (Appeals), it shall state the point or points on which it differs and make a reference to the jurisdictional Chief Commissioner who shall, after considering the facts of the order, if is of the opinion that the order passed by the Commissioner of Central Excise (Appeals) is not legal or proper, direct any Central Excise Officer to appeal to the Appellate Tribunal against the order. xxx”
8. Learned counsel for the assessee on the said aspect relies upon the order dated 02.11.2012 passed in W.P.(C) No.6918/2012, L.R. Sharma & Co versus Commissioner of Service Tax and Ors.(„L.R. Sharma-2‟, for short) to the following effect:
“3. The petitioner challenges the maintainability of appeal before the CESTAT in respect of the order-inoriginal made by the Commissioner. The grievance urged is that a review of the order by the committee' of Chief Commissioners in terms of Section 86(2) of the Finance Act, 1994 never validly look place. On various grounds the concerned authorities looked into the matter on different dates and in fact, the order was made by an authority which did not have jurisdiction to do so and to whom the concerned authorities could not have delegated such powers, The petitioner is free to urge this ground as a preliminary one, if so advised, before the CESTAT, It shall be open to the petitioner to file an affidavit in this regard and rely upon such necessary documents as it chooses to do So in this regard. If so warranted, the CESTAT may require the production of necessary documents and files and examine the rival contentions in this regard on merits”.
9. Learned counsel for the Revenue, however, submits that the Division Bench in the said decision did not specifically refer to the scope of an appeal under Sub-Section (2) and (2A) of Section 86 of the Finance Act, 1994. She submits that in an appeal, the Tribunal can certainly examine whether there was any objection by the Committee of Chief Commissioners/ Commissioners or whether the authorized Chief Commissioners/ Commissioners had granted permission, but the question of validity or merits of the said decision, an administrative act and not a quasi-judicial act, cannot be made a subject matter of an appeal before the Tribunal. In other words, the Tribunal can only verify and ascertain whether permission was recorded by the Committee of Chief Commissioners/ Commissioners who were duly authorized, but the Tribunal cannot go beyond and examine and adjudicate whether the Committee of Chief Commissioners/ Commissioners had applied their mind on merits. Learned counsel for the petitioner relies upon the decision of the Allahabad High Court in Commissioner of Central Excise versus Ufan Chemicals 2013 (290) ELT217(All), which has been referred to with approval by the Division Bench in L.R.Sharma-1 (supra) decided on 20th March, 2014. In the said case, it has been observed that the Tribunal cannot go into the merits of the authorization granted by the Committee of Chief Commissioners/ Commissioners but can only go into the question of existence of the relevant authorization by the competent Commissioner(s). Reliance is also placed by the Revenue on another decision of the Allahabad High Court in Commissioner of Customs, Central Excise & Service Tax versus Devson Steels, 2014 (301) ELT295(All).
10. In view of the aforesaid, we are inclined to refer the following two questions to a Larger Bench: (1) Whether the Custom, Excise & Service Tax Appellate Tribunal (CESTAT) in an appeal under SubSection (2) and (2A) of Section 86 of the Finance Act, 1994 read with applicable provisions of the Central Excise Act, 1944, can examine and go into the question of application of mind on merits by the Committee of Chief Commissioners or Commissioners?. (2) In case the aforesaid question is answered in affirmative, i.e. against the Revenue and in favour of the assessee, then, whether the decision of the Committee of Chief Commissioners or Commissioners should be treated as null and void if they have appended signatures to the elaborated notes and objections prepared by the subordinate officers, before the file is put to the Chief Commissioners or Commissioners for examination?.
11. The appeal may be listed before Hon‟ble the Chief Justice for appropriate orders. SANJIV KHANNA, J.
V. KAMESWAR RAO, J.
DECEMBER15 2014/akb