By TIOL News Service

NEW DELHI, DEC 22, 2014: LET us give you the backdrop of this case before going to what the Delhi High Court ordered.

Against an Order-in-Original No.191/GB/2012, Dated: 31.12.2012 passed by the Commissioner, Service Tax, New Delhi , the Revenue had filed an appeal before the CESTAT. This appeal was filed with an application seeking condonation of delay of 6 days.

By the time the matter came before the Bench, the respondent assessee, an airline, flew down to file a miscellaneous application and raised a preliminary objection that the appeal is misconceived since there is no application of mind by the Committee of Chief Commissioners in considering the draft review order recommending filling of the appeal before the Tribunal against the adjudication order inasmuch as -

++ The Chief Commissioner of Central Excise, Delhi Zone merely signed on the draft review note, prepared by the Inspector (Review) on 11.3.2013, countersigned by the Superintendent (Review) on 11.3.2013, the deputy Commissioner in Chief Commissioner's unit on 5.4.2013, and the Additional Commissioner in C.C. unit on 11.4.2013, on 15.4.2013.

++ Similarly, the Chief Commissioner, Central Excise, Chandigarh Zone on 26.4.2013 merely signed on the draft review note as prepared by sub-ordinate officers of his office.

The Bench found it prudent to call for the original records and see for itself what exactly transpired.

The Bench after poring over the file observed -

"The record discloses that an elaborate note culminating in a recommendation for review was prepared by sub-ordinate officers of the Chief Commissioner, Delhi Zone and the Chief Commissioner, Delhi merely appended his signature without indicating even formal acceptance of the proposals recommending review and on the note similar exercise was replicated by the Chief Commissioner, Central Excise, Chandigarh Zone."

Holding that the principle in this area is no longer res integra inasmuch as it has been held in the case of Kundalia Industries - (2011-TIOL-930-HC-DEL-CX) & L.R. Sharma & Co. - (2013-TIOL-944-CESTAT-DEL) that mere signing on draft note mechanically does not constitute sufficient compliance with the requirement of application of mind by the Commissioners comprising the Committee, to the twin requirements of the decision making process namely, due consideration of the material pertaining to the adjudication/appellate order and the appropriateness/desirability of preferring an appeal, the CESTAT concluded that in the present appeal the decision to review and prefer an appeal, recorded by the Committee of Chief Commissioners, Delhi and Chandigarh does not measure up to the standards spelt out.

The appeal was held as defective and accordingly consigned to the rejection bin.

We reported this interesting case as - 2013-TIOL-1613-CESTAT-DEL.

The matter did not end there.

As there is nothing to be spent by the Revenue in its pursuit of happiness, they filed an appeal before the Delhi High Court and the following substantial question of law was admitted for hearing:

"Whether the Customs, 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?"

The Revenue relied upon decision dated 20th March, 2014 in CEAC No.20/2014, titled Commissioner of Service Tax vs. L.R. Sharma ('L.R. Sharma-1') wherein, the High Court had concluded - 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….”

As against this, the respondent assessee relied on an earlier decision in Commissioner of Central Excise, Delhi-I vs. Kundalia Industries 2011-TIOL-930-HC-DEL-CX , wherein, it is held that - 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.

The High Court observed that the decision of Kundalia Industries(supra) was cited before the Division Bench in L.R.Sharma-1(supra) and was distinguished by observing - “… 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 High Court noted that the case of Kundalia Industries(supra) was distinguished on the ground that it was concerned with Section 35 of the CEA, 1944, which the respondent submitted is identically worded, and there is no distinction in the language of the two provisions.

The respondent assessee also relied 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') and which is to the following effect:

"3. The petitioner challenges the maintainability of appeal before the CESTAT in respect of the order-in-original 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".

The counsel for the Revenue also relied on the decision of the Allahabad High Court in Commissioner of Customs, Central Excise & Service Tax vs. Devson Steels 2013-TIOL-985-HC-ALL-CX wherein while allowing the appeal filed by the Revenue it was observed - The merit of the order of the Committee of Commissioner of Central Excise granting approval may not be subjected to challenge, as the appeal in any case has to be considered and decided on merit by the Appellate Authority on merits under Section 35B of the Act.

The High Court, therefore, found it apt to refer the following two questions to a Larger Bench:

(1) Whether the Custom, Excise & Service Tax Appellate Tribunal (CESTAT) in an appeal under Sub-Section (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?

The Registry was directed to list the appeal before the Chief Justice for appropriate orders.

(See 2014-TIOL-2311-HC-DEL-ST)