ST / CX - Review Order - Decision rendered by Committee is an administrative function and would, therefore, not require members of Committee to consult and give independent reasons - Tribunal has no jurisdiction whatsoever to strike down a decision taken by Committee: HC Larger Bench
By TIOL News Service
NEW DELHI, JULY 21, 2015: THIS is a long story. Nonetheless, it brings the curtains down on an ailing issue.
In the case of Kundalia Industries, the CESTAT had dismissed the Revenue appeal on the following two grounds -
(i) No opinion is formed by the Committee of Commissioners about the illegality of the order as required under Section 35B of the Central Excise Act.
(ii) There was no authorization by the Committee of Commissioners to file appeal on its behalf.
The CCE, Delhi-I had, therefore, filed an appeal before the Delhi High Court.
And the High Court while dismissing the Revenue appeal - 2011-TIOL-930-HC-DEL-CX on 29.03.2011 observed -
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Review u/s 35B(2) of CEA, 1944 - From perusal of the noting of the relevant record it is revealed that after receipt of the order passed by the Commissioner(A), the lower officers had given their reasons and concluded that the o-in-a appeared to be incorrect, illegal, unfair and merits review and this was note was submitted for consideration to the Committee of Commissioners - however, the CCE-I and CCE-II simply appended their signatures to the aforesaid note - this shows that there was no meeting of the two officers to consider the case - record also does not disclose that the two officers who constituted the Committee applied their mind to the issue and recorded any opinion as per the requirement of s.35B (2) of the CEA, 1944 - meaningful consideration should be reflected in the note sheets - since the noting does not show any such satisfaction or opinion having been recorded by the Committee of Commissioners, on this ground itself Department appeal fails - Revenue Appeal dismissed: HC [paras 5 & 6]
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Incidentally, three years later, on 20.03.2014 in the case of Commissioner, Service Tax vs. L.R.Sharma, the Delhi High Court had observed - 2014-TIOL-2458-HC-DEL-ST -
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Service Tax - Appeal to Tribunal - Review by Committee of Chief Commissioners - Section 86(2) of the Finance Act, 1994 - 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 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. (para 7)
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The High Court also held -
Tribunal Order in 2013-TIOL-944-CESTAT-DEL set aside and cost imposed: Tribunal fell into error in holding that the appeal was not maintainable since the satisfaction as required by Section 86 had not been appropriately recorded. The impugned order is accordingly set aside. The CESTAT shall consider the appeal on its merits after issuing notice and giving hearing to the parties. The appeal accordingly succeeds with costs quantified at Rs. 30,000/- to be paid to the appellant by the respondent within four weeks.
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The Special Leave Petition and the Review Petition filed by L.R.Sharma were dismissed by the Supreme Court. See 2014-TIOL-103-SC-ST & 2014-TIOL-104-SC-ST-LB.
Interestingly, the story does not end but begins!
In the case of CST, Delhi vs. Japan Airlines International Co. Ltd. - 2013-TIOL-1613-CESTAT-DEL the CESTAT had held thus -
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ST - Review by Committee - mere signing on draft note mechanically does not constitute sufficient compliance with the requirement of application of mind by the Chief 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 - issue no longer res integra - appeal does not measure up to the standards spelt out by the decisions in this regard - Revenue appeal defective, hence rejected: CESTAT [paras 3 & 4]
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The Revenue appeal against this Tribunal decision before the Delhi High Court fetched the following result [See 2014-TIOL-2311-HC-DEL-ST] -
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ST - Whether CESTAT can go into the merits of the order of the Committee of Commissioners /CCs granting approval to a review order & if the answer is in affirmative whether the decision of the Committee of Commissioners /CCs should be treated as null and void if they have merely appended signatures to the notes prepared by subordinate officers - matter referred to Larger Bench of High Court [para 10]
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The reference made to Larger Bench reads -
(1). Whether the Custom, Excise and 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 the 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 Larger Bench of the High Court pronounced its decision yesterday and here it is.
The High Court extracted the provisions of section 86 of the FA, 1994 and inter alia noted that insofar as the Revenue is concerned, the decision with regard to whether or not an appeal has to be filed can be taken, only by a Committee of Chief Commissioners of Central Excise provided it has an objection to an order passed by Commissioner of Central Excise under Section 73 or Section 83A of the Finance Act;that if, the Committee comes to such a conclusion then, it is mandated to direct the Commissioner of Central Excise to prefer an appeal to the Tribunal; that where, however, the Committee differs in its opinion qua the order of the Commissioner of the Central Excise, it is required to state the point or points of difference and place the same by way of a reference before the Board which, after considering the facts of the order, can direct, the Commissioner of Central Excise to prefer an appeal to the Tribunal if, it is of the opinion that the order of Commissioner of Central Excise, is not legal or proper.
The High Court, thereafter, observed -
++ Beyond this, the Section does not state as to the manner in which Committee of Commissioners have to arrive at a decision as to whether an appeal should be preferred against the order of Commissioner of Central Excise. As is abundantly clear, the provision for constitution of Committee of Commissioners appears to have been incorporated in the Finance Act to exclude the possibility of institution of frivolous and / or futile appeals. Frivolous and / or futile appeals could be of various kinds including against those orders of the Commissioner of Central Excise, which concern, issues that stand already covered against the Revenue by virtue of decisions rendered by superior courts or involve aspects which, cannot even make out a statable case before the Tribunal.
++ Barring such cases the Revenue, ordinarily, should have the liberty to assail an adjudication order which, in its wisdom, is against its interest. We may, however, add a note of caution, which is that, our observation as to what could be a frivolous and/ or futile appeal is not exhaustive.
++ The submission made before us that the Committee of Commissioners should not only meet and consult but should also give reasons for the decision arrived at by them, independently of what is already placed on record before them, loses a sight of the fact as to how the Revenue functions when it is tasked with administrative duties.
++ In our view, the duty discharged by the Committee is purely administrative and, cannot be, categorized as a quasi-judicial function since, it does not decide the lis between the parties, that is, the Revenue and the assessee. There is neither a de novo investigation of facts nor is a hearing required to be given by the committee. All that the Committee does is to ascertain as to whether or not the adjudication order is impregnated with aspects which go against the interest of the Revenue, and if so, whether or not they are already covered by decisions rendered by superior courts. The decision rendered by the Committee, in our view, does not have the attributes of a quasi-judicial function.
++ Therefore, having regard to the above, which is, that in our opinion, the decision rendered by the Committee of Commissioners is an administrative function, it would, to our minds, therefore, not require the members of the Committee to meet, consult and give independent reasons, as contended before us.
++ In our view, a meeting and / or consultation is not mandatory so long as each member of the Committee has the requisite material placed before him prior to a decision being taken as to whether or not an appeal is to be preferred. It may be a wholesome circumstance to have a meeting and consultation between the members of the Committee but, the absence of the same, cannot render a decision taken by them open to challenge as long as they concur with each other and, there is, material placed before them for reaching such a conclusion.
++ In our opinion (in this case), though, no inter se meeting, in the physical sense, was held by the two Chief Commissioners, there is sufficient material, on record, to establish, that there was, a convergence of views.
++ The question, which, thus arises, is this : would the absence of a physical meeting and / or a face-to-face consultation, render the decision taken on 26.04.2013, by the Committee of Commissioners, illegal? In our view, the answer has to be in the negative. As long as there is material on record, and an indication, as in this case, in the form of signatures of the two Commissioners, as to their decision in the matter, a physical meeting and / or consultation is not the requirement of Section 86(2) of the Finance Act.
The questions-
Q. Whether the members of the Committee ought to have given their independent reasons for reaching the conclusion to institute the appeal?
Held - There is no gainsaying that, as in the case, of quasi-judicial function carried out by statutory authorities, even in respect of administrative decision, reasons ought to be given. The purpose behind seeking reasons is not only to do away with the allegation that the conclusion reached is arbitrary and / or unfair but, is also insisted upon, to enable the aggrieved party, as also, a superior authority (which could be a statutory authority or court or Tribunal) to ascertain as to what weighed with a decision making authority in reaching its conclusion. The principle has been summed up in the case of Alexander Machinery (Dudley) Ltd. Vs. Crabtree, 1974 LCR 120 that the decision of an administrative, quasi-judicial or even a judicial authority should not represent an "inscrutable face of a sphinx".
++ Therefore, while one cannot but agree with the proposition that there should be material on record which reflects the reasons as to why the Revenue wishes to prefer an appeal, what does not flow from that, is that, the Committee of Commissioners should necessarily give their own reasons if they otherwise agree with the reasons already on record. In the facts of the case, the record itself shows, to which, we have made a reference above, as to why the Revenue was desirous of preferring an appeal. The reasons set out were cogent and substantial. As to whether the reasons recorded would finally persuade the Tribunal to hold in favour of the Revenue is not what concerns the Committee of Commissioners. This is so as it is a unilateral administrative decision of an aggrieved party i.e., the Revenue.
Q. Should the decision of the Committee of Commissioners be overturned merely on the ground that they did not give their own independent reasons, even if it meant replicating, what has already been set forth by the subordinate officers, on record?
Held: In our view, the answer has to be in the negative. This is so, as the administrative decision of the kind involved, as indicated above, requires the Committee of Commissioners to look at errors of fact and / or law in the order passed by the adjudicating authority only from the point of view of the Revenue i.e. as to whether the revenue should prefer an appeal. At this stage, the Committee of Commissioners is, neither addressing nor adjudicating upon the stand taken by the respondent/assessee. While, the decision of the Committee of Commissioners has consequences, in as much as, the adjudicating authority's order is put in jeopardy by institution of the appeal, it has no civil consequences which, if at all, arise only when, the appeal is entertained and adjudicated upon by the Tribunal.
++ Therefore, having regard to the nature of the administrative functions discharged by the Committee of Commissioners, in our view, there is no requirement whatsoever under the provisions of Section 86(2) of the Finance Act to give independent reasons for coming to a conclusion, which is, in consonance, with a view already on record that an appeal should be filed.
Conclusion:
+ To conclude that every decision rendered by the Committee of Commissioners which does not bear independent reasons would lay it open to challenge, in our opinion, would be not only erroneous but would also render the exercise inefficacious and impractical. In our view, the limited scrutiny that the Tribunal may conduct when there is an objection raised as regards the maintainability of the appeal is, to examine, as to whether, a decision has been taken by the officers, who ought to form part of the Committee of Commissioners. Once, the record shows that a decision has been taken to file an appeal then, in our opinion, it is beyond the remit of the Tribunal to either examine the sufficiency of the material or the "appropriateness / desirability of instituting the appeal"; as these are aspects with respect of which, responsibility has been placed on the Committee of Commissioners.
+ The Tribunal, while acting as an appellate authority, in our view, has no jurisdiction whatsoever to strike down a decision taken by the Committee of Commissioners on the administrative side. As indicated above, the only aspect that the Tribunal can examine is, as to whether or not there is on record a decision of the Committee of Commissioners to institute an appeal. Once, such a decision is shown to have been taken, then the Tribunal will entertain the appeal and adjudicate upon the same on merits; albeit in accordance with law.
SC in Berger Paint's case -
+ The Supreme Court (in Berger Paint's case) ruled, that as long as there was an application of mind (by which it did not mean separate reasons) in respect of the issue qua which the appeal arose and due authority was given by the Collector, the appeal was competent. On these grounds, the Supreme Court reversed the judgment and order of the Tribunal.
+ Having regard to the judgment rendered in Berger Paints's case (which has been followed by a Division Bench of this court in LR Sharma-1's case, as also, by the Division Bench of the Allahabad High Court in Ufan's case), we are bound to hold that the decision in Kundalia Industries' case is not consistent with a view taken by the Supreme Court.
Decision on the questions of law referred:
# Question no.1 is answered in favour of the Revenue. The Tribunal cannot examine the issue beyond the factum as to whether or not a decision has been taken by a Committee of Commissioners to institute the appeal.
# In view of answer rendered qua question no.1, question no.2 does not arise for consideration. In any event, the act of appending of signatures by the members of the Committee would suffice, as long as, the record placed before them, contains the necessary material and the reasons for approving the action to institute the appeal.
The reference was answered accordingly.
(See 2015-TIOL-1645-HC-DEL-ST-LB)
