MARCH 02, 2012

Ghost of Commissioner's revisionary powers still haunts service tax assessees – Baby thrown away with bath water

By Santosh Hatwar, Advocate

ONE of the scourges of service tax legislation since its inception was the ‘revisionary powers of Commissioner' wherein the orders of subordinate adjudicating authorities, which were largely in their favour, were taken up for revision by the Commissioner and quite often such revision proceedings went against the assessee. This resulted in endless (or you may call mindless) litigation at higher forums.

Fortunately, some wisdom (not wisdom in its entirety, which becomes evident in the subsequent paragraphs of this article) dawned on the CBEC and this scourge was removed from the statute in the year 2009 by virtue of section 113(C) of Finance Act, 2009 whereby the existing section 84 which provided revisionary powers to Commissioner was substituted by a new section 84 which is pari materia to certain provisions of section 35E of Central Excise Act, 1944 which provided for filing of appeals before Commissioner (Appeals) consequent to directions from Commissioner after reviewing orders passed by subordinate adjudicating authorities. Consequentially, another minor amendment was made in section 86 of Finance Act, 1994 [through section 113(D) of Finance Act, 2009] to omit the words and figures ‘or section 84' wherever it occurred therein.

While introducing these amendments in Finance Bill, 2009, the ‘Notes on Clauses' accompanying the Finance Bill explained the reasons for introducing such amendment as follows:

Clause (C) proposes to substitute section 84 with a view to align the appeal procedure of service tax with that of Central Excise.

Therefore, it is proposed to do away with the power of revision by the Commissioner of Central Excise under section 84. By amendment to the said section, it is proposed to provide a procedure for referring the orders passed by any authority subordinate to the Commissioner of Central Excise to the Commissioner of Central Excise (Appeals), within the prescribed period, where any such direction is made by the Commissioner reviewing such orders . Further, it is proposed to include a saving clause by way of an explanation to provide that the amended provision shall not apply to any order passed by an authority subordinate to the Commissioner before the commencement of this Bill (emphasis supplied).

Clause (D) proposes to make consequential amendments in section 86 by omitting the words and figures “or section 84”.

Likewise, the Memorandum Part 3 accompanying the Finance Bill, 2009 which related to proposed statutory amendments in service tax legislation, stated thus:

Finance Act, 1994 is being amended to:- (a) abolish revision procedure prescribed under section 84 and to prescribe the procedure of filing departmental appeals before the Commissioner (Appeal) in service tax cases similar to the central excise procedure. Accordingly, section 84 pertaining to revision by Commissioner is being modified and consequential changes are being made in section 86. A saving clause is being provided to protect the pending cases (emphasis supplied).

Similarly, ‘Explanatory Notes - Service Tax' accompanying the budget documents explained the scope of new amendment as follows:

Section 84 is being amended, to abolish the revision procedure prescribed in Section 84. Revision of orders by the Commissioner is being replaced, with the filing of departmental appeals before the Commissioner of Central Excise (Appeals), similar to the Central Excise provisions. Consequential changes are effected in Section 86 . A saving clause is being provided, to protect the pending cases (emphasis supplied).

While explaining the scope of the amendment, TRU in its Letter D.O. F. No.334/13/2009-TRU dated July 6, 2009 stated as follows:

4.1 While most of the procedures under service tax law are aligned to that of the central excise, one of the exceptions is the treatment to an order-in-original passed by an officer subordinate to Commissioner, if the same is not acceptable to the Commissioner on account of its lack of legality or appropriateness. While section 35E of the Central Excise Act, 1944 prescribes a departmental appeal being filed against such order before the Commissioner (Appeals), section 84 of the Finance Act, 1994 prescribes revision of such orders, which amounts to recalling the order and re-adjudicating it. Field formations as well as trade has requested that the service tax procedure should be amended to make it in line with the central excise procedure. The same has been done by suitably amending section 84 with certain consequential amendments in section 86. This provision would come into effect from the date of enactment of the Finance (No. 2) Bill, 2009. All cases decided before this date would continue to be governed by the existing provisions (emphasis supplied).

So far so good or is it really so. The crux of the issue lies in the minor amendment to section 86 which followed as a consequence of the main amendment to section 84. Section 113(D) of the Finance Act, 2009 which provides for an amendment to section 86 reads as follows:

(D) in section 86, in sub-sections (1) and (2) , the words and figures "or section 84" shall be omitted;

All along, the ‘Notes on clauses to Finance Bill, 2009', ‘Memorandum Part 3', TRU Clarification dated 06.07.2009 and the Explanatory Notes stated that a saving clause is being inserted to take care of pending cases. Unfortunately, the saving clause only saved the scourge of Commissioner's revisionary powers or whatever was left of it and did not give any respite to the assessees against the revisionary orders passed by the Commissioners exercising such powers. The so called saving clause appended as an ‘explanation' to the new section 84 is as follows:

Explanation.— For the removal of doubts, it is hereby declared that any order passed by an adjudicating officer subordinate to the Commissioner of Central Excise immediately before the commencement of clause (C) of section 113 of the Finance (No. 2) Act, 2009, shall continue to be dealt with by the Commissioner of Central Excise as if this section had not been substituted.

All it said was that the Commissioner is still empowered to exercise his revisionary powers for all orders passed by subordinate adjudicating officers prior to August 19, 2009 (i.e. date of enactment of Finance Act, 2009 which brought into force the amended sections 84 and 86 of Finance Act, 1994).

Now what is the remedy to assessees who are saddled with an adversarial revisionary order from the Commissioner who exercised his review powers on orders passed by subordinate adjudicating authorities prior to August 19, 2009? Or, is there any mechanism to file an appeal against an order passed by the Commissioner of Central Excise (Appeals) under the new section 84 to the Appellate Tribunal. Sadly, there is no provision to file an appeal against both such orders because the reference to ‘section 84' is omitted in section 86 by virtue of the amendment through Section 113(D) of Finance Act, 2009. With the result, the revisionary orders passed by the Commissioner as well the orders passed by the Appellate Commissioner in exercise of the powers under new section 84 will become final and binding on the assessees as well as the department.

Recently, Bangalore Bench of CESTAT had an occasion to deal with one such appeal against a revisionary order passed by Commissioner (Arjun Tours & Travels Pvt Ltd vs. CST, Bangalore - 2012-TIOL-273-CESTAT-BANG) wherein the Tribunal dismissed an appeal filed by the party against such revisionary order as ‘not maintainable' as there was no provision in the statute empowering the Tribunal to hear such appeals after 19.08.2009; all this because there is no saving clause provided in the statute to deal with such revisionary orders which emanate after 19.08.2009 or for that matter orders passed by Commissioner (Appeals) under section 84. All said and done, the credit must invariably go to the Senior Departmental Representative Shri Ganesh Haavanur, Additional Commissioner for bringing up this preliminary objection before the Tribunal contending that the appeal against such an order was not maintainable before the Tribunal. After perusing the relevant provisions of the statute, the Tribunal concurred with his views and ruled it in favour of the Revenue.

Board should immediately bring in an amendment retrospectively in section 86 of Finance Act, 1994 to provide for an appellate mechanism for revisionary orders passed by Commissioners after 19.08.2009 and also for orders passed by Commissioner (A) under new section 84. Though I am not a big fan of retrospective legislations, in this instance, I believe that there is no choice except bring in a retrospective amendment to banish the ghost of revision orders once and for all apart from providing an appellate mechanism to orders passed by Commissioner (A) under new section 84.

Tailspark: Since the new section 84 is pari materia to certain provisions of section 35E of Central Excise Act, 1944, I looked up those provisions as well to see if there is any appellate mechanism for orders passed by Commissioner (A) in pursuance of section 35E(4) of Central Excise Act, 1944 and found to my horror that there is no appellate mechanism prescribed under that statute for orders passed by Appellate Commissioner in terms of section 35E of Central Excise Act, 1944. I hope the Board will consider this aspect as well while bringing in a retrospective legislation to amend section 86 of Finance Act, 1994 so that section 35B of Central Excise Act, 1944 is also suitably amended to provide for appellate mechanism to orders passed by Commissioner (A) in terms of section 35E(4) of Central Excise Act, 1944.