COMMISSIONER SERVICE TAX vs. L.R. Sharma

* IN THE HIGH COURT OF DELHI AT NEW DELHI

% DECIDED ON: 20.03.2014
+ CEAC 20/2014

COMMISSIONER SERVICE TAX ..... Petitioner
Through: Ms. Sonia Sharma, Sr. Standing
Counsel.

versus

L.R. Sharma ..... Respondent
Through: Mr. J.K. Mittal with Mr. Vipul
Dubey, Advocates.


CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
1. This is an appeal against an order of the Central Excise and
Service Tax Appellate Tribunal (“ CESTAT ”), which accepted
the assessee’s objections to an order authorizing the filing of an
appeal under Section 86(2) of the Finance Act, 1994 (“ the
Act ”). Section 86 introduced the facility of an appeal to the
CESTAT, stating:

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Section 86 (2) - direct that an order passed under Sections 73 or
83A be appealed to the CESTAT. The present case, involves the
legality of the exercise of this power. The Respondent (LR
Sharma) provides services relating to replacement of water
pipelines for the Delhi Metro Rail Corporation, Delhi Jal Board
and other entities, but was not paying service tax according to
the provisions of Section 65(39a) of the Finance Act, 1994. On
15.10.2010, the Commissioner of Service Tax (“ the
Commissioner ”) issued a show cause notice to the Respondent
asking why an amount of ` 22,60,09,148, leviable under
Sections 66, 67 and 68, of the Act should not be recovered on
account of services provided by the Respondent. Other demands
too were made in the show-cause notice. The show-cause notice
was adjudicated subsequently by the Commissioner, who, by an
order dated 24.4.2012, dropped the proceedings and discharged
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the Respondent. A review order was then passed by the
Committee of Chief Commissioners under Section 86(2) of the
Act, to file appeal the matter to the CESTAT.
3. The legality of the order deciding to file an appeal, was
questioned before the CESTAT, which held that the discretion
vested in the Committee under Section 86(2) (hereafter “the
Committee”) had been improperly exercised, and therefore the
appeal required dismissal. The Revenue today impugns this
order of the CESTAT, on the legality of the order under Section
86(2), independent of the merits of the case.
4. The assessee had argued before the CESTAT that the order
under Section 86(2) was bad in law because (a) there was no
meeting between members of the Committee; (b) the order was
prepared by the subordinate officers to which the concerned
Chief Commissioners merely appended their signatures without
independently considering the matter, or deliberating upon the
issue. The CESTAT dismissed the first objection on the strength
of the decisions in Commissioner of Central Excise v. ITC
Limited , 2008 (221) ELT 331 (Kar.) and Commissioner of
Central Excise v. Kundalia Industries , 2012 (279) ELT 351
(Del), holding that there is no statutory requirement of a
physical meeting, but only a consensus ad idem on the issue.
However, the CESTAT held in favour of the Respondent on the
second issue, holding that there was no application of mind. The
findings of the CESTAT on this issue were as follows:

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“ 14. There is however another aspect. The question is
whether the two Chief Commissioners applied their mind
and have recorded an informed conclusion / decision for
preferring an appeal. As already noticed, the Chief
Commissioner, Delhi on 14.07.2012 and the Chief
Commissioner, Chandigarh on 23.07.2012 merely signed
the note put up by the respective subordinate officers
setting out a summary of facts; a summary of the
adjudication order; an analysis of the circumstances; and
recommendation that this is a fit case for preferring an
appeal. The respective notes were signed by the
respective Chief Commissioners without anything to
indicate independent consideration of the relevant issues
and of agreement with the administrative analysis at
lower levels, as to the appropriateness of preferring an
appeal to the Tribunal. In identical circumstances, the
Delhi High Court in Kundalia Industries (paragraph 5
and 6) and this Tribunal in V.S. Exim Pvt. Ltd. have held
that mere appending of signatures by the Commissioners
comprising the committee on note sheets drawn up by
subordinate officers is no compliance of the statutory
provision. Shri Amresh Jain, ld. DR would exert to point
out a distinction between Section 35B(1A)(2) of the
Central Excise Act, 1944 and Section 86(2) of the Act.
According to the ld. DR under the Central Excise Act, the
committee if of the opinion that an adjudication order or
an appellate order is not legal and proper may direct
preferring of an appeal to the Tribunal. Section 86(2) of
the Act enjoins that the committee, if it objects to an
adjudication order, may direct an appeal to be preferred
to the Tribunal. In view of the difference in the language
of the two distinct provision conferring discretion on the
committee under the different enactments, even if Chief
Commissioners (DZ & CZ) in the present case had
merely appended their signatures (on 14.07.2012 and
23.07.2012) the respective office notes, there is sufficient
compliance of Section 86(2), is the contention.
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15. The above contention does not commend
acceptance. As pointed out by this Tribunal in V.S. Exim
and by the Delhi High Court in Kundalia Industries, mere
appending of signature on the departmental note file in a
mechanical fashion does not constitute sufficient
compliance with the clearly implied statutory obligation
of due application of mind by the Commissioners
comprising the committee, to the relevant twin
components of the decision;
(a) a rational consideration of the relevant material
pertaining to the adjudication order/ appellate order
against which the appeal to this Tribunal is to be
preferred; and
(b) the appropriateness / desirability of preferring an
appeal.
16. In the facts and circumstances of this case, since
the Chief Commissioner (DZ) and Chief Commissioner
(CZ) merely appended their signatures on 14.07.2012
and 23.07.2012 to the respective note sheets and
memorandum of facts and analysis, drawn up by the
respective subordinate officers and the record neither
records nor discloses due application of mind, the
authorisation to prefer the appeal is unsustainable. We
note that the Board has issued a memorandum of
instructions dated 23.11.2012 pointing out that the notes
in the file and other relevant records should disclose
meaningful consideration and application of mind by the
committee.
17. As a consequence of the unsustainable
authorization, the appeal must fail and is accordingly
dismissed … ”

5. The appeal before the Court is only with respect to the second
issue as to the legality of the satisfaction recorded. The Revenue
impugns the finding of the CESTAT and argues that the
authorization by the Committee is an administrative act, in
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which the power of the CESTAT to review is limited.
Moreover, it is argued that the administrative act was given
shape by the respective subordinate officers through a process
of analysis of law and facts. The detailed analysis conducted by
them has not been impugned, and indeed, cannot be faulted. It is
argued that the Chief Commissioners appended their signatures
after a consideration of the notes, which were both
comprehensive and detailed in their analysis of the facts and the
position adopted by the Commissioner in the order under the
consideration. In such a case, what is required of the Chief
Commissioners is to consider the material prepared, and if an
endorsement is provided, the scope of the review of the
CESTAT ought to end there. The entire exercise ought to be
seen together, such that the opinions prepared by the
subordinate officers and the endorsement of the Chief
Commissioner are part of the same exercise, and thus, once the
approval has been granted, it cannot be faulted on the ground
that the Chief Commissioner did not independently record any
reasons.
6. On the other hand, learned counsel for the Respondent argues
that there is a minimum threshold for the application of mind in
such cases. The Chief Commissioner is mandated by Section
86(2) to consider the various factors before filing an appeal, and
such consideration by the Chief Commissioner (and not his
subordinates) must appear from the record. It is argued that
since in this case there is no independent appraisal of the facts
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by the Chief Commissioners, the application of mind envisaged
in any administrative proceeding is lacking. For this, learned
counsel relies upon the decisions in Indian Oil Corporation v.
Collector Central Excise , 2006 (202) ELT 37 (SC) and
Commissioner of Central Excise v. Kundalia Industries , 2012
(279) ELT 351, for the proposition that there should be a
meaningful consideration which should be reflected on the note
sheets in order to comply with the requirement of Section 35(2)
of the Central Excise Act, 1944, which is analogous to Section
86(2) of the Finance Act, 1994.
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
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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 SCC 439, 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.
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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
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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) ELT 217 (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.
9. For the above reasons, this Court is of the opinion that the
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
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parties. The appeal accordingly succeeds with costs quantified
at ` 30,000/- to be paid to the appellant by the respondent within
four weeks.

S. RAVINDRA BHAT
(JUDGE)



R.V. EASWAR
(JUDGE)
MARCH 20, 2014













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