2014 (12) TMI 834 - HC - Service Tax

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? Matter referred to larger bench.

Issues Involved:

1. Whether the Custom Excise Service Tax Appellate Tribunal (CESTAT) 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.
2. Whether the aspect of the Committee of Chief Commissioners' authorization can be examined and made subject matter before the Tribunal in an appeal under Section 86(2) of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Mechanical Grant of Permission by the Committee of Chief Commissioners:

The primary issue revolves around whether the Committee of Chief Commissioners had mechanically granted permission for filing the appeal without due application of mind. The appellant-Revenue relied on a previous decision (CEAC No.20/2014) where it was observed that the scope of judicial inquiry into administrative acts is limited, especially when the act in question is neutral, such as the filing of an appeal. It was noted that detailed notes were prepared by the respective Superintendents and placed before the Chief Commissioners, who endorsed these proposals. The Court emphasized that there is no requirement for the Chief Commissioners to record independent reasons for concurring with their subordinates. The rationale behind Section 86(2) is to ensure that frivolous and unnecessary appeals are not filed, and this was deemed to have been complied with in the present case.

2. Examination of Authorization by the Tribunal:

The respondent-assessee relied on an earlier decision (Commissioner of Central Excise, Delhi-I versus Kundalia Industries) which held that the Committee of Commissioners did not meet to consider the case and simply appended their signatures without applying their mind. The decision in Kundalia Industries was distinguished in a subsequent case (L.R. Sharma-1) on the grounds that Section 86(2) of the Finance Act, 1994, unlike Section 35 of the Central Excise Act, 1944, does not require the Chief Commissioners to independently record reasons. The Court in L.R. Sharma-1 emphasized that the merits of the case would be decided by the CESTAT, and the authorization process should not add another layer of litigation.

3. Statutory Right to Appeal and Scope of Tribunal's Review:

The Court examined Section 86 of the Finance Act, 1994, which confers a statutory right to appeal. It was argued that the Tribunal could verify whether permission was recorded by the Committee of Chief Commissioners but could not examine the merits of the authorization. The Revenue relied on decisions from the Allahabad High Court (Commissioner of Central Excise versus Ufan Chemicals and Commissioner of Customs, Central Excise & Service Tax versus Devson Steels), which supported the view that the Tribunal's review should be limited to verifying the existence of authorization, not its merits.

4. Reference to Larger Bench:

Given the conflicting interpretations, the Court decided to refer two questions to a Larger Bench:
1. Whether the CESTAT can examine and go into the question of application of mind on merits by the Committee of Chief Commissioners in an appeal under Section 86(2) and (2A) of the Finance Act, 1994.
2. If the answer to the first question is affirmative, whether the decision of the Committee of Chief Commissioners should be treated as null and void if they have merely appended signatures to the notes prepared by subordinate officers.

Conclusion:

The appeal was listed before the Chief Justice for appropriate orders, indicating that a Larger Bench would address the referred questions to resolve the legal ambiguities surrounding the authorization process and the scope of the Tribunal's review under Section 86(2) of the Finance Act, 1994.

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