2008 (11) TMI 79 - HC - Service Tax

Whether Commissioner of Central Excise could exercise his power of revision under Section 84 of the Finance Act 1994 to revise an order against which appeal has been decided by Appellate Authority Held no since order in appeal has been passed against impugned original order penalty enhanced in revision order is not justified doctrine of merger is clearly applicable

Issues Involved:
1. Whether the Commissioner of Central Excise could exercise his power of revision under Section 84 of the Finance Act, 1994 after the order of the Adjudicating Authority had merged with the order of the Commissioner (Appeals).

Detailed Analysis:

1. Facts and Background:
The assessee was issued a show cause notice for short/delayed payment of service tax for various quarters between 2000 and 2002. The Adjudicating Authority confirmed the demand of service tax and imposed a penalty under Section 76. The assessee appealed, and the Commissioner (Appeals) upheld the original order. Subsequently, the Commissioner of Central Excise issued a show cause notice to review the penalty, which was opposed by the assessee on the grounds of merger.

2. Tribunal's Findings:
The Tribunal found that the show cause notice issued by the Commissioner of Central Excise was not in accordance with law, as the original order had merged with the appellate order. The Tribunal relied on the precedent set in CCE, Madurai Vs. Chellapandi Match Works, where it was held that once an appellate order is passed, the original order merges with it, making any subsequent review of the original order non-maintainable.

3. Legal Question:
The core legal question was whether the Commissioner could exercise the power of review under Section 84 after the appellate order had been passed, considering the doctrine of merger.

4. Arguments by Revenue:
The Revenue argued that under Section 84, the Commissioner could exercise the power of review for issues not raised in the appeal. They cited the Supreme Court's judgment in Kunhayammed & Ors. Vs. State of Kerala, which stated that the doctrine of merger is not of universal application and depends on the nature of jurisdiction exercised by the superior forum and the content or subject matter of the challenge.

5. Arguments by Assessee:
The assessee argued that the penalty, including its quantum, was challenged in the appeal, and thus the entire original order merged with the appellate order. They cited the Supreme Court's judgment in Commissioner of Income Tax Vs. Shri Arbuda Mills Ltd., which held that in respect of matters not considered and decided in appeal, the assessment order did not merge with the appellate order, thus excluding the jurisdiction of the Commissioner.

6. Court's Analysis:
The court analyzed the principles laid down in Kunhayammed's case, particularly conclusion no. (iii), which states that the doctrine of merger depends on the nature of jurisdiction and the subject matter of the challenge. The court found that the penalty was indeed a subject matter of challenge before the Commissioner (Appeals), and the appellate authority had the jurisdiction to reverse, modify, or affirm the penalty order.

7. Conclusion:
The court held that the penalty was part of the subject matter of the appeal, and thus the original order, including the penalty, merged with the appellate order. Consequently, the Commissioner did not retain the power to review the original order under Section 84 after the appellate decision. The court affirmed the Tribunal's decision and dismissed the appeal, answering the question in favor of the assessee and against the Revenue.

8. Final Judgment:
The appeal was dismissed, and the court ruled that the Commissioner of Central Excise could not exercise the power of review under Section 84 after the original order had merged with the appellate order.

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