2008 (9) TMI 246 - AT - Central Excise

Applicability of doctrine of merger appeal by revenue against order of CCE on the ground that in respect of several inputs/capital goods, the Commissioner has not recorded any finding and there are contradictory views by CCE In the interest of justice, equity and good conscience held that doctrine of merger is not to be applied universally, we reject the preliminary objections raised by the learned Advocate for the respondents that doctrine of merger would apply in this case - Tribunal cannot adjudicate upon the matter on merits

Issues Involved:
1. Eligibility of duty paid on capital goods and inputs as Modvat credit.
2. Doctrine of merger and its applicability to the case.
3. Reconsideration of the quantum of penalty.

Issue-wise Detailed Analysis:

1. Eligibility of Duty Paid on Capital Goods and Inputs as Modvat Credit:
The Revenue filed an appeal against the Commissioner's order dated 28-2-2005, which allowed Modvat credit on several items amounting to more than Rs. 5.5 crores. The Commissioner's order had inconsistencies, with some items being deemed admissible in one paragraph and inadmissible in another. Specifically, the Commissioner allowed credit for refractories, which the Revenue contested. The Revenue also sought reconsideration of the penalty imposed.

2. Doctrine of Merger and Its Applicability:
The respondents argued that the doctrine of merger applied since the Tribunal had already passed an order on 2-9-2005, remanding the case for fresh adjudication. They claimed that the Commissioner's order had merged with the Tribunal's order, making any further orders by the Tribunal non-maintainable. The Tribunal referred to several judgments, including the Larger Bench decision in L.M.L. Ltd., which held that once an order is appealed, it merges with the appellate order. However, the Tribunal also considered the Supreme Court's observations in Kunhayammed v. State of Kerala, which stated that the doctrine of merger depends on the nature of jurisdiction and the content or subject matter of the challenge.

3. Reconsideration of the Quantum of Penalty:
The Revenue sought reconsideration of the penalty imposed by the Commissioner. The Tribunal noted that the doctrine of merger should not universally bar the Revenue's appeal, especially when the issues in the Revenue's appeal were different from those in the assessee's appeal. The Tribunal emphasized that denying the Revenue's appeal would deprive it of its statutory right to appeal and leave several items from the show cause notice unaddressed.

Separate Judgments by Judges:

Member (Technical) - B.S.V. Murthy:
Murthy held that the doctrine of merger is not universally applicable and should be applied on a case-by-case basis. He argued that the issues in the Revenue's appeal were distinct from those in the assessee's appeal, and applying the doctrine of merger would result in a lack of findings on several items. He concluded that the Revenue's appeal should be decided on its merits.

Member (Judicial) - Archana Wadhwa:
Wadhwa disagreed, emphasizing the Larger Bench decision in L.M.L. Ltd., which held that once an order is appealed, it merges with the appellate order. She argued that the Revenue's appeal was non-maintainable as the Commissioner's order had already merged with the Tribunal's order dated 2-9-2005. She stressed the need to follow judicial discipline and the law declared by the Larger Bench.

Third Member on Reference - Justice S.N. Jha:
Justice Jha sided with Murthy, stating that the doctrine of merger is not a rigid and universal application. He referred to the Supreme Court's decision in Mauria Udyog Ltd., which clarified that the principle of merger does not apply when the subject matter of the appeals is different. He concluded that the Revenue's appeal was maintainable and should be decided on its merits.

Final Order:
In view of the majority order, it was held that the Revenue's appeal is maintainable and was accordingly fixed for decision on merits on 21-11-2008.

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