2024 (12) TMI 1408 - HC - Service Tax

Maintainability of appeal - appropriate forum - Invocation of provisions of section 73 (1) of the Finance Act for suppression of facts - Applicability of Service Tax on Excess Baggage Charges collected - Availability of Cenvat Credit - Extended period of limitation. HELD THAT - In view of Sections 35G and 35L of the Central Excise Act, 1944 which applies in respect of Service Tax, whenever issues of determining taxability are involved, the appeal would lie to the Supreme Court. The same has been also been settled in a series of decisions. In COMMISSIONER OF SERVICE TAX VERSUS ERNST YOUNG PVT. LTD. AND OTHERS 2014 (2) TMI 1133 - DELHI HIGH COURT the Coordinate Bench of this Court had observed and held ' if the order relates to several issues or questions but when one of the questions raised relates to rate of tax or valuation in the order in the original, the appeal is maintainable before the Supreme Court and no appeal lies before the High Court under Section 35G of the CE Act.' Even in the present case, though CESTAT has only considered the issue of limitation and the said issue was framed for consideration vide order dated 23rd January, 2024, the nature of the order, which is appealed, has to be considered. The original order passed by the Commissioner considered the question as to whether CENVAT credit was allowable or not, and whether penalty was imposable or not in terms of the applicable law. It also considered the leviability of service tax on excess baggage charges. Merely because CESTAT has only considered the issue of limitation, the present appeal cannot be filed in the High Court. Conclusion - An appeal against the said impugned order would lie, in terms of Section 35L of the Central Excise Act, 1944, to the Hon ble Supreme Court. The present appeal is dismissed as not maintainable.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment considered the following core legal questions:

(i) Whether CENVAT credit was not allowable under rule 14 of the 2004 Credit Rules read with section 11A of the Central Excise Act, 1944, and whether a penalty under section 15 (3) of the 2004 Credit Rules was imposable for contravention of rule 6 (3A) of the 2004 Credit Rules.

(ii) Whether service tax on excess baggage charges recovered from passengers should be leviable.

(iii) Whether the provisions of section 73 (1) of the Finance Act were invokable for suppression of facts, thus justifying the extended period of limitation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): CENVAT Credit Allowability

- Relevant Legal Framework and Precedents: The case involved the interpretation of rule 6 (3A) (h) of the Cenvat Credit Rules, 2004, which pertains to the computation of CENVAT credit when services become chargeable to service tax for the first time in the current financial year.

- Court's Interpretation and Reasoning: The court agreed with the assessee's interpretation that the previous year's ratio should not be used for reversing CENVAT credit for exempted services. Rule 6 (3A) (h) allows for a 100% set-off of CENVAT credit if services were exempt in the previous year.

- Key Evidence and Findings: The assessee had made the necessary tax adjustments and informed the department within the stipulated 15-day period.

- Application of Law to Facts: The demand of Rs. 21.55 crores for excess CENVAT claim was deemed untenable as the adjustments were made correctly.

- Treatment of Competing Arguments: The court favored the assessee's argument over the department's demand.

- Conclusions: The demand for reversal of CENVAT credit was not sustainable.

Issue (ii): Service Tax on Excess Baggage Charges

- Relevant Legal Framework and Precedents: The issue revolved around the applicability of service tax on charges collected for excess baggage under the "Transportation of Passengers by Air Service."

- Court's Interpretation and Reasoning: The court held that excess baggage charges are indirectly related to the service of transporting passengers by air and should be included in the turnover for service tax purposes.

- Key Evidence and Findings: The court considered the period before and after 01.07.2010, when service tax became applicable.

- Application of Law to Facts: The court agreed with the assessee that the service tax demand of Rs. 4.01 crores was not sustainable as it did not affect the number of tickets sold or the tax amount.

- Treatment of Competing Arguments: The court accepted the assessee's contention over the department's demand.

- Conclusions: The demand related to excess baggage charges was dropped.

Issue (iii): Invocation of Extended Limitation Period

- Relevant Legal Framework and Precedents: Section 73 (1) of the Finance Act, 1994, concerning the invocation of an extended period of limitation for suppression of facts.

- Court's Interpretation and Reasoning: The court found that the extended period of limitation could not be invoked as there was no wilful suppression of facts.

- Key Evidence and Findings: The show cause notice was not issued within the prescribed period of limitation.

- Application of Law to Facts: The court upheld the findings of the Commissioner that the extended period was not applicable.

- Treatment of Competing Arguments: The court sided with the assessee's defense against the department's invocation of the extended period.

- Conclusions: The extended period of limitation was not applicable.

3. SIGNIFICANT HOLDINGS

- The court upheld the Commissioner of Service Tax's findings on all issues, emphasizing that "the demand of Rs. 21.55 crores which has been raised for excess claim of Cenvat during the period July, 2010 to March, 2011 is not tenable."

- On the second issue, the court held that "the demand of Rs. 4.01 crores raised by the department in relation to excess baggage charges collected from passengers is not sustainable and hence requires to be dropped."

- The court concluded that the extended period of limitation could not be invoked, aligning with the CESTAT's decision that the show cause notice was not issued within the prescribed period.

- The judgment reiterated the principle that appeals involving questions of taxability must be directed to the Supreme Court, as per Sections 35G and 35L of the Central Excise Act, 1944.

- The appeal was dismissed as not maintainable in the High Court, with the court noting that "an appeal against the said impugned order would lie, in terms of Section 35L of the Central Excise Act, 1944, to the Hon'ble Supreme Court."

- The dismissal does not preclude the appellant from seeking remedies under Section 14 of the Limitation Act, 1963, for the period the appeal was pending.