APPEAL TO HIGH COURT IS NOT MAINTAINABLE WHEN ISSUE RELATES TO LIABILITY TO SERVICE TAX

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

     Section 83A of the Finance Act, 1994 ('Act' for brevity) gives powers of adjudication to the Central Excise Officer, conferred with such power as the Central Board of Excise and Customs constituted under the Central Board of Revenue Act, 1963.  Section 85 of the Act deals with the appeals to the Commissioner of Central Excise (Appeals). Section 86 of the Act deals with appeals to Appellate Tribunal. Further appeal with High Court and Supreme Court are not dealt with in the Act.  Section 83 of the Act provides that the provisions of some of the sections of the Central Excise Act, 1994, as in force from time to time, shall apply as may be in relation to service tax as they apply in relation to a duty of excise.

APPEAL TO HIGH COURT:

     Section 35G of the Central Excise Act, 1944 was introduced by the Finance Act, 1999 with effect from 11.05.1999 and Finance Act, 2003 with effect from 14.05.2003.  Section 35 G provides that an appeal shall lie to the High Court from every order passed by the Appellate Tribunal on or after the 1st day of July, 2003 (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or the value of goods for purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law.

     The Commissioner of Central Excise or the other party aggrieved by an order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal shall be filed within one hundred and eighty days from the date on which the order appealed against is received by the Commissioner of Central Excise or the other party accompanying by a fee of two hundred rupees where such appeal is filed by the other party. The appeal shall be in the form of memorandum of appeal precisely stating therein the substantial question of law involved. Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.  The appeal shall be heard only on the question so formulated and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question. The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.

     The High Court may determine any issue which has not been determined by the Appellate Tribunal or has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to.

APPEAL TO SUPREME COURT:

     Section 35L of the Central Excise Act, 1944 provides that an appeal shall lie to the Supreme Court from-

any judgment of the High Court delivered-

in an appeal made under Section 35G; or

on a reference made under Section 35 G by the Appellate Tribunal before the 1st day of July, 2003;

on a reference made under Section 35H,

in any case which, on its own motion or on an oral application made by or on behalf of the party aggrieved, immediately after passing of the Judgment, the High Court certifies to be a fit one for appeal to the Supreme Court; or

any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.

ISSUE:

     The main issue taken for discussion in this article is whether the appeal filed before the High Court is maintainable when issue relates to liability to service tax. As per Section 35G it is not maintainable since the Section strictly excluded the same and Section 35L it is provided that appeal to Supreme Court lies for the same.  This has been confirmed by the Delhi High Court in 'Commissioner of Service Tax V. Delhi Gymkhana Club Ltd.,' - [2009 -TMI - 34473 - DELHI HIGH COURT] 

     In this case the respondent is Delhi Gymkhana Club Limited [2009 -TMI - 34473 - DELHI HIGH COURT].  The respondent was issued with three notices for the demand of service tax to the tune of Rs. 22,93,564/- along with interest payable till the date of demand under Section 73 and 75 of the Act. Penalty under Sections 75A, 76, 77 and 78 of the Act was also proposed.  The respondent replied to the show cause notice contending that no service tax was payable by the respondent club as it is the members of the club who were using the facility and there was no such question or providing service by the members to themselves.  The Department did not accept the contention and confirmed the demand of service tax with interest and also imposed penalties. 

     Being aggrieved by the order the respondent filed an appeal before Commissioner (Appeals). Commissioner of Central Excise (Appeals) accepted the contention of the respondent and set aside the order in original. The Appellate Tribunal dismissed the appeal filed by the Department. The tribunal is of the opinion that the Commissioner (Appeals) has rightly held that when the service is provided by a club to its members, it does not attract service tax as held by Calcutta High Court in 'Dalhousie Institute V. Assistant Commissioner, Service Tax Cell' - [2005 -TMI - 204 - HIGH COURT CALCUTTA]. Therefore the present appeal was filed by the Department before the High Court.

     The respondent challenged the maintainability of the appeal. The Department contended that such an appeal is maintainable and to substantiate his contention, he has relied upon the provisions of the Finance Act, 1994 vide which service tax was introduced. It was submitted that the question of law raised in the appeal is as to whether the respondent club is liable to pay service tax in allowing its members to use its space as Mandap which is a taxable service in view of Section 65 read with Sections 67 of the Finance Act, 1994. It was further submitted by the Department that though the present appeal has been filed under Section 35G of the Central Excise Act, 1944 the dispute relates to the levy of the service tax against the respondent under the Finance Act, 1994.  The classification of taxable service is defined in the Finance Act, 1994. The charge of service tax within India and outside India is provided under Section 66 and Section 66A of the Act. According to the Department, what will be the valuation of taxable service for charging service tax is well defined under Section 67 as well as the Service Tax (Determination of Value) Rules, 2006 vide Notification No.12/2006-ST, dated 19.04.2006. The Department further argued that in the present appeal there is no question regarding any rate of duty or value of goods for the purpose of assessment of any duty. The only question is as to whether the respondent is liable to pay service tax for the services rendered by it.

     The High Court held that it is clear from the provisions of Section 35G and Section 35L that against certain orders appeal is provided to the High Court, whereas in respect of certain other orders passed by the appellate tribunal, direct appeal to the Supreme Court is provided. Section 35L (a) deals with the appeals which are carried from the orders of the High Court. However clause (b) stipulates the nature of orders passed by the appellate tribunal against which appeal is to be preferred to the Supreme Court. Where order passed by the appellate tribunal relates to the determination of any question having a relation to the rate of duty of excise or to the value of goods for the purpose of assessment, the aggrieved party is to approach the Supreme Court directly by filing appeal under Section 35L (b). This is made clear even by the provisions of Section 35G which provides the appeal to the High Court, as it specifically excludes the orders relating, among other things, determination of question having relation to the duty of excise or to the value of goods for the purpose of assessment.

     The Court rejected the arguments of the Department.  Appeal provision in Section 35G along with Section 35L is to be considered to decide the issue of maintainability. As is clear from the order of the Appellate Tribunal, in essence, the question that is decided relates to the rate of duty. Whether nomenclature thereof is given as service tax, it is the rate of duty of that tax which would essentially fall for consideration. Against such a decision, appeal is filed by the appellant under Section 35G of the Act which would not be maintainable. The remedy for the appellant is to file appeal under Section 35L of the Central Excise Act, which lies to Supreme Court.