BURYING PRECEDENTS BY WILFUL CIRCUMVENTION OF JUDICIAL DISCIPLINE

[jayaprakash gopinathan]

The question of circumvention of judicial discipline to confirm demands by ignoring judicial discipline is not at all news in the adjudication proceedings under CBE&C (CBIC).   Courts often refrain from imposing fine /cost and restrict its displeasure by words of strictures even though it is considered as a contemptuous act. One such recent judgment is from the Hon’ble High Court of Madras in Re: M/S. JUMBO BAGS LTD., VERSUS THE DEPUTY COMMISSIONER, OFFICE OF THE DEPUTY/ASSISTANT COMMISSIONER OF GST & CENTRAL EXCISE, “PONNERI DIVISION”, CHENNAI, THE MARITIME COMMISSIONER, OFFICE OF THE PRINCIPAL COMMISSIONER OF CGST & CENTRAL EXCISE, CHENNAI, THE COMMISSIONER OF GST & CENTRAL EXCISE, CHENNAI NORTH COMMISSIONERATE [2020 (10) TMI 211 - MADRAS HIGH COURT].  The question of eligibility of exemption from duty on sale of goods to another EOU against foreign exchange was the issue in the case and Apex Court by an order dated 5.8.2015  dismissed the appeal of the Revenue against order  of the Tribunal in the following words.

“We find that the matters are covered against the Revenue by the judgment of this Court in ‘Commissioner of Central Excise, Jaipur v. Ginni International Limited’  [2007 (8) TMI 649 - SC ORDER].”   The Apex Court in Ginni International Ltd case held as follows:

 “We have heard learned counsel for the parties at length. The matters are squarely covered by the judgment in the case of Virlon Textile Mills Ltd. v. Commissioner of Central Excise, Mumbai reported in 2007 (4) TMI 6 - SUPREME COURT

However the department refused to grant the refund of interest aroused due to delay in payment of pre deposit of ₹ 25,00,000/-, instead appropriated it towards demand confirmed on the same issue of the assessee for subsequent periods ignoring the sanctity of the judicial discipline to extend the benefit of the binding precedent. Impertinently to achieve the desired result, the department relied on case law in Re: Virlon Textile Mills Ltd. v. Commissioner of Central Excise, Mumbai reported in 2007 (4) TMI 6 - SUPREME COURT. In this case also the appeal of the department was dismissed.

As submitted above, the issue in all the three cases was duty liability of the DTA sales of 100% EOU in Domestic Tariff Area (DTA) against foreign exchange as per permission granted by Development Commissioner under para 9.10(b) of Export and Import Policy, 1997-2002 read with Notification No. 2/95-C.E.  DTA sales against foreign exchange or ‘other supplies in DTA’ are equated with physical exports which was the general rule for 100% EOU. DTA sale against foreign exchange is covered by expression “allowed to be sold in India”, hence fell under proviso to Section 3(1) of Central Excise Act, 1944.   

 Interestingly the Apex court decided the appeal against Jumbo Bags Ltd on 5.8.2015 by relying on Ginni International Limited’ which was decided on 16/8/2007 by relying on the very same case in Re: Virlon Textile Mills Ltd. v. Commissioner of Central Excise, Mumbai reported in 2007 (4) TMI 6 - SUPREME COURT decided on 17.04.2007 by the Apex Court. The denial of benefit flowed from the judgment of the Apex Court in the case of the petitioner, assessee, M/s Jumbo Bags Ltd, and the contemptuous denial of its precedent in the subsequent demand is by culling out inconsequential and irrelevant facts about Notification 2/95.

The Hon’ble High Court vide para 8 of its judgment expresses its disgust and anger in no uncertain terms.-“The attempt on the part of the Revenue to interpret the order of the Hon’ble Supreme Court and attempting to give life to the claim, which they had lost before the Hon’ble Supreme Court, is nothing, but an act, which could be termed as an act of contempt of the Hon’ble Apex Court’s order. Judicial discipline mandates Quasi-judicial authorities to extend sanctity to binding precedents, more so, when such orders are from the highest Court of the Country. This Court expresses its disappointment on the conduct of the concerned authorities in having scant respect towards the orders of the Hon’ble Supreme Court.”

The show continues:

 In a recent order, an adjudicating authority discarded the Hon’ble Supreme Court’s decision in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. [2018 (2) TMI 1325 - SUPREME COURT] case. Before the decision of the principal bench in Re: Bhayana Builder’s (P) Ltd case, the assessee was forced to recompute the taxable value by including materials supplied free of cost by service recipients after audit  by the Internal Audit wing of the jurisdictional Commissionerate.  On receipt of legal opinion, the assessee protested against such re-computation of taxable value and a refund application was filed after the judgment of the principal bench in the case of Bhayana Builder (P) Ltd case. On realizing the mistake of non appropriation of amount deposited as per audit report, a notice was issued under proviso to Section 73(1) of the Act by the Revenue and after due process the demand was confirmed and amount deposited was appropriated. Subsequently, a portion of the tax deposited by the assessee was refunded as per refund application filed by the assessee after prolonged litigation up to the jurisdictional High Court.

 Two Notices were issued for the remaining period’s, one again invoking proviso to Section 73(1) and another under Section 73A (1). Notices were issued in 2015 and 2016 respectively. Last month these are decided confirming the demand proposed by discarding the Hon’ble Supreme Court’s decision in Re: Bhayana Builder’s (P) Ltd case from 1.7.2012 by relying on ABL Infra structure case M/S. ABL INFRASTRUCTURE PVT. VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS & SERVICE TAX, NASHIK [2017 (10) TMI 407 - CESTAT MUMBAI]/ M/S ABL INFRASTRUCTURE PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE [2018 (12) TMI 507 - SC ORDER] The  adjudicating authority, as in the case of Jumbo Bags Ltd case discussed above, failed to appreciate the Hon’ble Supreme Court’s judgment in Re: Bhayana Builders (P) Ltd case and its binding precedent. The Hon’ble Supreme Court in Re: Bhayana Builders (P) Ltd case determined the valuation of taxable service as per provisions of Section 67 of the Act where as in Re: ABL Infrastructure Pvt Ltd case, the valuation was under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. The 2007 Rule cited above contained a non obstinate clause- Notwithstanding anything contained in Section 67 and Rule 2A of the Service Tax (Determination of value) Rules, 2006. The assessee never opted for the 2007 Rule for payment of tax. These pertinent differences in the determination of taxable value in both the cases are irrelevant to overrule the judgment of the Hon’ble Supreme Court in the case of the assessee by the adjudicating authority by simply relying on a judgment which stands in a different footing where the Hon’ble Supreme Court accepted the Tribunal decision as a possible interpretation without making any comment on Bhayana Builders (P) Ltd case. The action of the adjudicating authority in refusing to follow the judicial precedent created in Bhayana Builders case tantamount to Contempt of the Hon’ble Supreme Court as commented by the Hon’ble High Court of Madras in the case discussed above.

 The invocation of extended period to confirm demand proposed under proviso to Section 73(1) of the Act in a subsequent Notice for the same act of different interpretations to determine taxable value, which was under litigation is clear disregard of the underlying principle of the judicial decision of the Apex Court in Re: NIZAM SUGAR FACTORY VERSUS COLLECTOR OF CENTRAL EXCISE, AP [2006 (4) TMI 127 - SUPREME COURT] The Hon’ble Supreme Court held “All relevant facts were in the knowledge of authorities when first show cause notice was issued . While issuing second and third show cause notices, same/similar facts could not be taken as suppression of facts on the part of assessee as these facts were already in knowledge of authorities.

It is needless to repeat what was stated by the Hon’ble High Court of Madras about the action of the authority for the invocation of extended period of limitation to confirm the demand and impose penalty under Section 78 of the Act, notwithstanding the inapplicability of applying the ratio of the ABL Infra case. The assessee can continue to get disappointed while the caravan moves on.

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By G.Jayaprakash, Advocate