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2023 (6) TMI 301 - AT - Service TaxJurisdiction of Commissioner (Appeals) to issue fresh Show Cause Noice (SCN) or to raise demand on new ground - Exercise of powers under the second proviso to section 35A(3) of the Excise Act - Reversal of CENVAT Credit - manufacturing excisable goods as well as trading of goods - exempted service - HELD THAT - Chapter V of the Finance Act deals with Service Tax and contains sections from 64 to 96. Section83 of the Finance Act provides that certain sections of the Excise Act shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise. Section 35A of the Excise Act is not a section mentioned in section 83 of the Finance Act - It would be seen that sub-section (4) of section 85 of the Finance Act provides that the Commissioner (Appeals) shall hear and determine the appeal and pass such orders as he thinks fit and such orders may include an order enhancing the service tax, interest or penalty. Sub-section (5) of section 85 of the Finance Act provides that subject to the provisions of Chapter V of the Finance Act, in hearing the appeals and making order under section 85, the Commissioner (Appeals) shall exercise the same powers and follow the same procedure as he exercises and follows in hearing the appeals and making orders under the Excise Act. Whether the powers conferred upon the Commissioner (Appeals) under the second proviso to section 35A(3) of the Excise Act could have been exercised by the Commissioner (Appeals), while hearing an appeal under section 85 of the Finance Act against an order confirming the demand of service tax proposed in the show cause notice, to issue a fresh notice to the appellant under section 73 of the Finance Act? - HELD THAT - It is section 35(A) of the Excise Act that deals with procedure of appeals before the Commissioner (Appeals). Sub-section (3) of section 35A of the Excise Act provides that the Commissioner (Appeals) shall, after making such further inquiry as may be necessary, pass such order as he thinks just and proper, confirming, modifying or annulling the decision or order appealed against but an order enhancing any penalty or fine in lieu of confiscation or reducing the amount of refund shall not be passed unless the appellant has been given a reasonable opportunity of showing cause against the proposed order. The second proviso to section 35A(3), however, further provides that where the Commissioner (Appeals) is of the opinion that any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, no order requiring the appellant to pay any duty not levied or paid, short-levied or short-paid or erroneously refunded shall be passed unless the appellant is given notice within the time-limit specified in section 11A to show cause against the proposed order. Section 85(4) of the Finance Act provides that the Commissioner (Appeal) shall hear and determine the appeal and pass such orders as he can thinks fit and such order may include an order enhancing the service tax, interest or penalty. It is no doubt true that the Commissioner (Appeals) has wide powers because of the use of the phrase 'pass such orders as he can thinks fit', particularly when it is contrasted with the provisions of sub-section (3) of section 35A of the Excise Act which provides that the Commissioner (Appeals) shall pass such order, as he can thinks just and proper, confirming, modifying or annulling the decision or order appealed against. In the latter case, the powers of the Commissioner (Appeals) under section 35A of the Excise Act to pass such orders, as he can thinks just and proper, would be confined to confirming, modifying or annulling the decision or order appealed against. In COMMISSIONER OF CENTRAL EXCISE, NAGPUR VERSUS M/S BALLARPUR INDUSTRIES LTD 2007 (8) TMI 10 - SUPREME COURT , the Supreme Court observed that it is well settled that a show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest and if Rule 7 of the Valuation Rules, 1975 was not invoked in the show cause notice, it would not be open to the Commissioner to invoke the said Rule. The power to issue a notice is specifically provided for in section 73(1) of the Finance Act. Once it is specifically so provided, it cannot be urged that this power to issue the notice would also be available under sub-section (4) of section 85 of the Finance Act to a Commissioner (Appeals) when he is hearing an appeal, merely because of the use of the expression 'pass such orders, as he thinks fit'. The Commissioner (Appeals) cannot assume to himself all the powers conferred under various sections of the Finance Act, only for the reason that he can 'pass such order, as he thinks fit'. The Gujarat High Court in COMMISSIONER OF SERVICE TAX VERSUS VERSUS ASSOCIATED HOTELS LIMITED 2014 (4) TMI 406 - GUJARAT HIGH COURT examined the provisions of sub-sections (4) an (5) of the Finance Act as also sub-section (3) of section 35A of the Excise Act and observed that though sub-section (5) of section 85 of the Finance Act may require the Commissioner (Appeals) to follow the same procedure and exercise the same powers in making orders under section 85(4) of the Finance Act as under the Excise Act in appeals, but as sub-section (5) starts with the expression subject to the provision of this Chapter and sub-section (4) of section 85 of the Finance Act itself contains the width of the powers of the Commissioner (Appeals) in hearing the appeal under section 85, the scope of such power cannot be curtailed by reference to section 85(5) of the Finance Act. The Commissioner (Appeals) did not have the power to issue the notice under section 73(1) of the Finance Act. The notice dated 29.12.2020, therefore, that was issued by the Commissioner (Appeals) under section 73(1) of the Finance Act was without jurisdiction and consequently the order passed by the Commissioner (Appeals) confirming the demand proposed in the said notice would also be without jurisdiction. The order dated 31.03.2021 passed by the Commissioner (Appeals), therefore, deserves to be set aside on this ground alone. It transpires from the order dated 31.03.2021 that the Commissioner (Appeals) has confined the order to the notice dated 29.12.2020 that was issued by him and has confirmed the proposed demand. The confirmation of the proposed demand, raised in the show cause notice dated 07.09.2017 by the Additional Commissioner has not been considered at all by the Commissioner (Appeals). The matter would, therefore, have to be remitted to the Commissioner (Appeals) to pass a fresh order by confining his decision to the order dated 19.03.2018 passed by the Additional Commissioner confirming the demand raised in the show cause notice dated 07.09.2017. The matter is remitted to the Commissioner (Appeals) to pass a fresh order by restricting his decision to the order dated 19.03.2018 passed by the Additional Commissioner confirming the demand proposed in the show cause notice dated 07.09.2017 - Appeal allowed by way of remand.
Issues Involved:
1. Jurisdiction of the Commissioner (Appeals) to issue a fresh show cause notice. 2. Powers of the Commissioner (Appeals) under section 85(4) and (5) of the Finance Act. 3. Applicability of section 35A(3) of the Excise Act to the Finance Act. 4. Validity of the extended period of limitation invoked by the Commissioner (Appeals). Issue-wise Detailed Analysis: 1. Jurisdiction of the Commissioner (Appeals) to Issue a Fresh Show Cause Notice: The appellant challenged the jurisdiction of the Commissioner (Appeals) to issue a fresh show cause notice dated 29.12.2020 for a demand of Rs. 37,05,65,104/-, which was not covered by the original show cause notice dated 07.09.2017. The Tribunal observed that the Commissioner (Appeals) did not have the jurisdiction to issue a fresh notice under section 73(1) of the Finance Act while hearing an appeal under section 85 of the Finance Act. The Tribunal emphasized that a notice is the foundation for levy of tax and the adjudicating authority or the appellate authority cannot go beyond the issues raised in the show cause notice. The power to issue a notice is specifically provided for in section 73(1) of the Finance Act and cannot be assumed under section 85(4). 2. Powers of the Commissioner (Appeals) under Section 85(4) and (5) of the Finance Act: The Tribunal examined the scope of powers under section 85(4) and (5) of the Finance Act. It was noted that while section 85(4) confers wide powers on the Commissioner (Appeals) to pass such orders as he thinks fit, including enhancement of service tax, interest, or penalty, these powers are subject to the provisions of Chapter V of the Finance Act. The Tribunal held that the Commissioner (Appeals) cannot assume the power to issue a fresh notice under section 73(1) merely because of the wide powers conferred under section 85(4). 3. Applicability of Section 35A(3) of the Excise Act to the Finance Act: The Tribunal analyzed whether the second proviso to section 35A(3) of the Excise Act, which allows the Commissioner (Appeals) to issue a notice for short-paid duty, could be applied to service tax matters under section 85(5) of the Finance Act. It was concluded that section 35A of the Excise Act is not mentioned in section 83 of the Finance Act, which lists the applicable sections of the Excise Act for service tax matters. Therefore, the powers under section 35A(3) cannot be superimposed on section 85(5) of the Finance Act. The Tribunal cited judgments from the Gujarat High Court and the Madras High Court, which supported this interpretation. 4. Validity of the Extended Period of Limitation Invoked by the Commissioner (Appeals): The Tribunal did not delve into the specifics of the extended period of limitation invoked by the Commissioner (Appeals), as the primary ground for setting aside the order was the lack of jurisdiction to issue the fresh notice. However, it was noted that the Commissioner (Appeals) had invoked the extended period under the second proviso to section 73(1) of the Finance Act, alleging suppression of facts by the appellant. Conclusion: The Tribunal set aside the order dated 31.03.2021 passed by the Commissioner (Appeals) and remitted the matter back to the Commissioner (Appeals) to pass a fresh order confined to the original show cause notice dated 07.09.2017 and the order dated 19.03.2018 passed by the Additional Commissioner. The appeal was allowed to this extent, emphasizing that the Commissioner (Appeals) cannot issue a fresh notice beyond the scope of the original notice.
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