2024 (12) TMI 1408 - HC - Service Tax

Delhi HC dismisses appeal on service tax matters directing challenges to SC under Sections 35G and 35L Central Excise Act

Commissioner of CGST And Central Excise Delhi South Versus M/s. Spicejet Ltd.

The Delhi HC dismissed an appeal as not maintainable, ruling that appeals involving service tax matters must be filed before the SC under Sections 35G and ... 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. 1. ISSUES PRESENTED and CONSIDERED Whether CENVAT credit was allowable under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944, and whether penalty under Section 15(3) of the Cenvat Credit Rules was imposable for contravention of Rule 6(3A) of the Cenvat Credit Rules. Whether service tax was leviable on excess baggage charges recovered from passengers. Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 could be invoked on account of wilful suppression of facts. Whether the appeal against the order of the Appellate Tribunal (CESTAT) lies before the High Court or the Supreme Court, particularly in light of Sections 35G and 35L of the Central Excise Act, 1944, considering the nature of issues decided. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Allowability of CENVAT Credit and Imposition of Penalty Legal Framework and Precedents: Rule 14 of the Cenvat Credit Rules, 2004 governs the eligibility and reversal of CENVAT credit. Section 11A of the Central Excise Act, 1944 regulates the imposition of penalty for contravention of the Rules. Rule 6(3A) prescribes the method for computation and reversal of credit in cases where services become taxable for the first time. Court's Interpretation and Reasoning: The Court noted that the service 'Transport of passengers by Air' was exempt prior to July 2010 and became taxable thereafter. Rule 6(3A)(h) specifically provides that if a service is chargeable to service tax for the first time in the current financial year, and was fully exempt in the previous year, no reversal of CENVAT credit is required upfront; rather, a recomputation at the end of the financial year is mandated. The Commissioner had held that adopting the previous year's ratio for reversal would result in no CENVAT credit being available, which contradicts Rule 6(3A)(h). Further, Rule 6(3A)(g) requires adjustment information to be furnished within 15 days of such adjustment, which was duly complied with by the assessee. Key Evidence and Findings: The assessee made the necessary adjustments and informed the department within the prescribed timeline. The demand of Rs. 21.55 crores for excess CENVAT credit claimed from July 2010 to March 2011 was found untenable. Application of Law to Facts: The Court upheld the Commissioner's view that the demand was not sustainable as the credit reversal was correctly computed on an actual basis after the financial year end, and procedural compliance was satisfied. Treatment of Competing Arguments: The Department's contention that the previous year's ratio should be applied was rejected as inconsistent with the statutory provisions. Conclusion: CENVAT credit was allowable as per the Rules; penalty for contravention under Rule 6(3A) was not imposable; the demand for excess credit was not sustainable. Issue 2: Levy of Service Tax on Excess Baggage Charges Legal Framework and Precedents: Service tax on 'Transportation of Passengers by Air' became applicable from 1st July 2010. The inclusion of ancillary charges such as excess baggage in the taxable turnover relates to the scope of the service. Court's Interpretation and Reasoning: The Commissioner agreed with the assessee and CESTAT that excess baggage charges are indirectly related to the air passenger transport service and thus form part of the taxable service turnover. However, since service tax was paid at a fixed rate (10% or Rs. 100 per journey, whichever is less) and the assessee paid Rs. 100 per ticket, inclusion of excess baggage charges did not increase the tax liability. Key Evidence and Findings: The assessee paid service tax on the total number of tickets sold at the prescribed fixed rate, which covered excess baggage charges implicitly. Application of Law to Facts: The demand of Rs. 4.01 crores for service tax on excess baggage charges was not sustainable as it did not result in additional tax liability beyond what was already paid. Treatment of Competing Arguments: The Department's demand for service tax on excess baggage charges was rejected based on the fixed rate payment mechanism and prior judicial findings. Conclusion: Service tax was leviable on excess baggage charges as part of passenger transport service, but no additional tax was payable beyond the fixed rate already paid; demand was dropped. Issue 3: Invocation of Extended Period of Limitation under Section 73(1) of the Finance Act, 1994 Legal Framework and Precedents: Section 73(1) permits issuance of show cause notices beyond the normal limitation period if there is wilful suppression of facts. Court's Interpretation and Reasoning: The Commissioner and CESTAT held that the extended period of limitation could not be invoked as there was no sufficient evidence of wilful suppression. The show cause notice was issued beyond the normal limitation period but without justification for extension. Key Evidence and Findings: No conclusive proof of wilful suppression was found; the limitation period prescribed was not extended validly. Application of Law to Facts: The show cause notice was held to be time-barred, and the extended period could not be invoked. Treatment of Competing Arguments: The Department's contention for extended limitation was rejected due to lack of evidence. Conclusion: Extended limitation period under Section 73(1) was not invokable; the show cause notice was barred by limitation. Issue 4: Maintainability of Appeal Before High Court vs. Supreme Court under Sections 35G and 35L of the Central Excise Act, 1944 Legal Framework and Precedents: Sections 35G and 35L of the Central Excise Act, 1944 govern appellate jurisdiction. Section 35G provides for appeals to the High Court except where the order relates to determination of any question relating to the rate of duty or valuation for assessment, which are reserved for appeal to the Supreme Court under Section 35L. Judicial precedents establish that the nature of the order passed by the Appellate Tribunal (CESTAT), not merely the issues raised in the appeal, determines the forum for appeal. If the order involves determination of taxability, valuation, or rate of duty, appeal lies exclusively to the Supreme Court. Court's Interpretation and Reasoning: The Court observed that although the present appeal was framed on the issue of limitation, the impugned order also effectively upheld findings on taxability and CENVAT credit. Therefore, the nature of the order involves determination of taxability and valuation issues. The Court relied on precedents holding that appeals involving such questions are maintainable only before the Supreme Court, not the High Court. Key Evidence and Findings: The original order by the Commissioner addressed CENVAT credit allowability and service tax leviability. The CESTAT order upheld these findings while deciding limitation. Thus, the order involves substantial questions of law relating to taxability. Application of Law to Facts: Despite the framing of the appeal on limitation, the Court held that the appeal was not maintainable before the High Court as the order impugned relates to taxability and valuation issues. Treatment of Competing Arguments: The appellant's contention that the appeal was limited to limitation was rejected on the ground that the nature of the order governs appellate jurisdiction. Conclusion: Appeal against the impugned order lies before the Supreme Court under Section 35L of the Central Excise Act, 1944; the present appeal before the High Court is dismissed as not maintainable. Additional Observations The doctrine of merger applies whereby the CESTAT's order, upheld by the High Court on limitation, merges into the High Court's decision, giving finality to all issues decided by the CESTAT, including CENVAT credit and service tax on excess baggage. The dismissal of the appeal does not preclude the appellant from seeking remedies under the Limitation Act, 1963, including benefits under Section 14 for delay during pendency of the appeal. Recent judicial pronouncements reinforce that appeals involving taxability issues must be filed before the Supreme Court, and internal administrative instructions regarding pecuniary limits do not alter statutory appellate jurisdiction.