2025 (7) TMI 283 - HC - Service Tax

ISP loses service tax exemption appeal due to wrong forum choice under Section 35L

Delhi HC dismissed an appeal as not maintainable regarding service tax exemption for an Internet Service Provider providing broadband services to exempt ... Maintainability of appeal - appropriate forum - Exemption from service tax under N/N. 4/2004-ST dated 31st March 2004 - Respondent is an Internet Service Provider and is providing Lease Internet Broadband services on its optical fibre network and Wireless Radio to various STPIs, Embassies, etc. who are exempted organizations - Suppression of facts - extended period of limitation - HELD THAT:- If this Court holds that the SCN was within the limitation, the issue of taxability would have to be gone into. In a similar matter in Commissioner of CGST and Central Excise Delhi South v. M/s Spicejet Ltd. [2024 (12) TMI 1408 - DELHI HIGH COURT], this Court considered all the judgments cited by Mr. Mittal and has recently taken a view that even if the impugned order has dealt only with the issue of limitation, the appeal would lie under Section 35L of the Central Excise Act, 1944 to the Supreme Court. 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 v. Ernst & Young Pvt. Ltd. and ors. [2014 (2) TMI 1133 - DELHI HIGH COURT] the Coordinate Bench of this Court had observed and held that 'Section 83 of the F. Act read Section 35G of the CE Act is not applicable and, therefore, the present appeal is not maintainable before the High Court.' The above decision applies squarely to the present case. Accordingly, the present application deserves to be allowed and the present appeal is rejected as being not maintainable - However, the Appellant is free to avail of its remedy in accordance with law under Section 35L of the Central Excise Act, 1944. The present appeal is dismissed as being not maintainable. The core legal questions considered by the Court are:1. Whether the appeal filed under Section 35G of the Central Excise Act, 1944 before the High Court is maintainable against the order of the Customs Excise & Service Tax Appellate Tribunal (CESTAT) which set aside the original order on the ground of limitation.2. Whether the issue of limitation alone, without adjudication on the merits of taxability, permits an appeal before the High Court or whether the appeal lies exclusively before the Supreme Court under Section 35L of the Central Excise Act, 1944.3. The interpretation and application of Sections 35G and 35L of the Central Excise Act, 1944, particularly in cases involving questions of taxability, valuation, and limitation.4. The implications of the nature of the impugned order-whether it involves determination of taxability or valuation-and how that affects the appellate jurisdiction.Issue-wise Detailed Analysis1. Maintainability of Appeal under Section 35G vs. Section 35L of the Central Excise Act, 1944The Court examined the scope of Sections 35G and 35L of the Central Excise Act, 1944, which govern appeals from orders of the CESTAT. Section 35G provides for appeals to the High Court from CESTAT orders, except those relating to determination of questions concerning the rate of duty or valuation of goods for assessment purposes. Section 35L provides for appeals to the Supreme Court from High Court judgments under Section 35G and directly from CESTAT orders involving questions related to rate of duty or valuation.Relevant precedents were extensively considered, including decisions where the Court emphasized that the nature of the impugned order, not merely the issues raised in the appeal, determines the appellate forum. The Court relied on authoritative rulings which held that if the order involves determination of taxability, valuation, or exemption notifications, the appeal lies exclusively before the Supreme Court under Section 35L.The Court noted that even if the CESTAT order only addresses limitation, if the original order involves taxability or valuation, the appeal is not maintainable before the High Court. This principle was reinforced by reference to prior judgments where the appellate jurisdiction was clarified to be exclusive to the Supreme Court in such matters.2. Interpretation of Limitation Issue vis-`a-vis TaxabilityThe CESTAT had allowed the appeal on the ground that the Show Cause Notice (SCN) was barred by limitation under Section 73(1) of the Finance Act, 1994, without adjudicating on the merits of taxability. The appellant contended that since only limitation was considered, the appeal should lie before the High Court.The Court rejected this contention, holding that limitation is a preliminary issue and once the limitation question is decided, the merits of taxability must be considered. Since the original order involved taxability of services provided by the respondent (an Internet Service Provider) and exemption claims under Notification No. 4/2004-ST, the nature of the order was such that it involved substantive questions of tax liability.The Court referred to a recent decision where it was held that even if the CESTAT order deals primarily with limitation, if the original order involves taxability or valuation, the appeal lies before the Supreme Court. The Court emphasized that the appellate jurisdiction depends on the nature of the order impugned, not the issues raised in the appeal.3. Application of Legal Framework and PrecedentsThe Court analyzed the provisions of Sections 35G and 35L in detail, reproducing their text and highlighting the legislative intent to channel appeals involving taxability or valuation to the Supreme Court. It relied on several landmark decisions, including:Commissioner of Service Tax v. Ernst & Young Pvt Ltd., where it was held that appeals involving rate of duty or valuation issues lie exclusively before the Supreme Court.Commissioner of Service Tax v. Delhi Gymkhana Club Ltd., which clarified that determination of questions related to rate of duty or valuation by CESTAT is appealable only to the Supreme Court.Commissioner of Service Tax v. Bharti Airtel Ltd., where the Court underscored that the nature of the order, not the issues raised by the appellant, determines the appellate forum.Commissioner of Service Tax v. Intertoll ICS CE Cons O & M Pvt. Ltd., where the Court reiterated that appeals involving chargeability or taxability issues lie before the Supreme Court.The Court also noted that the limitation issue cannot be isolated from the substantive taxability question, and that the appellate jurisdiction must be determined on the basis of the overall nature of the order.4. Treatment of Competing ArgumentsThe appellant argued that since the CESTAT order only dealt with limitation, the appeal was maintainable before the High Court. The respondent contended that the appeal was not maintainable as the original order involved taxability issues, and hence appeal lies before the Supreme Court under Section 35L.The Court sided with the respondent, relying on the principle that the appellate jurisdiction depends on the nature of the impugned order. The Court held that the limitation issue is ancillary and does not alter the fact that the original order involved questions of taxability and exemption.The Court also dismissed the appellant's contention that the appeal should be entertained because the CESTAT did not decide the merits, emphasizing that the appellate forum is determined by the nature of the order, not the issues addressed by the Tribunal.5. ConclusionsThe Court concluded that the appeal under Section 35G before the High Court was not maintainable since the impugned order involved determination of taxability and exemption issues, which fall within the exclusive appellate jurisdiction of the Supreme Court under Section 35L. The Court dismissed the appeal as not maintainable and allowed the application to recall the earlier order admitting the appeal.The Court further clarified that dismissal of the appeal would not preclude the appellant from pursuing remedies available under law, including seeking benefit under Section 14 of the Limitation Act, 1963, for the period during which the appeal was pending before the High Court.Significant Holdings'It is not the content of the appeal that is determinative of whether the appeal would be maintainable before the High Court or not but rather the nature of the order which is impugned in the appeal which determines the issue.''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 mere fact that the appellant is only aggrieved by the decision on the point of limitation would not make an appeal from the impugned order maintainable before this Court because it is not the issues raised in the appeal which are material but the nature of the order which is appealed against is relevant for the purpose of determining whether an appeal would lie in this Court or not.''The dismissal of the present appeal would not preclude the Appellant from availing such remedies as may be available in accordance with law and seeking benefit under Section 14 of the Limitation Act, 1963, for the period during which the present appeal was pending before this Court.'The Court's final determination was that the appeal filed under Section 35G of the Central Excise Act, 1944 before the High Court was not maintainable against the CESTAT order which set aside the original order on limitation grounds, as the original order involved taxability issues. The appropriate remedy lies under Section 35L before the Supreme Court. The appeal was dismissed accordingly.