Appeal for determination of any question in relation to rate of duty or to value of goods for assessment would lie before Apex Court – HC

Brief facts of the Case

The appellant is engaged in providing services in relation to offshore exploration and production of oil and natural gas. The appellant has entered into a contract with M/s. Oil and Natural Gas Corporation Limited (hereinafter referred to as ‘ONGC’). The appellant provided offshore drilling services to ONGC in terms of the contract entered with the ONGC at various locations. Vide notification dated 7/7/2009 services provided on installations, structure and vessels were made taxable. It is not in dispute that by a subsequent notification dated 27/2/2010 the provisions of notification dated 7/7/2009 were also extended to the area specified in column 2 of table stated in the said notification in the continental shelf of India and exclusive economic zone of India for the purpose mentioned in the column No.3 of the table. It is not in dispute that the service tax for the services provided by the appellant for drilling on the installations of ONGC has already been paid. It is also not in dispute that in the continental shelf and exclusive economic zone of India which is beyond 12 nautical miles and within 200 nautical miles in the open sea, service tax has been paid in respect of services provided on the installation of the ONGC. The only dispute that falls for consideration in the present Appeal is as to whether within the continental shelf of India and exclusive economic zone of India, services provided by the appellant for drilling so as to explore whether there are oil reserves in the open sea, are liable to the service tax between 7/7/2009 to 27/2/2010 or not.

The preliminary objection has been raised by the Revenue, that in view of Section 35 G and 35 L of the Central Excise and Salt Act, 1944 (hereinafter referred to as “the said Act), the appeal would lie before the Hon’ble Supreme Court of India and not before this Court.

Contentions of the Appellant

The Appellant contended that the issue in the present Appeal does not involve any question with regard to either classification or taxability or excisability of the service or the rate at which service tax is to be paid. He submits that only when the aforesaid issues are involved, the appeal would lie before the Hon’ble Apex Court and in all other cases the appeal would lie before this Court. The Appellant contended that the judgment of the Hon’ble Apex Court in the case of Navin Chemical Manufacturing and Trading Company Ltd. v/s. Collector of Customs reported in 1993(68) E.L.T. 3(S.C.) would make the position clear.

Contentions of the Revenue

The Revenue contended that as per the correct interpretation of section 35 G and 35 L of the said Act, it will have to be construed that the present appeal involves question regarding taxability and therefore would fall within the term “a question having a relation to the rate of duty”. It was further contended that the department rightly construing the aforesaid provisions has proposed to file an appeal before the Hon’ble Supreme Court with regard to that part of the impugned order, by which the Revenue is aggrieved, regarding setting aside the order of penalty and also on merits. It was further contended that the proper remedy available to the appellant is to approach Apex Court by way of an appeal under Section 35 L of the said Act and the present appeal deserves to be dismissed on the ground of tenability.

The revenue relied on the following judgements in this regard:-

(i) Union of India v/s. Auto Ignation Ltd., reported in 2002 (142) E.L.T. 292(Bom.)

(ii) Commissioner of Custom & Central Excise, Goa v/s. Primella Sanitary Products (P) Ltd., reported in 2002(145) E.L.T. 515(Bom.)

(iii) Sterlite Optical Technologies Ltd. V/s. Commissioner of Central Excise, Aurangabad, reported in 2007(213) E.L.T.658.

(iv) Commissioner of Central Excise, Nagpur v/s. Universal Ferro & Allied Chemicals Ltd., reported in 2009 (234) E.L.T. 220 (Bom.).

(v) The Commissioner of Central Excise & Service Tax, Pune v/s. M/s. Credit Suisse Services (I) Pvt. Ltd., bearing Central Excise Appeal No. 5 of 2014 & other connected matters decided on 23/2/2015.

Held by Hon’ble High Court, Bombay

The Hon’ble High Court referred to Subsection 1 of Section 35 G and Section 35 L of the said Act, which read thus:

“35­G. Appeal to High Court ­ (1) An appeal shall lie to the High Court from every order passed in appeal 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 to the value of goods for purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law.

35L. Appeal to Supreme Court.

(1) An appeal shall lie to the Supreme Court from­

(a) any judgment of the High Court delivered­

(i) in an appeal made under section 35G; or

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

(iii) 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

(b) any order passed before the establishment of the National Tax Tribunal 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.

(2) For the purposes of this Chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment.”

Upon a conjoint reading of aforesaid provisions, it would thus be seen that an appeal shall lie to this Court against every order passed in appeal by the Appellate Tribunal, if the Court is satisfied that the case involves a substantial question of law. The only exception that is carved out is that an appeal shall not lie before this Court against an order relating amongst other things to the determination of any question having relations to the rate of duty of excise or to the value of goods for purpose of assessment.

Subsection 2 of Section 35 L of the Act provides that the term “determination of any question having a relation to the rate of duty” shall also include “the determination of taxability or excisability of goods for purposes of assessment”. It would thus be clear that if any question having a relation to the rate of duty is involved in an appeal or when it is relating to value of goods for the purposes of assessment, then such an appeal would not lie before this Court. Similarly, if a question with regard to the determination of taxability or excisability of the goods for the purposes of assessment arises, then also appeal would not lie before this Court.

The Hon’ble Court stated that the issue is no more integra. In the catena of Judgments beginning from the Judgment of the Apex Court in the case of Navin Chemicals Mfg. & Trading Co. Ltd. (cited supra), the position has been clarified.

The Apex Court while considering the pari materia provisions of Customs Act has held that where an appeal involves determination of any question that has relation to custom duty for the purpose of assessment, or where the appeal involves determination of any question that has relation to the value of goods for the purpose of assessment, then such case have to be treated separately and given special treatment.

The Apex Court has carved out following categories of cases, to which the legislature has given special treatment ­

(i) determination of a question relating to a rate of duty;

(ii) determination of a question relating to the valuation of goods for the purpose of assessment;

(iii) determination of a question relating to the classification of goods under the Tariff and whether or not they are covered by an exemption notification;

(iv) whether the value of goods for purposes of assessment should be enhanced or reduced having regard to certain matters that the said Act provides for.

The aforesaid interpretation placed by the Apex Court is interpreting the words “determination of any question having a relation to the rate of duty or to the value of goods for the purposes of assessment”. In view of amendment to Section 35 L, following category of cases would also be required to be added to the said categories.

“determination of disputes relating to taxability or excisability of goods for the purpose of assessment.”

The Hon’ble High Court also dealt with the various Judgments of this Court which are referred to by the Revenue.

1. The case of Union of India v/s. Auto Ignation Ltd. (cited supra), distinguished on the basis of facts.
2. The case of Primella Sanitary Products (P) Ltd. (cited supra) was related t the question as to whether the assessee was eligible to claim benefit of the exemption. notification dated 1st March, 1986 as amended by notification dated 28th February, 1993. The question before the Division Bench was as to whether the assessee was entitled to benefit of exemption notification or not directly fell for consideration before the Division Bench and as such it was directly related to the rate at which duty was payable. In that view of the matter, the Division Bench held that reference to this Court under Section 35 H was not tenable.
3. In the case of Sterlite Optical Technologies Ltd. (cited supra), the question that arose for consideration, was as to what should be the rate of duty for the goods cleared to the Domestic Tariff Area. The Division Bench thus held that the direct and proximate issues in the appeal were related to the rate applicable to the goods and the value thereof. It held that the issue involving the status of the subject Unit was one of the incidental issues and not the main issue.
4. In the case of Universal Ferro & Allied Chemicals Ltd. (cited supra), question that arose for consideration was as to whether the assessee was liable to pay duty as per notification No. 8 of 1997 or whether the duty was payable in accordance with the provisions of proviso to Section 3(1) of the Act of 1944. Apart from that there was also a dispute regarding the value on which duty was payable.
5. In the case of the Commissioner of Central Excise & Service Tax, Pune v/s.M/s. Credit Suisse Services (I) Pvt.Ltd. (cited supra), the question that arose for consideration was as to whether the services wholly in SEZ area are taxable or not in view of the notification dated 3^rd March, 2009 and amended on 29^th May, 2009.In that view of the matter, the Division Bench held that the appeal would lie before the Apex Court and not before this Court.

The Hon’ble Court stated that in the present case, the only question that falls for adjudication is as to whether prior to notification dated 27/2/2010, for the services rendered by the appellant between the period of 7/72009 and 27/2/2010 in the Continental Shelf of India and the Exclusive Economic Zone of India, service tax was payable on services rendered by the appellant for drilling for the purpose of exploration of oil reserves or not.

It could be seen that vide said notification, provisions of Chapter V of Finance Act, 1994 were also extended to the areas specified in column No. 2 of the table in the said notification in the continental shelf and the Exclusive Economic Zone of India for the purposes mentioned in table 3. The table refers to any service provided for all activities pertaining to construction of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof. The table also refers to any service provided or to be provided by or to such installations, structures and vessels and for supply of any goods connected with the said activity.

The Hon’ble Court is of the view that the present appeal does not involve an issue regarding the rate of duty in as much as even the assessee does not dispute the rate of duty i.e. payable for the services rendered. The present case also does not involve an issue regarding valuation of goods or services for the purpose of assessment. It also does not involve the issue regarding classification of goods under the tariff. It also does not involve the question as to whether or not services rendered by the appellant are taxable or not. It also does not involve the question as to whether the value of goods for purposes of assessment should be enhanced or reduced having regard to certain matters, which the said Act provides for. The issue regarding the services being rendered by the appellant being taxable and the rate at which service tax is to be paid are not disputed by the appellant. The issue regarding taxability and excessibility of the goods is also not involved in the present appeal.

The Hon’ble High court stated that when prima facie it was found that the present case is not covered by the term “determination of any question having relation to the rate of duty or to the value of goods for the purpose of assessment”, the court cannot nonsuit the appellant only because the Revenue has proposed to file.

In view of the above, the preliminary objection is rejected and the Appeal is admitted on substantial questions of law posted for hearing on a future date.