KEI Industries Limited Vs Commissioner (Appeals) (CESTAT Delhi)
CESTAT Delhi held that Commissioner (Appeals) did not have the power to issue the notice under section 73(1) of the Finance Act. Accordingly, order passed thereon deserved to be set aside.
Facts- M/s. KEI Industries Limited has assailed the order dated 31.03.2021 passed by the Commissioner (Appeals), Central Excise & CGST, Jaipur in the appeal filed by the appellant against the order dated 19.03.2018 passed by the Additional Commissioner. The Additional Commissioner, by the said order, adjudicated the show cause notice dated 07.09.2017 issued for the period from October 2014 to June 2017 and confirmed the demand of Rs.1,70,89,498/- with interest and penalty. The Commissioner (Appeals), however, after issuing a fresh notice dated 29.12.2020 to the appellant by exercising powers under section 85 (4) of the Finance Act 1994 read with the second proviso to section 35A (3) of the Central Excise Act 1944 and section 73 of the Finance Act confirmed the demand of Rs.37,05,65,104/- proposed in the notice dated 29.12.2020 with interest and penalty.
Conclusion- Held that 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.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s. KEI Industries Limited 1 has assailed the order dated 31.03.2021 passed by the Commissioner (Appeals), Central Excise & CGST, Jaipur2 in the appeal filed by the appellant against the order dated 19.03.2018 passed by the Additional Commissioner. The Additional Commissioner, by the said order, adjudicated the show cause notice dated 07.09.2017 issued for the period from October 2014 to June 2017 and confirmed the demand of Rs.1,70,89,498/- with interest and penalty. The Commissioner (Appeals), however, after issuing a fresh notice dated 29.12.2020 to the appellant by exercising powers under section 85 (4) of the Finance Act 19943 read with the second proviso to section 35A (3) of the Central Excise Act 19444 and section 73 of the Finance Act confirmed the demand of Rs.37,05,65,104/- proposed in the notice dated 29.12.2020 with interest and penalty.
2. The appellant is engaged in the manufacture of winding wire, plastic cable and SS wire. In addition to the manufacturing activity, the appellant is also engaged in providing turnkey project services and erection and commissioning services, mainly to electricity distribution companies.
3. It transpires from the records that earlier, pursuant to an audit of the records of the appellant, a show cause notice dated 07.09.2017 was issued to the appellant proposing a demand of Rs. 1,70,89,498/- under rule 6(3A) of the CENVAT Credit Rules, 20045 on the ground that apart from manufacturing excisable goods (on which appropriate excise duty was paid) and provision of output services (on which appropriate service tax was paid), the appellant was also engaged in trading of goods in such turnkey projects, which would qualify as ‗exempted service‘ and accordingly, CENVAT credit was liable to be reversed under rule 6(3A) of the 2004 Credit Rules. The proposed demand of Rs. 1,70,89,498/- was confirmed by the Additional Commissioner by the order dated 19.03.2018 with interest and
4. Feeling aggrieved, the appellant filed an appeal before the Commissioner (Appeals). During the course of hearing, the Commissioner (Appeals) entertained a view that the appellant had short-paid service tax on turnkey projects, but as this was not a matter covered by the show cause notice dated 07.09.2017, the Commissioner (Appeals) purported to exercise powers conferred on Commissioner (Appeals) under the second proviso to section 35A(3) of the Excise Act read with section 73 of the Finance Act and issued a fresh notice dated 29.12.2020 to the appellant proposing a demand of service tax of Rs. 37,05,65,014/- for short payment of service tax for the period from October 2014 to June 2017 with interest and penalty. The Commissioner (Appeals) also invoked the extended period of limitation contemplated under the second proviso to section 73(1) of the Finance Act. The relevant portion of the show cause notice dated 29.12.2020 is reproduced below:
4. During the course of examination of the appeal memo and other relevant documents furnished by the assessee alongwith the appeal memo, it was observed that besides the manufacturing activity the assessee is also engaged in the execution of Turnkey Projects for various service receivers and it appeared that the assessee has not computed the proper service tax payable on execution of such Turnkey Projects resulting in short payment of Service Tax.
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5.4 cAccordingly, in terms of the second proviso to Section 35A(3) of the Central Excise Act, 1944, as made applicable in Service tax matters read with Section 73 of the Finance Act and Section 6 of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions)Act, 2020, instant notice is being served upon to the assessee on issue of the short payment of service tax as enumerated hereunder.
6. On scrutiny and examination of the appeal memo and other relevant documents furnished by the assessee, it was observed that besides the manufacturing activity the assessee is engaged in the execution of Turnkey Projects for various service receivers and it appeared that the assessee has not computed the proper service tax payable on execution of such Turnkey Projects resulting in short payment of Service Tax amounting to Rs. 37,05,65,014/- during the period October, 2014 to June, 2017 (Annexure-A) (RUD-1) in contravention of the provisions of Section 66B, 67,68 of the Finance Act, 1994 read with rules made thereunder.
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20. From the above, it appears that, the assessee failed to discharge the service tax liability as discussed in the preceding paragraphs. xxxxxxx. It appears that there has been a deliberate act by the assessee to suppress their correct taxable value in order to intentionally short pay and evade the service tax payment to the Govt. exchequer and not following the provisions of the law. Had the department not initiated the inquiry/investigation against them in the instant case, the said short payment of Service Tax would have remained unnoticed and unearthed, therefore, the extended period of limitation as contained under the proviso to Section 73(1) of the Finance Act, 1994 read with Section 6 of The Taxation And Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, appears to be invokable in the instant case for recovery of Service tax amounting to Rs. 37,05,65,014/- read with Section 73A of the Finance Act, 1944. Further interest for nonpayment of Service Tax within the stipulated period, also appears to be recoverable from them in terms of Section 75 of the Act and since the assessee appear to have contravened the provisions of the Act & Rules referred above with intention to evade service tax, they also appear to be liable to penalty under Section 77 and 78 of the Finance Act.‖
(emphasis supplied)
5. The appellant filed a reply to the said show cause notice and also filed additional submissions.
6. The Commissioner (Appeals) found that the appellant had exorbitantly enhanced the value of goods and reduced the value of service portion in the turnkey projects and so the valuation of the activities for the period from October 2014 to June 2017 was required to be undertaken under rule 2A(ii)(A) of the Service Tax (Determination of Value) Rules 20066. The Commissioner (Appeals), therefore, by the order dated 31.03.2022, confirmed the service tax demand of Rs.37,05,65,014/-.
7. This appeal has been filed to assail the aforesaid order dated 03.2021 passed by the Commissioner (Appeals) primarily on the ground that the Commissioner (Appeals) did not have the jurisdiction to issue the show cause notice 29.12.2020 by purporting to exercise powers under the second proviso to section 35A (3) of the Excise Act.
8. To examine this contention, it will be useful to refer to the relevant provisions of the Finance Act and the Excise Act.
9. Chapter V of the Finance Act deals with Service Tax and contains sections from 64 to 96. Section 83 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 Section 35A of the Excise Act is not a section mentioned in section 83 of the Finance Act.
10. Section 73 of the Finance Act deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded and the relevant portion of this section is reproduced below:
73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded.
(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within thirty months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of—
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words thirty months‖, the words ―five years‖ had been substituted.
Explanation.— Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of thirty months or five years, as the case may be.
(1A) Notwithstanding anything contained in subsection (1) (except the period of thirty months of serving the notice for recovery of service tax), the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section, a statement, containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax, then, service of such statement shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon for the subsequent period are same as are mentioned in the earlier notices.
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(2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.‖
(emphasis supplied)
11. Section 85 of the Finance Act deals with appeals to the Commissioner of Central Excise (Appeals). Sub-section (1) of section 85 provides that any person aggrieved by any decision or order of an adjudicating authority may appeal to the Commissioner of Central Excise (Appeals). Sub-section (3) deals with the limitation for filing an appeal. Sub-sections (4) and (5) of section 85, which are relevant for the purposes of this appeal, are reproduced below:
85. Appeals to the Commissioner of Central Excise (Appeals).
(1) xxxxxxxxxx
(2) xxxxxxxxxx
(3) xxxxxxxxxx
(3A) xxxxxxxxxx
(4) The Commissioner of Central Excise (Appeals) shall hear and determine the appeal and, subject to the provisions of this Chapter, pass such orders as he thinks fit and such orders may include an order enhancing the service tax, interest or penalty:
PROVIDED that an order enhancing the service tax, interest or penalty shall not be made unless the person affected thereby has been given a reasonable opportunity of showing cause against such enhancement.
(5) Subject to the provisions of this Chapter, in hearing the appeals and making order under this section, the Commissioner of Central Excise (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 Central Excise Act, 1944 (1 of 1944).
12. 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 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.
13. Section 35 of the Excise Act deals with appeals to Commissioner (Appeals), while section 35A deals with the procedure in appeal. The relevant portion of section 35A of the Excise Act, is reproduced below:
Section 35A. Procedure in appeal.-
(1) xxxxxxx
(2) xxxxxxx
(3) 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:
PROVIDED that an order enhancing any penalty or fine in lieu of confiscation or confiscating goods of greater value 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:
PROVIDED FURTHER that where the Commissioner (Appeals) is of 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.
14. At this stage, what needs to be remembered is that the Commissioner (Appeals), in an appeal filed by the appellant to assail the order passed by the Additional Commissioner confirming the demand of service tax while adjudicating the notice dated 09.2017, proceeded to issue a fresh notice dated 29.12.2020 to the appellant on allegations not contained in the earlier notice dated 07.09.2017 by purporting to exercise powers under the second proviso to section 35A(3) of the Excise Act read with the second proviso to section 85(3) and section 73 of the Finance Act.
15. The issue, therefore, that would arise for consideration in this appeal is 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.
16. Shri B.L. Narasimhan, learned counsel for the appellant made the following submissions:
(i) The Commissioner (Appeals), while hearing an appeal under section 85 of the Finance Act against the order passed by the Additional Commissioner, did not have the jurisdiction to issue a fresh notice to the appellant by exercising powers under the second proviso to section 35A(3) of the Excise Act. Elaborating this submission, learned counsel pointed out that while hearing an appeal, the Commissioner (Appeals) has the power under subsection (4) of section 85 of the Finance Act to pass such orders as he thinks fit and such orders may include an order enhancing the service tax, interest or penalty and though sub-section (5) of section 85 provides that the Commissioner of Central Excise (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, but the said powers are subject to the provisions of Chapter V of the Finance Act;
(ii) From a combined reading of sub-sections (4) and (5) of the Finance Act, it is clear that a reasonable opportunity of showing cause has to be given by the Commissioner (Appeals) before enhancing the service tax, interest or penalty but such enhancement has to be within the bounds of the subject-matter of the notice already issued and a fresh notice cannot be issued by Commissioner ST/ 50949/2021 (Appeals). In other words, only such powers provided under the Excise Act can be exercised by the Commissioner (Appeals) which are not in conflict with the provisions of Chapter V of the Finance Act. In support of this contention reliance has been placed on the decisions of the Supreme Court in South India Corporation (P) Ltd. (In all Appeals) vs. Secretary, Board of Revenue Trivandrum and Another7and Union of India vs. Brigadier P.S. Gill8.;
(iii) This interplay between the provisions of section 85(4) of the Finance Act and section 35A of the Excise Act came up for interpretation before the Gujarat High Court in Commissioner of Service Tax Associated Hotels Ltd.9 and the Madras High Court in A. S. Babu Sah Designs vs. Commissioner of C. Ex. (Appeals), Chennai110 and before the Tribunal in Commissioner of Service Tax, Delhi vs. World Vision11, wherein it was observed that sub-section (3) of section 35A of the Excise Act cannot be superimposed into subsection (5) of section 85 of the Finance Act;
(iv) The demand proposed in the notice issued by the Commissioner (Appeals) is on a completely new ST/ 50949/2021 and fresh issue, which is beyond the subject‑ matter of original notice;
(v) A person cannot be placed in a worse position as a result of filling of an appeal and in support of this contention reliance has been placed upon the judgment of the Madras High Court in Servo Packaging Ltd. CESTAT, Chennai12;
(vi) In any case, the findings recorded by the Commissioner (Appeals) in the impugned order to confirm the demand of service tax in the notice dated 29.12.2020 are not only incorrect but have also been incorrectly computed; and
(vii) The extended period of limitation could not have been invoked by the Commissioner (Appeals) in the facts and circumstances of the case.
17. Shri Ajay Jain, learned special counsel appearing for the department assisted by Shri Harshvardhan, learned authorised representative appearing for the department, however, supported the impugned order and made the following submissions:
(i) In view of the second proviso to section 35A(3) of the Excise Act and sub-section (5) of section 85 of the Finance Act, where the Commissioner (Appeals) is of opinion that any service tax has been short paid, he can pass an order confirming the demand of such short paid tax after giving the appellant a notice within time limit specified in ST/ 50949/2021 section 73 of the Finance Act. Thus, there are no fetters on Commissioner (Appeals) to restrict himself only to the grounds which had been brought before him in the appeal;
(ii) The decisions relied upon by learned counsel for the appellant are distinguishable and would not be applicable to the facts of the present case;
(iii) Even if it is contended that the provisions of section 35A(3) of the Excise Act are not applicable to section 85 of Finance Act, the powers of Commissioner (Appeals) under section 85 of the Finance Act are very wide as he can pass such orders as he thinks fit and there is no restriction on the power of Commissioner (Appeals) to issue a fresh notice; and
(iv) The appellant is not correct in stating that the service tax liability had been correctly discharged or that the extended period of limitation was not correctly invoked.
18. The contentions advanced by the learned counsel for the appellant and the learned special counsel for the department have been considered.
19. As noticed above, section 85 of the Finance Act deals with appeals to the Commissioner (Appeals) and provides that any person aggrieved by any decision of the adjudicating authority may appeal to the Commissioner (Appeals). Sub-section (4) provides that the Commissioner of Central Excise (Appeals) shall hear and determine ST/ 50949/2021 the appeal and, subject to the provisions of Chapter V, pass such orders as he thinks fit and such orders may include an order enhancing the service tax, interest or penalty, but such an order enhancing the service tax, interest or penalty shall not be made unless the person affected thereby has been given a reasonable opportunity of showing cause against such enhancement. Sub-section (5) of section 85, however, provides that, subject to the provisions of Chapter V of the Finance Act, 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. 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.
