Case Law Details
Koluthara Exports Ltd. Vs Union of India (Kerala High Court)
In the case of Koluthara Exports Ltd. vs Union of India, the Kerala High Court addressed a significant issue regarding the obligation of authorities to adhere to binding decisions and the legal implications of failing to do so.
Case Background: The petitioner, Koluthara Exports Ltd., challenged two main documents: Ext.P7, an order, and Ext.P9, a communication from the third respondent rejecting a rectification petition against Ext.P7. The company is engaged in processing raw fish and manufacturing frozen fish for export. Believing that their activities qualified as manufacturing and thus were not subject to service tax, the petitioner did not register under the Central Excise Act.
Initial Dispute: On April 16, 2007, the petitioner received a show-cause notice proposing to classify their activities as a service subject to service tax. The adjudicating authorities upheld this classification despite the petitioner’s objections. The petitioner appealed these decisions to the Appellate Tribunal, which ruled in their favor on February 24, 2020 (Ext.P1), determining that their activities constituted manufacturing and were thus exempt from service tax.
Subsequent Proceedings: Despite this ruling, the respondents initiated new proceedings for the financial years 2015-16 and 2016-17, raising the same issue. On February 18, 2019, the assessing authority reaffirmed the demand for service tax. The petitioner then appealed these assessments (Appeals No. 50/2019 and 51/2019) to the third respondent, expecting adherence to the Tribunal’s prior ruling (Ext.P1).
Controversial Order: During a virtual hearing, the petitioner referenced the Tribunal’s Ext.P1 order. Nevertheless, on November 19, 2020 (Ext.P7), the third respondent issued a contrary decision, treating the petitioner’s activities as a service subject to tax. The petitioner promptly filed rectification petitions (Ext.P8 and Ext.P8(a)), but without a hearing, the third respondent dismissed these petitions on February 25, 2021 (Ext.P9), arguing that accepting the petitioner’s contention would constitute a revision, not a rectification.
Legal Arguments: The petitioner, represented by Adv. Kuryan Thomas, argued that the third respondent was bound by the Tribunal’s decision in Ext.P1 for identical issues in subsequent years, as the Tribunal’s decisions are binding on subordinate authorities. The respondents, represented by Adv. Sreelal N. Warrier, countered that rectification would amount to revising the order, which is not permissible.
Court’s Analysis: The Kerala High Court noted that Ext.P1 was a binding decision from the jurisdictional Tribunal on an identical issue for an earlier assessment year. The Court emphasized that subordinate authorities must adhere to final orders from the Tribunal when the same issue arises again for the same assessee. Ignoring such binding decisions amounts to an “error apparent on the face of the record,” as established in the Supreme Court case Honda Siel Power Products Ltd. v. Commissioner of Income Tax, Delhi [2008 (221) E.L.T. 11 (S.C.)]. The Supreme Court in Honda Siel recognized that failing to consider a coordinate bench’s judgment, when it was available on record, constitutes a rectifiable error.
Court’s Decision: The Kerala High Court concluded that the third respondent’s refusal to rectify Ext.P7 was legally incorrect. By not considering the Tribunal’s binding decision in Ext.P1, the third respondent committed an error apparent on the record, which warranted rectification. The Court set aside Ext.P9 and directed the third respondent to reconsider the rectification petitions (Ext.P8 and Ext.P8(a)), ensuring an opportunity for the petitioner to be heard.
Conclusion: The High Court’s ruling underscores the legal principle that binding decisions from higher judicial authorities must be adhered to by subordinate bodies. Failure to do so not only undermines the legal system’s consistency but also violates established judicial precedents, warranting rectification and re-evaluation of such orders.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Petitioner challenges Ext.P7 order as well as Ext.P9 communication issued by the 3rd respondent rejecting the rectification petition filed by the petitioner against Ext.P7 order. Petitioner is engaged in the processing of raw fish, manufacture of frozen fish and its export. Claiming that the activity carried on by the petitioner amounts to manufacture and since the end product was claimed to be exported out of the country, petitioner had not registered itself under the Central Excise Act, since according to the petitioner, the activity did not attract serve tax.
2. However, petitioner was issued with a show-cause notice on 16.04.2007 proposing to treat the activity of the petitioner as a service. Pursuant to the objection raised by the petitioner, the adjudicating authorities rejected the same and confirmed the levy of service tax. Petitioner challenged those orders of adjudication before the Appellate Tribunal. After considering all the contentions raised by the petitioner, the Tribunal as the Appellate Authority, had, by Ext.P1 order dated 24.02.2020 allowed the appeals after finding that the activity undertaken by the petitioner amounts to manufacture and therefore, excluded from the purview of service tax.
3. While so, the respondents had initiated proceedings for the subsequent periods i.e., 2015-16 and 2016-17 wherein also identical issue, as covered by Ext.P1 order, was raised. By order dated 18.02.2019, the assessing authority confirmed demands of service tax on the petitioner. Challenging the two orders of assessment, petitioner had preferred two appeals as appeal No.50/2019 and 51/2019 before the third respondent. Since the jurisdictional Tribunal had already considered the question and rendered Ext.P1 order, petitioner assumed that the third respondent as a subordinate authority cannot enter into a finding contrary to that in Ext.P1. During the virtual hearing conducted, petitioner had pointed out the Tribunal’s order. However, by Ext.P7 dated 19.11.2020, the 3rd respondent took a contrary stand and assessed the petitioner for service tax, treating the activity of the petitioner as a service.
4. Immediately, petitioner filed Ext.P8 and Ext.P8(a) seeking rectification of Ext.P7 order. Without even granting an opportunity of hearing, the 3rd respondent by Ext.P9 communication dated 25.2.2021, intimated the petitioner that the request for rectification of orders in appeal will amount to a revision of the order and that the same is not permissible under law.
5. I have heard Adv. Kuryan Thomas, learned counsel for the petitioner as well as Adv. Sreelal N. Warrier, learned Standing Counsel for the respondents.
6. It is noticed that Ext.P1 is an order of the jurisdictional Tribunal relating to the petitioner on an identical issue for an earlier assessment year. When identical issues are raised, that too by the same assessee for a subsequent year, the order of the jurisdictional Tribunal, which has become final too, is bound to be adhered to by the authorities subordinate to the Tribunal. Judgments or orders inter parties cannot be ignored. Viewed in that perspective, Ext.P1 can primarily be seen as a binding decision for the third respondent.
7. When binding decisions are pointed out and the same are not relied upon by the authority to render its decision, it will tantamount to an error apparent on the face of the record, as held in Honda Siel Power Products Ltd. v. Commissioner of Income Tax, Delhi [2008 (221) E.L.T. 11 (S.C.)]. Hon’ble Supreme Court had observed in the said judgment that the Tribunal in that case was justified in exercising the power under section 254(2) of the Income Tax Act, 1961, when it was pointed out to the Tribunal that the judgment of the coordinate bench was mistakenly omitted to be considered when the material was available on record. Acknowledging the said mistake it was held that the omission amounts to an error apparent on the face of the record enabling rectification.
8. Similar orders have been passed by other High Courts as well and the aforesaid proposition holds the field even now.
The observation of the 3rd respondent in Ext.P9 that if the contention of the petitioner is accepted it will amount to a revision and not a rectification, according to me, is incorrect. The petitioner had brought the order of the Tribunal to the notice of the appellate authority still the said order of the Tribunal was not considered. Omitting to consider the order of a jurisdictional Tribunal by the subordinate authorities, when the same was brought to the notice of the authority, is certainly a ground for rectification. Therefore, refusal of the 3rd respondent to consider the petition for rectification filed as Ext.P8 and Ext.P8(a) is wrong in law.
9. Hence, I set aside Ext.P9 and direct the 3rd respondent to reconsider Ext.P8 and Ext.P8(a) petitions for rectification and pass fresh orders thereon after affording an
opportunity of being heard to the petitioner.
The wit petition is allowed as above.
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