Introduction:
India has steadily streamlined its central indirect tax regime over the last 30 years. The law has increasingly become simpler and easier to interpret and administer. Central indirect tax laws in India, at the central level, provide various avenues for resolution of tax disputes/litigations. Official litigation policy says in revenue matters, an appeal shall not be filed if the amount involved is not very high or is less than the monetary limit fixed by the revenue authorities. It also states appeals shall not be filed if the matter is covered by a series of judgments of the tribunal in question and the High Courts, which have held the field and not been challenged in the Supreme Court. A tax dispute may take anytime between 12 to 20 years before it attains finality at the Supreme Court level.
It also says no appeal shall be filed where the assessee has acted in accordance with the long-standing practice and also merely because of a change of opinion on the part of the jurisdictional officers. While the norm is a five-tier appeal process mandated by customs, central excise and service tax laws.
A representation of the five-tier appeal structure at each level is given below:
Structures Format:
Level-1:- Dispute resolution by Assistant / Deputy / Joint / Additional Commissioner or Commissioner:
The original adjudicating authority takes around one to two years to adjudicate a Show Cause Notices (SCN) issued by the said authority.
Under central indirect tax laws, the first level of adjudication is by a Superintendent, Deputy Commissioners, Joint/Additional Commissioners or Commissioner depending on the quantum and nature of dispute involved. The original adjudicating authorities have the right to and they seek copious additional documentation from the taxpayer during the course of adjudication of a claim. Such additional information and documentation is sought and scrutinized in the context of adjudication of demands as well as refunds filed by the taxpayer. Such adjudication proceedings culminate in either confirmation of the demand (i.e. tax/duty, interest and penalty) or rejection of refund on a host of legal/technical, procedural and documentation based reasons.
In the context of issuing demands, adjudicating authorities are allowed to issue Show Cause Notices (SCNs) within a period of 1 year from relevant date (as per Notification No. 30/2005 – Service Tax, dated August 10, 2005 last amended on September 8, 2010). However, in cases where the department is in a position to substantiate that tax / duty has not been paid by reason of fraud, collusion or any willful misstatement or suppression of facts etc, then a larger period of limitation of 5 years could be invoked.
The taxpayer, upon issuance of Show Cause Notices, is expected to provide necessary clarification to the adjudicating authorities rebutting the allegations in the Show Cause Notices/ substantiating the tax position adopted by the taxpayer. At this stage, the adjudicating authorities are required to judiciously analyze the submissions made by the taxpayer and arrive at a conclusion in confirming / dropping the proposals in the Show Cause Notices (SCNs).
Upon the finalization of first level of adjudication proceedings vide an “Order-in-Original”, the dissatisfied the taxpayer can prefer an appeal before the next level of dispute resolution which is either Commissioner (Appeals) (in case of orders passed by Additional Commissioner or officers below him) or in case taxpayer is aggrieved by the order passed by the Commissioner (i.e. Customs, Excise, Service Tax Appellate Tribunal).
Level-2:- Dispute resolution by Appeal to Commissioner (Appeals):
The time typically taken for the resolution of an appeal at the level of the Commissioner (Appeals) is approximately 1 to 2 years. An Order-in-Original passed by adjudicating authorities below the level of a Commissioner, an appeal lies to the Commissioner (Appeals). The Commissioner (Appeals) is required to consider the arguments of both the Revenue and the taxpayer and decide the matter judiciously and by following the principles of natural justice. The proceedings at this level culminate in an “Order-in- Appeal” being issued by the Commissioner (Appeals).
Level-3:- Dispute resolution by the Customs, Excise, Service Tax Appellate Tribunal (‘CESTAT’):
The time typically taken for a resolution of an appeal at the level of the CESTAT is approximately 2 – 3 years. An appeal lies before the CESTAT against an Order-in-Appeal passed by the Commissioner (Appeals) or an Order-in-Original passed by the Commissioner, as the case may be. Except for matters relating to classification and valuation of goods, the CESTAT is the final Appellate Authority in all customs, excise and service tax matters, although a reference to the High Court can be made on a “Question of Law”. In classification and valuation matters, the appeal against the order of the CESTAT directly lies to the Hon’ble Supreme Court.
The CESTAT as well as the Commissioner (Appeals) have the power to dispense with the requirement to pre-deposit tax, interest and penalty arising out of the order appealed against where the said appellate authority is of the view that such deposit shall cause undue hardship to the taxpayer / shall not adversely affect the interests of the Revenue.
The CESTAT has established coordinate benches across the country and an order of an earlier coordinate bench is binding upon any latter coordinate bench deciding the same or similar issues. If the later bench wants to take a different view than the one taken by the earlier bench, the proper course is for it to refer the matter to a larger bench for decision.
Level-4:- Dispute resolution by High Court:
Disposal of an appeal at the level of High Court level could entail many years (between 3 and 5 years). An appeal against the order of the CESTAT lies before the jurisdictional High Court on issues involving “substantial questions of law” except issues relating to classification and valuation where, as mentioned earlier, the appeal lies directly before the Supreme Court.
A decision of the High Court would have a binding effect on the Revenue and all taxpayers lying within its jurisdiction. In other words, unless reversed by the Supreme Court or by way of a retrospective legislation, a decision of the jurisdictional High Court attains finality within its jurisdiction and has a reasonable persuasive value in other jurisdictions.
Level-5:– Dispute resolution by the Supreme Court:
Disposal of an appeal at the level of the Supreme Court could entail several years (between 5 and 8 years).
This last tier of the litigation structure is the highest court of India – the Supreme Court. A decision of a High Court on a question of law may be challenged by the taxpayer/ Revenue before the Supreme Court. Further, as discussed in the previous paragraph, an appeal against the order of the CESTAT on issues relating to classification and / or valuation also lies directly to the Supreme Court.
Under Article 141 of the Constitution of India, a decision rendered by the Supreme Court of India is the law of the land and binding on all courts and tribunals functioning in the country. In other words, dispute resolution is final at the level of the Supreme Court unless legislative changes are made to reverse the decision of the Supreme Court.
Case Study:-
In the case of CCE Vs. Techno Economic Services Pvt. Ltd [(2010) 255-ELT-526 (Bom)], the Bombay High Court observed the Central Board of Direct Taxes had taken a policy decision in March 2000 not to file appeals or references wherein the tax effect is less than the amount prescribed in the instructions issued from time to time. This was to reduce litigation before the High Court’s and the Supreme Court. The decision has definitely reduced the volume of litigation, enabling officers to concentrate on cases involving heavy stakes. The High Court asked the Central Board of Excise and Customs to adopt a similar policy, for these and related reasons, including reducing the burden on the courts and on the revenue department.
Accordingly, on October 20, 2010, the Central Board of Excise and Customs prescribed monetary limits below which an appeal shall not be filed in tribunals/courts on excise, customs and service tax matters. The Finance Act, 2011, gave necessary powers to Central Board of Excise and Customs to do so with effect from the earlier date.
The monetary limits were revised on August 17, 2011. Accordingly, the department is not to file appeals before a tribunal where the duty/tax amount is less than Rs 5 lakh. The limits for not filing appeals before High Court’s and the Supreme Court are Rs 10 lakh and Rs 25 lakh, respectively.
These limits also apply for matters involving refunds. However, the monetary limits will not be a consideration on matters before the revisionary authority in the finance ministry or where the constitutional validity of the provisions of an Act or Rule is under challenge or where a notification or instruction or order or circular has been held illegal or unconstitutional. Also, decisions or judgments not challenged in appeal or accepted by the department for reasons of monetary limit do not have precedent value.
Conclusion:- The above mentioned relevant laws make it abundantly clear that no person, being a party in appeal, shall contend that the department had acquiesced in the decision on the disputed issue by not filing an appeal, where an appeal has not been filed by the department following instructions issued for not filing one below the monetary limit. Central Board of Excise and Customs (CBEC) recently reiterated this point and advised its representatives in the tribunal to plead that a judgment accepted for reasons of low amount should not be relied upon by the appellate forum. Since in my advice, the trade must take note that on all matters involving amounts less than the monetary limits prescribed, the department is at liberty to agitate the issue in subsequent proceedings till the matter is settled on merits.
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What are the provisions in the Central Excise Act, 1944 for Level 4 and Level 5 (i.e. Appeals to HC and SC)?