MUMBAI, APR 05, 2013: IN one of the biggest challenges to the very foundation of the superintending authority, the CESTAT, WZB was witness to a total of 41 miscellaneous applications in 40 appeals filed before it and the parties involved were a virtual who's who of the Service Industry. Suffice to say that bankers, financial advisories, Life Insurance Companies, Telecom companies, Property Developers, the Cricket Board and an acting school were the applicants and the CESTAT took all the applications together as a common issue had been raised in all these applications.

The two issues raised were -

+ Whether the Commissioner of Service Tax, Mumbai has jurisdiction to issue show-cause notice to the assessees/applicants under Section 73 of the Finance Act, 1994 and can adjudicate the said notice.

+ Whether the Chief Commissioner of Central Excise Mumbai has the powers under Section 83A of the said Finance Act to nominate any other Commissioner within his jurisdiction to adjudicate the case pertaining to Commissioner of Service Tax, Mumbai.

The Rule of STR, 1994 and the CBEC Order that were in the limelight were -

++ Rule 3 of the Service Tax Rules, 1994 which reads:-

"The Central Board of Excise and Customs may appoint such Central Excise Officers as it thinks fit for exercising the powers under Chapter V of the Act within such local limits as it may assign to them as also specify the taxable service in relation to which any such Central Excise Officers shall exercise his powers.”

++ In pursuance to this Rule, the CBEC has issued Order No. 4/2/2004-Service Tax dated 18.5.2004 which reads:-

"F.No. 137/43/2003-CX.4
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF EXCISE & CUSTOMS
New Delhi: the 14 th May 2004

Order No. 4/1/2004-Service Tax Service Tax Rule (3)

Sub: Appointment of Officers for assessment and collection of Service Tax.

With the approval of Government of India, Central Board of Excise and Customs hereby notifies the creation of following six exclusives Service Tax Commissionerate along with their territorial jurisdiction. The officers namely Commissioner and other officers subordinate to him are hereby duly empowered as proper officer, under Rule 3 of Service Tax Rules, 1994 read with Chapter V of the Finance Act, 1994.  

2. The officers mentioned in the Column 2 above will be reporting to the jurisdictional Chief Commissioners in all matters relating to Service Tax except for the officer mentioned at Sr. No.1 who would be reporting to Chief Commissioner, Mumbai-I.

3. The earlier Order No. 1/1/94-Service Tax Rules (3) dated 29.9.1994 and Order No.2/2/94-Service Tax Rules (3) dated 4.7.1994 as amended by Order No. 1/1/98-STR(3) dated 7.10.1998 and Order No. 3/1/2004-Service Tax Rules (3) dated 1 st March, 2004, stands amended as above.

Sd/-
Under Secretary to the Government of India”

A battery of Advocates and CAs argued on behalf of the applicants and the Revenue side was represented by a Special Consultant.

The sum and substance of the arguments made by the applicants were that -

+ As per Rule 3 of the Service Tax Rules, 1994, the Central Board of Excise and Customs (CBEC) may appoint such Central Excise officer for exercising the powers under Chapter V of the Finance Act within such local limits as it may assign to them as also specify the taxable service in relation to which any such Central Excise Office shall exercise his powers.

+ No such notification or appointment order has been issued by the CBEC appointing Commissioner of Service Tax, Mumbai as the Central Excise Officer in terms of Rule 3 of the Service Tax Rules, 1994, and, therefore, the show-cause notices issued by the Commissioner of Service Tax, Mumbai, is void ab initio inasmuch as he does not have any jurisdiction.

+ If one looks at the legislative history since the introduction of Finance Act, 1994, it is seen that vide order No.1/1/1994 dated 29.6.1994, CBE&C had appointed Central Excise Officers for the purpose of assessment and collection of Service Tax in terms of Rule 3 of the Service Tax Rules, 1994. In the said order, the designation of the officer along with jurisdiction was specified apart from the taxable services. The said order was amended vide Order No. 2/2/1994 dated 4.7.1994 and 3/3/1994/ST dated 11.10.1994. However, the Commissioner of Service Tax, Mumbai has not been notified or appointed as Central Excise Officer thereunder.

+ The decision of the Apex Court in the case of Commissioner of Customs Vs. Sayed Ali - 2011-TIOL-20-SC-CUS wherein it was held that the Commissioner of Customs (Prev.), though a Customs Officer, was not a ‘proper officer' for the purposes of Section 28 of the Customs Act and, therefore, could not exercise the function under the said Section 28 is relied upon.

+ The contention of the Revenue that all Service Tax Commissioners are already Central Excise Officers and there is no need for a separate appointment once again for the purposes of Service Tax is not tenable since it would lead to serious absurdity. Inasmuch as if that contention was true, there was no need to issue notifications defining jurisdictional limits or the powers of any of the Central Excise Officer under Notification No. 14/2002-CE(NT) defining the territorial limit of Central Excise Officer or for that matter Notification No. 26/2006-ST dated 28.7.2006 and Notification No. 30/2006-ST dated 11.12.2006 appointing the Commissioner of Service Tax as a Central Excise Officer for the purpose of investigation and adjudication of cases being investigated by DGCEI in the case of M/s First Flight Courier Ltd. and M/s Tata Consultancy Services Ltd.

+ The Order No. 4/4/2004 dated 18.5.2004 relied upon by the Revenue is not for the purpose of levy and collection of Service Tax as it merely notifies creation of six exclusive Service Tax Commissionerates along with their territorial jurisdiction and does not appoint the Commissioner of Service Tax as Central Excise Officer in terms of Rule 3 of the Service Tax Rules, 1994.

Many other arguments were also advanced and notable amongst those was that though the notices were made answerable to Commissioner of Service Tax, Mumbai, corrigenda were issued by the Commissioner of Service Tax, Mumbai wherein the applicants/notices were asked to show cause to Commissioner of Central Excise, Thane-I; that the said corrigendum was purportedly issued in exercise of the powers conferred under Notification No.6/2009-ST dated 30-1-2009 and in terms of which the Central Government has directed that the powers exercisable by the CBEC under Section 83A read with Notification No.16/2007-ST dated 19.4.2007 shall also be exercised by the Chief Commissioner of Central Excise for the purpose of assigning the adjudication of cases under the provisions of Finance Act, 1994 or the rules made there under within the jurisdiction; that Section 83A of the Finance Act provides for adjudication of penalty only. Therefore, adjudication of service tax liability by the Commissioner of Central Excise, Thane-I pursuant to the above Notification is bad and void.

As regards the reliance placed by the Revenue on the opinion given by the Additional Solicitor General of India, the applicants submitted that the same is not binding on this Tribunal and in any case the same does not advance the case of the Revenue.

In the light of the aforesaid submissions, it is prayed that the Commissioner of Service Tax, Mumbai is not a Central Excise Officer for the purpose of Chapter V of the Finance Act, 1994 and Chief Commissioner of Central Excise, Mumbai cannot delegate the powers of adjudication for determination of Service Tax and interest liability and, therefore, exercise of such power without authority is bad in law and therefore, the orders issued merit to be set aside.

The Special Consultant justified the actions of the Revenue and prayed that the contentions raised in the miscellaneous applications are devoid of merits and should be dismissed accordingly. Reliance was placed on the Allahabad High Court decision in Allahabad High Court in the case of Raghunath International Ltd. Vs. Union of India 2012-TIOL-533-HC-ALL-CX.

The Bench negated the submissions made by the applicants and while rejecting the applications as being devoid of merits concluded thus -

# The Commissioner of Service Tax, Mumbai, and officers subordinate to him are ‘Central Excise Officers', duly empowered to assess and collect service tax within their jurisdiction.

# The Chief Commissioner of Central Excise can assign adjudication of service tax cases to any Central Excise Officer within his jurisdiction.

# Section 83A of the Finance Act, 1994 envisages adjudication of not only penalty but also determination of service tax liability and interest thereon.

Extracts from this longish order running to a dozen pages are jotted below -

+ The Rule 3 of STR, 1994 does not envisage appointment of an officer as Central Excise Officer and, thereafter vest in him with the power of levy and collection of Service Tax. What the rule envisages is appointment of a Central Excise Officer for exercising the powers under Chapter V of the Finance Act, 1994.

+ Therefore, when the Board exercises the power under Rule 3 of the Service Tax Rules, it is implicit that the officer appointed is a Central Excise Officer and the power invested on him is the powers under Chapter V of the Finance Act, 1994 within the jurisdiction specified. Therefore, the expression, "Commissioner and other officers sub-ordinate to him” mentioned in the said order refers to a Commissioner of Central Excise and other central officers subordinate to him. It, therefore, goes without saying that the Commissioner of Central Excise and officers subordinate to him have been appointed as officers of Commissionerate of Service Tax, Mumbai with the jurisdiction of Central Excise, Mumbai - I & II except Raigad Commissionerate. Any other interpretation, as suggested by the ld. Counsel for the appellants, would render the said Order infructuous.

+ Under Section 2(b) of the Central Excise Act, 1944 ‘Central Excise Officer' includes ‘Commissioner of Central Excise (Appeals)'. It, therefore, follow that the Commissioner of Service Tax, Mumbai is none other than Commissioner of Central Excise (Appeals)-I, Mumbai. Therefore the argument of the applicants that the Board has to appoint an officer as "Central Excise Officer” first and then invest with him the powers for assessment and collection of Service Tax is without any basis.

+ Appointment of officer is only a machinery provision for achieving the object of the Act and in respect of such provisions, the executive has a wide attitude and flexibility as and flexibility as has been held in a large number of judicial pronouncements. The principle of strict construction does not apply in respect of machinery provisions. Therefore, even if there is some lacuna/shortcoming in the order issued, which we do not think exist in the present case, the said lacuna may be made good by the Court by reading words, if necessary, into the notification, so that the purpose and object of the notification is achieved. It is a well settled position in law that " a construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly or which leads to inconsistency or uncertainty and friction in the system has to be rejected and preference should be given to that construction which avoids such results” [Modern School vs UOI AIR 2004 SC 2236].

+ In the context of reliance placed on the SC decision in Sayed Ali case, the Bench noted - ‘In the case before us. Section 73 which deals with issue of notice for determination of non-levy, short levy or erroneous refund does not use the term ‘proper officer' at all. It merely says that Central Excise Officer may issue a notice in case there is non-levy or short levy or erroneous refund. There is no assignment of function specifically for the purpose of Section 73. Therefore, any officer which has been vested with the powers for the levy and collection of Service Tax under Rule 3 of the Service Tax Rules, 1994, can issue the notice within his jurisdiction. Therefore, Commissioner of Service Tax, Mumbai who has been duly empowered with function of assessment and collection of Service Tax can legitimately issue notice for determination of service tax not levied/short levied/erroneously refunded and so o under Section 73. Since the Commissioner of Service Tax, Mumbai is a Central Excise Officer, he has the power to issue show-cause notice and adjudicate there upon whenever, there is a short levy or short payment, non-levy or non-payment or erroneous refund of Service Tax within his jurisdiction and we hold accordingly.'

+ The ratio of the decision of the Allahabad High Court in the case of Raghunath International Ltd. squarely to the facts of the case and accordingly there was no need to appoint a Commissioner of Central Excise as ‘Central Excise Officer' before he is invested with the powers under Chapter V of the Finance Act, 1994.

+ A combined reading of Section 37A of the Central Excise Act, 1944, Section 83 and 83A of the Finance Act, 1994, Rule 3 of the Service Tax Rules, 1944 and Notification No. 16/07 read with Notification No.6/2009-ST dated 30.1.2009 make it abundantly clear that the Chief Commissioner of Central Excise can assign adjudication of Service Tax cases to any Commissioner of Central Excise within his jurisdiction. In exercise of those powers, Order No. 1/2009-ST dated 10.2.2009 has been issued by the Chief Commissioner of Central Excise, Mumbai-I assigning the specific cases as mentioned in the said order for adjudication by Commissioner of Central Excise, Mumbai-IV, Commissioners of Central Excise, Thane-I and Thane-II. There is no dispute about the fact that the above Commissioners fall within the jurisdiction of Chief Commissioner of Central Excise, Mumbai-I. Therefore, the assignment of cases by the Chief Commissioner of Central Excise, Mumbai-I has been validly exercised in accordance with the law.

+ On the question of whether the powers of adjudication under Section 83A of the Finance Act, 1994 is confined only to adjudication of penalties or does it also cover adjudication of Service Tax liability and interest liability, the Bench observed that determination of penalty is integrally connected with the determination of Service Tax liability; that the power under Section 83A for adjudging penalty includes inherently the power of determination of Service Tax liability; otherwise the entire purpose of Section 83A would be rendered futile; that it is a well accepted principle of statutory interpretation that no Section of statute should be interpreted in such a way so as to make it a nullity; therefore the argument that the Chief Commissioner of Central Excise does not have power to assign cases for adjudication of Service Tax liability along with interest thereon and imposition of penalty to Commissioner of Central Excise, Thane-I or any other Commissioner of Central Excise within his jurisdiction is devoid of merits.

+ Adverting to the decisions in Northern India Woollen Mills Vs. Collector of Customs - 1991 (53) ELT 81 (Tri), Doddabellapur Spinning Mills Ltd. Vs. Asstt. Collector of Central Excise -1992 (891) ELT 539 (Kar) & UOI vs. Tata Iron & Steel Co. Ltd. 2002-TIOL-311-SC-CX & Commissioner of Central Excise vs. J.K. Saboo [2008 (224) EL 34 (Bom)] the Bench viewed that section 83A envisages not only the determination of penalty but also determination of service tax liability as the former is incidental to the determination of the latter and is integrally connected with the latter.

In fine, the 41 Miscellaneous applications were dismissed as being devoid of merits.

In passing : The Battle Royale begins…and would probably end the same manner as the Sayed Ali case had in the year 2011.

(See 2013-TIOL-558-CESTAT-MUM)