Gujarat High Court
Commissioner vs Larsen And Toubro Ltd....Opponent(S) on 25 September, 2014
Author: Harsha Devani
Bench: Harsha Devani, Sonia Gokani
O/TAXAP/42/2013 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 42 of 2013
With
TAX APPEAL NO. 43 of 2013
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COMMISSIONER....Appellant(s)
Versus
LARSEN AND TOUBRO LTD....Opponent(s)
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Appearance:
MR YN RAVANI, ADVOCATE for the Appellant(s) No. 1
MR NITIN K MEHTA, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 25/09/2014
ORAL ORDER
(PER : HONOURABLE MS.JUSTICE HARSHA DEVANI)
1. Both these appeals under section 35G of the Central Excise Act, 1944 (hereinafter referred to as "the Act"), challenging the order dated 07.11.2012 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad (hereinafter referred to as "the Tribunal") in Appeal No. ST/329/11 and Appeal No.ST/330/11, have been admitted vide separate orders dated 24 th July, 2014 on the following substantial questions of law:
Page 1 of 24HC-NIC Page 1 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER "(I) Whether, against the impugned judgement and order passed by the Customs, Excise & Service Tax Appellate Tribunal, present appeal before this Court would be maintainable or not and/or whether the appeal would lie before the Hon'ble Supreme Court as provided under section 35(L) of the Act?
(II) If the Question No.(I) is answered in affirmative and it is held that the appeal would be maintainable before this Court, in that case, to consider the following question :
(i) Whether the Hon'ble CESTAT Bench, Ahmedabad has erred in holding that for the purpose of levy of Service Tax, the Respondent and L&T-EPC unit as a single legal entity in the fact and circumstances of the case, and hence Respondent is not liable to pay Service Tax?"
2. As is apparent on a plain reading of the questions, the first question relates to the maintainability of the appeals and as such, is required to be decided as a preliminary issue. For the purpose of deciding the preliminary issue, it would be necessary to notice some basic facts relating to the nature of the case before the Tribunal.
3. The respondent - M/s Larsen & Toubro Limited is engaged in the execution of lumpsum turnkey contracts for setting up plants and other facilities and providing services of design and engineering, procurement, project management and project supervision, information technology and information technology enabled service. The respondent set up two units for providing engineering and design service, project management services and services of back office operations and both the units are located in the Special Economic Zone (SEZ). The SEZ units also carry out work in-house for the units located in Domestic Tariff Area (DTA) of L & T Ltd. To levy Page 2 of 24 HC-NIC Page 2 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER service tax on SEZ units, a proposal was made on the ground that the units located in SEZ and DTA units of L & T Ltd., are separate legal entities and the services provided by SEZ units to DTA units are taxable services and therefore, the service tax is leviable.
4. A show cause notice dated 22nd October, 2010 came to be issued by the Commissioner of Central Excise and Customs, Vadodara-II, proposing to recover service tax amounting to Rs.4,68,12,786/- (comprising of service tax, education cess and S & HS education cess) under section 73(1) of the Finance Act, 1994 for business support services with interest and penalty. By an order dated 14.02.2011, the adjudicating authority confirmed the demand of service tax along with interest at the rate provided under section 75 and penalties under section 77(1), section 77(2) and section 78 of the Finance Act, 1994. Being aggrieved by the order-in-original, the respondent went in appeal before the Tribunal. By the impugned order dated 17.11.2012, the Tribunal allowed the appeal holding that the SEZ units and DTA units of L & T Ltd. cannot be considered to be legal entities. The revenue has called in question the above order of the Tribunal, on the ground the Tribunal has erred in holding that for the purpose of levy of Service Tax, the respondent and L&T-EPC unit are a single legal entity and the respondent is, therefore, not liable to pay Service Tax.
5. Mr. P. K. Sahu, learned counsel with Mr. Nitin Mehta, learned advocate for the respondent submitted that the first question formulated by the court does not arise out of the impugned order and is in the nature of a preliminary objection raised by the respondent - assessee against the Page 3 of 24 HC-NIC Page 3 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER maintainability of the appeals. Reference was made to the provisions of sections 35G and 35L of the Act, to point out that against an order passed in appeal by the Appellate Tribunal, an appeal shall lie to the High Court if such order is not 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 the purposes of assessment and where an order relates to the determination of any question having a relation to the rate of duty of excise or value of goods for the purposes of assessment, an appeal would lie to the Supreme Court and not to the High Court. The attention of the court was invited to the provisions of section 35E of the Central Excise Act, 1944, and more particularly to clause (c) of the Explanation thereto, to submit that the present case falls within the ambit of the said clause, viz., "whether any goods are excisable goods or whether the rate of duty of excise on any goods is nil". In other words, as to whether the service rendered by the respondent is a taxable service or whether the rate of service tax on such services is nil. Under the circumstances, the order passed by the Tribunal on the question of determination of the nature of services rendered by the respondent and the taxability of the same, having a direct relation to the rate of service tax or value of such services for the purpose of assessment, the appeal would lie before the Supreme Court and this court has no jurisdiction to decide the appeal. Referring to sub-section (105) of section 65 of the Finance Act, 1994, it was submitted that the same envisages taxable services being provided to any person. Adverting to the provisions of sub-section (44) of section 65B of the Finance Act, 1994, it was pointed out that 'service' means any activity carried out by a person for another for Page 4 of 24 HC-NIC Page 4 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER consideration. Reverting to the facts of the present case, it was submitted that the activity carried out by the respondent - assessee does not amount to service rendering activity inasmuch as the respondent does not render service to anyone and hence, the so called service alleged to be rendered by the respondent is not a service in the first place.
5.1 In support of his submission, the learned counsel placed reliance upon the decision of the Karnataka High Court in the case of Commissioner of S.T., Bangalore v. Scott Wilson Kirkpatrick (I) Pvt. Ltd. 2011 (23) S.T.R. 321 (Karnataka), wherein the court after referring to various decisions on the controversy in issue, held that all disputes emanating from the orders determining the rate of service tax and value of service, which has reached finality are to be determined by the High Court and not disputes arising prior to the stage of determining the rate of service tax and value of service. The court further held that broadly, the following disputes do not fall within the jurisdiction of the High Court under section 35G of the Act:
(a) Dispute relating to the service tax payable on any service/taxable service.
(b) The value of the taxable service for the purposes of assessment.
(c) A dispute as to the classification of services.
(d) Whether those services are covered by an exemption notification or not?
(e) Whether the value of services for the purposes of assessment is required to be increased or decreased?
(f) The question of whether any services are taxable services or not?Page 5 of 24
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(g) Whether an activity is a service rendering activity or not, so as to attract levy of service tax?
(h) Whether a particular service falls within which heading, sub-heading of section 65(105) of the Service Act, 1994 which defines "taxable Service".
It was submitted that the present case would fall within the ambit of clause (g) above, namely, whether the activity carried out by the respondent is a service rendering activity or not, so as to attract levy of service tax. Under the circumstances, the controversy involved in the present cases is beyond the jurisdiction of this court and appeals would lie before the Supreme Court and not before this court.
5.2 Reliance was also placed upon the decision of the Delhi High Court in the case of Commissioner of Service Tax v. Delhi Gymkhana Club Ltd., 2009 (16) STR 129 (Del.) for the proposition that where the order passed by the Appellate Tribunal relates to the determination of any question having a relation to the rate of duty of excise or value of goods for the purpose of assessment, the aggrieved party has to approach the Supreme Court directly by filing appeal under section 35L of the Central Excise Act, 1944. The court on facts found that the order of the Appellate Tribunal, in essence, related to determination of the rate of duty. The court observed that whether nomenclature thereof is given as service tax, it is the rate of duty of that tax which would essentially fall for consideration. Hence, appeal preferred against such decision would not be maintainable under section 35G of the Act and the remedy was to file appeal under section 35L of the Act, which lies to the Supreme Court.
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5.2 Reliance was placed upon the decision of the Supreme Court in the case of Navin Chemicals Mfg. & Trading Co. Ltd. v. Collector of Customs, 1993 (68) ELT 3 (SC), for the proposition that a dispute as to the classification of goods and as to whether or not they are covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment. Whether the value of goods for purposes of assessment is required to be increased or decreased is a question that relates directly and proximately to the value of goods for purposes of assessment. The statutory definition of the said expression indicates that it has to be read to limit its application to cases where, for the purposes of assessment, questions arise directly and proximately as to the rate of duty or the value of the goods. The attention of the court was invited to the impugned order passed by the Tribunal, to submit that the question involved in the present case as to whether the levy of service tax is attracted on the services rendered by SEZ units to DTA units and hence, the question involved has a direct and proximate relation to the levy of service tax and the nature of services alleged to be rendered by the assessee. Under the circumstances, this court has no jurisdiction to adjudicate these cases and the appeals would lie before the Supreme Court under section 35L of the Central Excise Act.
5.3 Reliance was also placed upon the decision of this court in the case of Commissioner of Central Excise and Customs v. Swiss Glass Coat Equipments Ltd., 2011 (273) E.L.T. 364 (Guj.) wherein the court had agreed with the view adopted by the Andhra Pradesh High Court in Commissioner of Central Excise, Hyderabad v. Shriram Refrigeration Industries, Page 7 of 24 HC-NIC Page 7 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER 2009 (240) E.L.T. 201 (A.P.) and had held that the appeal which raised a question as to whether re-glass lining of old vessels amounts to manufacture or not, involves determination of a question relating to the rate of duty of excise or value of goods for the purpose of assessment, would lie before the Supreme Court and not before this court.
5.4 The decision of the Supreme Court in Union of India v. Guwahati Carbon Ltd., 2012 (278) E.L.T. 26 (S.C.) was cited wherein it has been held that when a revenue statute provides for a person aggrieved by an assessment thereunder, a particular remedy in a particular forum, in a particular way, it must be sought in that forum in that manner and all other forums and modes of seeking remedy are excluded. It was further held that the Excise law is a complete code in order to seek redress in excise matters and hence, may not be appropriate for the writ court to entertain a petition under Article 226 of the Constitution of India. In the facts of the said case, the question before the Tribunal was regarding determination of the assessable value of the commodity in question for the purpose of levy of duty under the Act, which according to the Supreme Court, ought to have been carried by the assessee by way of appeal before it under section 35L of the Central Excise Act, 1944.
5.5 It was, accordingly, urged that the impugned order of the Tribunal being related to the determination of a question having relation to the rate of service tax or the value of services, this court has no jurisdiction to adjudicate upon the same and the appeals are not maintainable and deserve to be dismissed as such.
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6 Opposing the appeals, Mr. Y. N. Ravani, learned senior
standing counsel appearing on behalf of the appellant
submitted that the present dispute does not relate to the rate of duty or to the value of any services and as such, the preliminary issue raised to the maintainability of the appeals deserves to be rejected. Referring to the decision of the Supreme Court in the case of Navin Chemicals Mfg. & Trading Co. Ltd. v. Collector of Customs (supra), and more particularly, paragraph 11 thereof, it was submitted that the question involved should have a direct and proximate relation to the rate of duty or value of goods and that in the present case, no such issue is involved and therefore, the appeals are maintainable.
6.1 Reference was made to the decision of this court in the case of Ruchi Soya Industries Ltd. v. Union of India through its Secretary and others rendered on 25.07.2004 in Special Civil Application No.25086 of 2006 with Tax Appeal No.1270 of 2006 and cognate matters, wherein this court on the facts of the said case, found that the dispute therein did not relate to the rate of duty at all and therefore, it could not be said that the appeal was related to any question in relation to the rate of duty of custom or to the value of the goods for the purpose of assessment. It was submitted that if the issue is not directly related to the classification or valuation, the appeal is maintainable. That in the facts of the present case, the question relates only to the SEZ Act and has no direct bearing on the rate of duty or valuation and that no dispute as regards classification is required to be adjudicated. Under the circumstances, the appeals would lie before this court and not Page 9 of 24 HC-NIC Page 9 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER before the Supreme Court, as is sought to be contended on behalf of the respondent.
7. In rejoinder, Mr. P. K. Sahu, learned counsel for the respondent submitted that the issue involved in the case of Ruchi Soya Industries Ltd. v. Union of India (supra) was a factual one regarding the total carotenoid content in Crude Palm Oil, and it was an admitted position that if the total carotenoid oil (as beta carotene) is found to be in the range of 500-2500 mg/kg in the very Palm Oil it attracted concessional rate of basic customs duty of 65% and if the said requirement was not met, the Crude Palm Oil would be classified under Heading 151190.90 of the Customs Tariff Act attracting higher rate of customs duty of 75%. It is in these circumstances, that the court had held that no question arose in relation to rate of duty of customs or to the value of the goods for the purpose of assessment. According to the learned counsel, the above decision was rendered in the facts of the said case and would not be applicable to the facts of the present case. It was submitted that ultimately, the determination of tax would involve many inter-connected issues which are integral. If the ultimate liability depends upon any issue, it is a direct and proximate issue and that all issues involved in the present case are integrally connected and hence, there is a direct and proximate relation to the rate of service tax or the value of taxable service. Under the circumstances, the appeals would not lie before this court and are required to be dismissed on this ground alone.
8. In the backdrop of the facts and contentions noted hereinabove, it would be necessary to first deal with the Page 10 of 24 HC-NIC Page 10 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER preliminary issue regarding non-maintainability of the appeals. For this purpose it would be necessary to decide as to whether the impugned order passed by the Appellate Tribunal is 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 the purposes of assessment, so as to bar the jurisdiction of the High Court to adjudicate upon the issue.
9. Before adverting to the rival contentions, it would be germane to refer to the decisions on which reliance has been placed by the learned counsel for the assessee.
10. In Commissioner of Central Excise & Customs v. Swiss Glass Coat Equipments Ltd. (supra), this High Court has agreed with the view taken by the Andhra Pradesh High Court in the case of Commissioner of Central Excise, Hyderabad-IV v. Shriram Refrigeration Industries (supra), wherein it has been held that whether the process undertaken by a manufacturer amounts to manufacture or not, and if the goods produced during the process are excisable or not, would fall within the meaning of expression "determination of the rate of duty of excise or the value of the goods for purposes of assessment of duty".
11. In Commissioner of Service Tax v. Ernst & Young Pvt. Ltd., 2014 (34) STR 3 (Del.), the precise issue which arose for consideration before the Delhi High Court was as to what is meant by the term 'determination of any question having relation to rate of duty (for Service Tax) or value (of service) for the purpose of assessment'. The contention of the revenue was that the expression "rate of duty" or "value" of service Page 11 of 24 HC-NIC Page 11 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER should be construed in a narrow manner, to mean a punctilious dispute as to the rate of duty payable on service chargeable to tax or the valuation of the services chargeable to tax. The words are not broad or wide enough to encompass the question, whether or not the activity is a taxable service under the charging section. It was highlighted that unlike the Central Excise Act, rate of Service Tax is uniform and constant. Thus, there cannot be a dispute as to rate of tax when the question only relates to exigibility or levy of tax. The court held thus:
"18. Xxxxx. Determination of any question relating to rate of tax would necessarily directly and proximately involve the question, whether activity falls within the charging section and Service Tax is leviable on the said activity. The said determination is integral and an important injunct to the question of rate of tax. In case Service Tax is not to be levied or imposed and cannot be imposed under the charging section, no tax would be payable. The said determination would be direct or proximate to the issue of rate of tax, which will include nil tax, when no tax is chargeable.
19. If the reasoning given by the Revenue is to be accepted, it will lead to anomaly and substantial confusion. All assessments necessarily have to determine and decide the rate of tax after determining and deciding whether or not activity is chargeable or tax can be levied. Assessments against the assessee would decide the rate of tax applicable once it is held that the activity is chargeable to tax under the F. Act. The words 'rate of tax' in relation to rate of tax would include the question whether or not the activity is exigible to tax under a particular or specific provision. This will be a reasonable and appropriate interpretation and will not cause or result in confusion or ambiguity regarding the appellate forum. Line between exigibility and rate of tax as propounded can be rather thin and superfluous in the present statutory context."
12. In Union of India v. Guwahati Carbon Ltd., (supra), the Supreme Court held that when a revenue statute provides Page 12 of 24 HC-NIC Page 12 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER for a person aggrieved by an assessment thereunder, a particular remedy in a particular forum, in a particular way, it must be sought in that forum in that manner and all other forums and modes of seeking remedy are excluded. It was further held that the excise law is a complete code in order to seek redress in excise matters and hence, it may not be appropriate for the writ court to entertain a petition under Article 226 of the Constitution of India. In the facts of the said case, the question before the Tribunal was regarding determination of the assessable value of the commodity in question for the purpose of levy of duty under the Act, which according to the Supreme Court, ought to have been carried by the assessee by way of appeal before it under section 35L of the Central Excise Act, 1944.
13. In Commissioner of S.T., Bangalore v. Scott Wilson Kirkpatrick (I) Pvt. Ltd. (supra), the Karnataka High Court has, after discussing various decisions on the controversy in issue at length, held thus:
"Determination of rate of duty in relation to any Service include determination of a question whether any Service or not, whether the process if any undertaken in the service centre amounts to taxable Service or not, and if the Service rendered during that process are excisable goods or not, would fall within the meaning of the expression 'determination of the rate of duty of excise or the value of the goods for the purposes of assessment of duty' used in section 35G(1) and section 35L(b) of the Act. Therefore, the phrase 'rate of tax' does not mean fraction of tax payable because what is the tax payable i.e., fraction payable is decided by the legislature. Once that is prescribed by the legislature in the Act, the Court cannot sit in judgment and alter or modify the said rate of tax. The Court has no jurisdiction to go into the correctness or otherwise of the rate of tax Page 13 of 24 HC-NIC Page 13 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER payable in the sense that the rate prescribed by the legislature. In the case of Finance Act, 1994, the rate of service tax payable is uniform to all the services. If the rate of tax is to be understood in the sense it is suggested, section 35G and 35L, has no application at all to the Finance Act. Such an interpretation would render Section 83 in so far as applying the provisions of Section 35G and 35L redundant. Then there is no provision in the Finance Act, 1994 for determination of the aforesaid disputes. That was not the intendment of the Parliament. Therefore, the argument that rate of tax means only the rate at which tax is payable or a fraction is unsustainable.
36. Broadly, the following disputes do not fall within the jurisdiction of the High Court under section 35G of the Act:-
(a) Dispute relating to the service tax payable on any service/taxable service.
(b) The value of the taxable service for the purposes of assessment.
(c) A dispute as to the classification of services.
(d) Whether those services are covered by an exemption notification or not?
(e) Whether the value of services for the purposes of assessment is required to be increased or decreased?
(f) The question of whether any services are taxable services or not?
(g) Whether an activity is a service rendering activity or not, so as to attract levy of service tax?
(h) Whether a particular service falls within which heading, sub-heading of section 65(105) of the Service Act, 1994 which defines "taxable Service"."
The court held that against an order passed by the Appellate Tribunal relating to the determination of any question having relation to the rate of service taxes or to the value of service for the purposes of assessment appeal lies to the Supreme Court under section 35L(b) of the Act and not to the High Court under section 35G of the Act. The court further observed as follows:
Page 14 of 24HC-NIC Page 14 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER "38. The intention behind this bifurcation of jurisdiction between the Apex Court and the High Court seems to be that more often than not, any decision on these aforesaid aspects not only affects the interest of the parties rendering services who are parties to a dispute, but also to the parties rendering those services throughout the country. In a country governed by Parliamentary legislation because of the territorial bifurcation in forming States and because of the divergent opinion which is possible, the service tax payable would vary from place to place. In order to bring uniformity in the levy of service tax throughout the country and consequently to see that the country's finance is not affected, the Parliament has vested the jurisdiction to decide the disputes with the Apex Court.
Therefore, we see a policy underlining this bifurcation of the jurisdiction between the Apex Court and the High Courts. All other matters other than what is set out above, which relates to the individual service providers and all disputes based on assessment orders which have attained finality, such as the benefits to which they are entitled to refunds, duty drawbacks, rebates, etc., which relate to a particular manufacture falls within the jurisdiction of the High Courts. In other words, all disputes emanating from the orders determining the rate of service tax and value of service, which has reached finality are to be determined by the High Court and not disputes arising prior to the stage of determining the rate of service tax and value of service."
14. Reference may now be made to the relevant statutory provisions. The Finance Act, 1994 does not provide for any mechanism for appeal against an order made by the Appellate Tribunal under section 86 thereof. However, section 83 thereof provides for the application of certain provisions of the Central Excise Act, 1944 and reads thus:
"83. Application of certain provisions of Act 1 of 1944 : The provisions of the following sections of the Central Excise and Salt Act, 1944 as in force from time Page 15 of 24 HC-NIC Page 15 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER to time, shall apply, so far as may be in relation to service tax as they apply in relation to duty of excise."
15. It is in the light of the provisions of section 83 of the Finance Act, 1994 that an appeal lies to the High Court under section 35G and to the Supreme Court under section 35L of the Central Excise Act, 1944 against any order passed by the Appellate Tribunal under section 86 of the Finance Act, 1994. For the purpose of appreciating the controversy in issue, it would be germane to refer to the provisions of section 35G and section 35L of the Central Excise Act, 1944, which to the extent the same are relevant for the present purpose read as under:
"35G. Appeal to the 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 1 st 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 the purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law.
[2] xxx [3] xxx [4] xxx [5] xxx"
"35L. Appeal to the Supreme Court. - An appeal shall lie to the Supreme Court from -
(a) any judgement 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, I 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 Page 16 of 24 HC-NIC Page 16 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER
(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."
16. In view of the provisions of section 35G of the Act, an appeal would lie before the High Court against every order passed in appeal by the Appellate Tribunal, provided such order is not 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 the purposes of assessment. While applying the said provision to an order passed in relation to service tax under the Finance Act, 1994, what would be required to be examined is as to whether the order passed by the Tribunal relates to the determination of the rate of service tax or the value of any service for the purpose of assessment.
17. Therefore, the moot question that arises for consideration is as to whether the order passed by the Tribunal is an order relating to determination of the rate of service tax or the value of any service for the purpose of assessment. As can be seen from a combined reading of section 35G and section 35L of the Act, if the order of the Tribunal relates to determination of the rate of duty, the appeal would lie before the Supreme Court and not before the High Court. The expression "rate of duty"
has not been defined under the Act. However, for the purpose of considering the meaning assigned to the said expression, the Supreme Court in the case of Navin Chemicals Mfg. & Trading Co. Ltd. v. Collector of Customs, 1993 (68) ELT 3 (SC), has looked into the Explanation under section 35E of the Page 17 of 24 HC-NIC Page 17 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER Central Excise Act which deals with the powers of the Board or Commissioner of Central Excise to pass certain orders. Section 35E of the Act, insofar as the same is relevant for the present purpose, reads thus:
"35E. Powers of Board of Commissioner of Central Excise to pass certain orders - (1) The Board may, of its own motion, call for and examine the record of any proceeding in which a Commissioner of Central Excise as an adjudicating authority has passed any decision or order under this Act for the purpose of satisfying itself as to the legality or propriety of any such decision or order and may, by order, direct such Commissioner or any other Commissioner to apply to the Appellate Tribunal or, as the case may be, the Customs and Excise Revenue's Appellate Tribunal established under section 3 of the Customs and Excise Revenue Appellate Tribunal Act, 1986 (62 of 1986) for the determination of such points arising out of the decision or order as may be specified by the Committee of Chief Commissioners of Central Excise in its order.
(III) The Commissioner of Central Excise may, of his own motion, call for and examine the record of any proceeding in which an adjudicating authority subordinate to him has passed any decision or order under this Act for the purpose of satisfying himself as to the legality or propriety of any such decision or order and may, by order, direct (such authority or any Central Excise Officer subordinate to him) to apply to the Commissioner (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Commissioner of Central Excise in his order.
(IV) xxxxx.
(V) xxxxxx.
(VI) The provisions of this section shall not apply to any decision or order in which the determination of any question having a relation to the rate of duty of excise or to the value of goods for the purposes of assessment of any duty is in issue or is one of the points in issue.Page 18 of 24
HC-NIC Page 18 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER Explanation: For the purposes of this sub-section, the determination of a rate of duty in relation to any goods or valuation of any goods for the purposes of assessment of duty includes the determination of a question -
(a) relating to the rate of duty of excise for the time being in force, whether under the Central Excise Tariff Act, 1985 (5 of 1986), or under any other Central Act providing for the levy and collection of any duty of excise, in relation to any goods on or after the 28th day of February, 1986; or
(b) relating to the value of goods for the purposes of assessment of any duty of excise in cases where the assessment is made on or after the 28th day of February, 1986; or
(c) whether any goods are excisable goods or whether the rate of duty of excise on any goods is nil; or (2) whether any goods fall under a particular heading or sub-heading of the First Schedule and the Second Schedule of the Central Excise Tariff Act, 1985 (5 of 1986), or the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), or the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), or that any goods are or not covered by a particular notification or order issued by the Central Government or the Board, as the case may be, granting total or partial exemption from duty; or
(e) whether the value of any goods for the purposes of assessment of duty of excise shall be enhanced or reduced by the addition or reduction of the amounts in respect of such matters as are specifically provided in this Act."
18. On a plain reading of the above provision, the intention of the legislature as regards the expression "determination of the rate of duty or value of goods" is clear, viz., it includes the determination of a question relating to the rate of duty of excise under the Central Excise Tariff Act or any other Central Act providing for levy and collection of duty, relating to the Page 19 of 24 HC-NIC Page 19 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER value of goods for the purpose of assessment of any duty of excise; whether any goods are excisable goods or whether the rate of duty of excise on any goods is nil; or whether any goods fall under a particular heading or sub-heading of the schedules to the Central excise Tariff Act, 1985 etc.; or whether any goods are or not covered by a particular notification or order issued by the Central Government or the Board, as the case may be, granting total or partial exemption from duty; or whether the value of any goods for the purposes of assessment of duty of excise shall be enhanced or reduced. Insofar as the applicability of service tax is concerned, the rate of determination of duty in terms of the above provisions can be stated to be relating to the rate of service tax for the time being in force relating to the value of any service for the purpose of assessment of service tax; whether the activity is a service within the meaning of such expression as defined under the Finance Act, 1994; or whether the rate of service tax in respect of any service is nil or whether any service falls under the category of taxable service under sub-section (105) of section 65 of the Finance Act, 1994; or whether any service is or is not covered by a particular notification or order issued by the Central Government or the Board, as the case may be, granting total or partial exemption from payment of service tax; or whether the value of the service for the purposes of assessment of service tax shall be enhanced or reduced by the addition or reduction of the amounts in respect of such matters as are specifically provided in the Act.
19. The facts of the present cases have to be considered in the light of the above statutory provisions and the principles enunciated by the Supreme Court and various High Courts in Page 20 of 24 HC-NIC Page 20 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER this regard. The principal controversy involved in the present cases is reflected in the question framed by this court while admitting the appeals, viz., whether the Appellate Tribunal has erred in holding that for the purpose of levy of Service Tax, the respondent and L&T-EPC unit are a single legal entity in the facts and circumstances of the case, and hence the respondent is not liable to pay Service Tax. While it is true that the answer to the question will have a direct bearing on the liability to pay service tax, for that matter every order passed by the adjudicating authority is bound to have some bearing towards the liability to pay service tax. But what has to be examined is as to whether the issue involved relates to the determination of the rate of service tax or the value of any service. It would, therefore, be necessary to refer to the nature of the controversy involved in the present case.
20. The respondent - M/s Larsen & Toubro Limited set up two units for providing engineering and design service, project management services and services of back office operations. Both the units are located in the Special Economic Zone (SEZ). The SEZ units also carry out work in-house for the units located in Domestic Tariff Area (DTA) of L & T Ltd. The revenue authorities sought to levy service tax on SEZ units on the ground that the units located in SEZ and the DTA units of L & T Ltd. are separate legal entities and the services provided by SEZ units to DTA units are taxable services. A show cause notice issued in this regard, culminated into an order-in- original dated 14.02.2011, confirming demand of service tax along with interest at the rate provided under section 75 and penalties under section 77(1), section 77(2) and section 78 of the Finance Act, 1994. The Tribunal, in the impugned order has Page 21 of 24 HC-NIC Page 21 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER held that in case of service tax levy, presence of two persons is a must and these persons have necessarily to be legal persons. The Tribunal, upon appreciation of the evidence on record was of the view that in terms of the definition of person as defined under section 2(5) of the SEZ Act, it cannot be said that the units in SEZ and DTA units can be considered as separate persons. The Tribunal has then addressed the issue as to whether the definition of person considered with rule 19(7) of the SEZ Rules would require it to consider the SEZ unit as a separate legal entity and for the reasons recorded in the order has found that SEZ unit and DTA unit of L&T unit cannot be considered as separate legal entities. In the light of the above finding recorded by it, the Tribunal has held that service tax levy is not attracted on the services rendered by SEZ units to DTA units of L & T unit.
21. Thus, the entire basis for setting aside the order passed by the adjudicating authority was that the SEZ unit and DTA unit of L & T unit cannot be considered as separate legal entities. Since for the levy of service tax, the presence of two persons, viz. the service provider and the service receiver is necessary, the Tribunal has set aside the levy of service tax. The controversy in issue, therefore, is whether the SEZ unit and DTA unit are separate legal entities, which has no proximate relation to the determination of the rate of service tax or the value of services rendered by the respondent- assessee. Whether the SEZ unit and the DTA unit are one unit or not, is primarily a question of fact as regards the character of the assessee and not the nature of services rendered by it. If it is held that the SEZ and DTA units are one single legal entity the services rendered by the SEZ units to the DTA units would Page 22 of 24 HC-NIC Page 22 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER not be exigible to tax and it is held that the SEZ units and the DTA units are separate legal entities, the services rendered by the SEZ units to the DTA units would be exigible to tax. This question has no proximate relation to the rate of service tax or the value of service. The question which this court is called upon to answer is to examine the provisions of the SEZ Act and give a finding one way or the other as to whether the SEZ unit and the DTA unit are one legal entity or separate legal entities. Since such question has not direct relation with the determination of rate of service tax or value of services, it is well within the bounds of jurisdiction of this court to adjudicate the matter. The decision of this court in the case of Ruchi Soya Industries Limited v. Union of India (supra) would, therefore, be squarely applicable to the facts of the present case. The contention that the appeals are not maintainable, therefore, does not merit acceptance.
22. The first question formulated by the court is accordingly answered in favour of the revenue and against the assessee. It is, accordingly, held that against the impugned order passed by the Appellate Tribunal, appeal would lie before this court under section 35G of the Central Excise Act, 1944.
23. Since the first question is answered in the affirmative and it has been held that the appeals are maintainable, the second question shall now be required to be examined on merits.
List the appeals for hearing on 23rd December, 2014 (HARSHA DEVANI, J.) Page 23 of 24 HC-NIC Page 23 of 24 Created On Wed Jul 06 00:44:33 IST 2016 O/TAXAP/42/2013 ORDER (MS SONIA GOKANI, J.) parmar* Page 24 of 24 HC-NIC Page 24 of 24 Created On Wed Jul 06 00:44:33 IST 2016