AN ACT WITHOUT A CAUSE

[jayaprakash gopinathan]

Ancient wisdom taught us that a cause is necessary and precedes an action. If some authorities initiate actions against any individual or institutions without any cause, even the ancient laws prescribed meticulous punishments. There may be invisible or illegal causes behind any acts and on future judicial scrutiny cost is bound to be imposed as compensation. The above introduction is necessitated to present a paper on the latest judgment of the Hon’le High Court of Kerala in COMMISSIONER OF C. EX., CUS. & S.T., KOCHI VERSUS TRANS ASIAN SHIPPING SERVICES PVT. LTD. - 2022 (8) TMI 1395 - KERALA HIGH COURT. The case came for consideration of the Hon’ble Court when the Commissioner of Central Excise, Customs and Service Tax, Kochi filed an appeal against the order of CESTAT, Bangalore dismissing the appeal filed by the Department against the dropping of demand by the Adjudicating authority, the Commissioner, Kochi.

The pertinent question involved in this case, appears to me, are

1. Whether there exists a cause of action for the Department to file an appeal when the adjudicating authority drops a demand after due verification and report by the jurisdictional officer of the Department about the correctness of availing CENVAT Credit by the respondent especially when the Hon’ble Court’s finding that “  It is not pointed out in either of the forums that the report of range officer is erroneous on any ground or circumstance. The consequence of accepting the report of Range Officer must result in the very finding recorded by the Tribunal and the Commissioner.”
2. The question of having separate accounts of credit availed attributable to exempted and taxable services being a fact (Question of fact) and Tribunal being the last fact finding authority, whether it was legal and proper to file an appeal before the High Court and the Hon’ble Court to accept the appeal on record.

The details of the case as narrated in the case law cited are reproduced below:

2. The respondent - a shipping service company, engaged in the service  of ‘Transport of Goods by Road’, Business Support Service etc., is availing credit under the Cenvat Credit Rules, 2004 on the Service Tax paid on input service and claiming credit while the payment of Service Tax on output service provided is made. The appellant issued a show cause notice to the respondent dated 18-10-2012 on the following :

(i)   The Cenvat credit of Rs. 5,05,65,084/- (Rupees Five Crore Five Lakh Sixty-Five Thousand and Eighty-Four only), taken and utilized wrongly for payment of the Service Tax, Education Cess and Secondary & Higher Education Cess respectively for the period 1-4-2011 to 31-3-2012 should not be demanded and recovered from them under the provisions of Rule 14 of Cenvat Credit Rules, 2004 read with Section 73(1) of Finance Act, 1994;

(ii)   Interest at appropriate rate on the amount mentioned at Sl. No. (i) above, under Section 75 of the Finance Act, 1994 should not be demanded and recovered from them under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 75 of the Finance Act, 1994; and

(iii)    Penalty under Rule 15(1) of the Cenvat Credit Rules, 2004 should not be imposed on them.

(iv)    Separate penalty should not be imposed on them under provisions of Sections 76 and 77 of the Finance Act, 1994”.

3.To the show cause notice, the  respondent filed a reply dated 6-2-2013 denying the allegations in the show cause notice and submitted that it has not contravened any of the provisions of the Act or Rules. It is replied, that the company operated six business divisions during the relevant period and provided taxable services as well as non-taxable activities in these vertical profiles. On availing and utilisation of Cenvat credit, it was submitted that during the period under dispute, their inputs could be classified into two categories i.e., direct expenses which relate to that are directly attributable to their output services in respect of which Cenvat credit is taken in full and indirect expenses that are not directly relatable to the provision of a taxable services and instead used in the provision of both taxable and exempted services. It was further submitted that Cenvat credit taken on the 2nd category, was reversed in full and charged off to the Profit and Loss Account and effectively no Credit was taken, during the period from 1-4-2011 to 31-3-2012.

4.The assessee was heard and the  Commissioner sought a clarification from the jurisdictional Range Officer regarding the practice followed by the assessee while availing Cenvat credit and the maintenance of records in respect of these details. The Range Officer submitted a report/clarification, which is extracted below :

“(a)  The Assessee is maintaining private accounts for CENVAT Credit in their system.

(b)   They are not availing/utilizing any CENVAT Credit on input services exclusively meant for exempted services.

(c)   In their private accounts they avail of the full amount of CENVAT Credit and then subtract the whole credit on indirect expenses which are common for taxable and exempted services.

(d)   Only the net amount is shown in the ST-3 Returns as Credit availed.

(e)  In their private accounts, the Assessee has shown an amount of Rs. 18,85,143/- as input service credit in respect of Advertisement charges, professional charges, telephone charges, AMC etc. utilized for both taxable and exempted services, and that this amount does not figure in the Credit availed as shown in the ST-3 Returns.

(f)    The net effect of this being that the input service credit in respect of input services utilized for both taxable and exempted services are not reflected in the net credit taken as shown in the ST-3 returns”.

5. The assessee produced a certificate  issued by the chartered accountant on the maintaining of separate books of account in the computerised system in their divisions. Taking note of the reply dated 3-12-2013, and the observation of the Range Officer, the Commissioner found that the assessee has complied with the provisions of Cenvat Credit Rules, 2004 and the demand raised in the show cause notice is not sustainable and the proceedings proposed in the show cause notice dropped. Challenging the order-in-original of the Commissioner, the Department took the matter in appeal before the CESTAT, Bangalore. The Tribunal taking note of the certificate issued by the chartered accountant as well as the verification report of the Range Officer came to the conclusion that the assessee has maintained separate records as required under the Cenvat Credit Rules the credit claimed in input tax is factually sustainable. The appeal filed by the Department was therefore dismissed.

As stated above, the fact that the Respondent maintained separate records as required under law on the subject matter were certified by a Chartered Accountant and by the Jurisdictional officer. The last fact finding authority, the Tribunal, approved the fact and gave a conclusive decision.  The present appeal was filed against the said order.

Mr. .David Deutsch, a researcher in quantum Physics , in his famous Book “The Beginning of Infinity” inter alia present before us different philosophies and explanations. He narrates the “PAROCHIAL ERROR” in peoples understanding of “Twinkle Star” syndrome  which have nothing to do with the reality of stars, if one observes stars through Telescopes containing automatic tracking mechanisms. The primary function of the Telescope’s optics is to reduce the illusion that the stars are few, faint, twinkling and moving. The quest for good explanation and interpretation to correct the errors out of biases and misleading perspectives to fill the gaps is also narrated in the book. (Pages 38&39).

The text about illusion of fact and interpretation quoted above equally applies, it appears, to the legal aspects of the case discussed above.  Why the Department acted in filing an appeal against the order of the Tribunal based on illusionary, invisible or illegal cause remains intriguing. In the absence of any discussion by the Hon’ble Court about challenge to admission of an appeal against a conclusive finding of fact by the Tribunal on behalf of the Respondent one is forced to believe that the issue was not agitated at the admission stage. It also appears to be parochial error. No cost was imposed on the Appellant by the Hon’ble Court for wasting its precious time.