M/S.MALABAR REGIONAL CO-OP MILK PRODUCERS UNION LIMITED, V. THE COMMISSIONER OF CENTRAL EXCISE,

C.E.Appeal/10/2019

AI Insights

The case revolves around a Central Excise Appeal filed by M/s. Malabar Regional Co-operative Milk Producers Union Limited against an order of the Customs, Excise and Service Tax Appellate Tribunal, which had imposed a penalty based on a subsequent Supreme Court decision. Initially, the Tribunal had set aside the penalty, relying on earlier precedents. However, following a rectification application by the Department citing a new Supreme Court decision, the Tribunal recalled its earlier order and imposed the penalty again. The High Court's decision focused on whether the reopening of the appeal and the imposition of the penalty based on a subsequent Supreme Court decision were legally sustainable.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 692570 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 06-12-2019
• Assessment Year: misc
• Other Referred Cases: Commissioner of C.Ex. v. Sreekrishna Pipe Industries, Rashtriya Ispat Nigam Ltd. v. Commissioner of C.Ex., Visakhapatnam, Union of India and Others v. Dharmendra Textile Processors and Others, Hindustan Lever Ltd. v. Commissioner of C.Ex., Mumbai-I, Assistant Commissioner, Income Tax, Rajkot v. Saurashtra Kutch Stock Exchange Ltd., Suhrid Geigy Ltd. V. Commissioner of Surtax, Mepco Industries Ltd. v. Commissioner of Income Tax, Commissioner of Sales Tax, U.P. v. Bharat Bone Mill, Kil Kotagiri Tea and Coffee Estates Company Ltd. v. Income Tax Appellate Tribunal & others, Deva Metal Powders Pvt. Ltd. v. Commissioner, Trade Tax, UP
• Laws Referred To: Central Excise Act, 1944
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: THOMAS NELLIMOOTTIL
• Assessee Lawyers: GEORGE MANOJ
• Keywords: Central Excise Appeal; Error apparent on the face of the record; Mandatory penalty; Penalty; Rectification of mistake
• Section: 11AC; 35C(2); 35G

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR.JUSTICE T.V.ANILKUMAR FRIDAY, THE 06TH DAY OF DECEMBER 2019 / 15TH AGRAHAYANA, 1941 C.E.Appeal.No.10 OF 2019 (Against final order No.21005/2018 dated 26.07.2018 on the files of the Customs, Excise and Service Tax Appellate Tribunal) South Zonal Bench, FKCCI-WTC Building, KG Road, Bengaluru-560 009) APPELLANT: M/S.MALABAR REGIONAL CO-OPERATIVE MILK PRODUCERS UNION LIMITED, KOZHIKODE DIARY, PERUNGOLAM, KUNNAMANGALAM POST, KOZHIKODE. BY ADVS. GEORGE JOHNSON V.S.MANOJ RESPONDENT: THE COMMISSIONER OF CENTRAL EXCISE, CR BUILDING, I.S.PRESS ROAD, ERNAKULAM, COCHIN - 682 018. R1 BY SRI.THOMAS MATHEW NELLIMOOTTIL, SC, CENTRAL BOARD OF EXCISE & AMP; CUSTOMS THIS CENTRAL EXCISE APPEAL HAVING BEEN FINALLY HEARD ON 06.12.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: CEA 10 /19 -:2:- “C.R.” C.K. ABDUL REHIM, J. & T.V.ANILKUMAR, J. -------------------------------------------- C.E.Appeal No.10 of 2019 -------------------------------------------- Dated this the 6th day of December, 2019 JUDGMENT Abdul Rehim, J. Challenge in this Central Excise Appeal filed under Section 35G of the Central Excise Act, 1944 is against an order of the Customs, Excise and Service Tax Appellate Tribunal, South Zone Bench, Bangalore, in E/608/2007-DB, dated 26.7.2018. The appellant herein is the appellant and the respondent herein is the respondent before the Tribunal. 2. The Tribunal had initially decided the appeal in question through Annexure-A order passed on 9th September, 2008. Challenge raised in the appeal was against assessment of central excise duty and penalty. The Tribunal found that, the appellant herein had paid the duty before issuance of the show cause notice and therefore the penalty imposed cannot be sustained. CEA 10 /19 -:3:- For arriving at such a conclusion the Tribunal had placed reliance upon a decision of the High Court of Karnataka in Commissioner of C.Ex. v. Sreekrishna Pipe Industries [2004 (165) ELT 508 (Kar.)] and also on the orders passed by the Tribunal itself in similar cases. The Tribunal also observed that, the apex court in the case in Rashtriya Ispat Nigam Ltd. v. Commissioner of C.Ex., Visakhapatnam (2004 (163) ELT 113 (Tri.-Bang.) had set aside the penalty imposed under section 11AC of the Act on similar grounds. 3. Against Annexure-A order passed by the Tribunal, the Department (Revenue) had filed application seeking 'rectification of mistake', under Section 35C(2) of the Central Excise Act. The application for rectification of mistake was filed on the ground that, the position of law on the point has been declared through a subsequent decision of the Honourable Supreme Court in Union of India and Others v.Dharmendra Textile Processors and Others [2008 (231) ELT 3 (S.C)]. The application for rectification of mistake was opposed inter alia contending that, the subsequent declaration of law by the Supreme Court cannot be taken as an error apparent on the face of the record, with respect to which a rectification is possible. CEA 10 /19 -:4:- Through an order passed by the Tribunal on 14.7.2009 (Annexure-D) the application for rectification of mistake was allowed and the final order already passed in the appeal was recalled. The Tribunal found that, the penalty was set aside in the appeal only on the basis of the decision of the High Court of Karnataka in Sreekrishna Pipes Industries (supra) and also on the basis of the decision of apex court in Rashtriya Ispat Nigam Ltd. (supra). But in view of the subsequent decision of the Honourable Supreme Court in Dharmendra Textiles (supra), it is felt that the earlier decision of the Tribunal would be in conflict with the ratio settled therein. Therefore the Tribunal found that the final order passed in the appeal need to be recalled and the appeal need to be re-heard and decided. Accordingly the appeal was restored and heard again and decided through the order passed on 26.7.2018, which is impugned herein. 4. In the impugned order, the Tribunal found that, in Dharmendra Textiles (supra) the apex court had held that there is no scope for any discretion with respect to imposition of penalty and that levy of penalty is mandatory under Section 11AC. According to the Tribunal, even though the decision of the CEA 10 /19 -:5:- hon'ble Supreme Court is rendered after the order of the Tribunal, it would be the case of an error apparent from the face of records, and a rectification of the mistake is possible. In support of such proposition, the Tribunal had placed reliance on a larger bench decision of the Tribunal itself reported in Hindustan Lever Ltd. v. Commissioner of C.Ex., Mumbai-I (2006 (202) ELT 177 (Tri.-LB). The Tribunal had also considered other issues involved in the appeal on its merits and decided the appeal totally denovo. Ultimately it was decided that the appellant is liable to pay penalty equal to the duty evaded, in view of the decision of the Apex Court in Dharmendra Textiles (supra). It is the said finding which is assailed in this appeal. 5. The only question agitated is whether the reopening of the appeal and the fresh decision taken on the basis of the application filed seeking rectification of mistake is legally sustainable or not. To be more precise, question agitated is, whether a subsequent declaration of law through decision of the apex court can be considered as a mistake apparent on the face of the record, enabling a rectification under Section 35C(2) of the Act. 6. Learned Standing Counsel for the respondent, CEA 10 /19 -:6:- Sri.Thomas Mathew Nellimoottil, raised a preliminary dispute with respect to maintainability of the above said challenge, in view of the earlier order passed by the Tribunal allowing the application seeking the rectification of mistake, which remained unchallenged. In support of such a contention, he has drawn our attention to the provisions contained in Section 35G of the Act, which provides an appeal to the High Court from any order passed in an appeal by the Appellate Tribunal. Contention is that, since the appellant herein had not chosen to challenge the order of the Appellate Tribunal allowing the application for rectification of mistake, he is not entitled to challenge the consequential order passed to the extent of deciding the appeal afresh, based on the ground that recalling of the earlier order under the guise of rectification of mistake, was not legally sustainable. 7. Per contra, Sri.George Johnson, learned counsel appearing for the appellant had pointed out that, the appeal under Section 35G is provided only from any order passed in an Appeal. Annexure-D order of the Tribunal dated 14.7.2009 was passed not in an Appeal, but on the ROM application (rectification of mistake application). Further it is pointed out that, Section CEA 10 /19 -:7:- 35C(2) enables the Tribunal only to make such amendments in the order in tune with the mistake brought into its notice and that the said provision does not empower the Tribunal to recall its earlier order and to restore and hear and decide the appeal afresh. It is further pointed out that, while deciding the appeal afresh through the order impugned herein, the imposition of penalty was reaffirmed based on a subsequent decision of the apex court, which ought not have been taken as a ground to reverse the earlier order in the appeal, which had attained finality in between parties inter se. 8. While evaluating the rival contentions regarding maintainability of the challenge raised, we are of the opinion that the appellant can be permitted to take all the grounds available, in order to challenge the fresh order passed in the appeal, including the ground that recalling of the earlier order was illegal and erroneous. We are of the considered opinion that, provisions contained in Section 105(2) of the Code of Civil Procedure, 1908 will govern the issue involved, especially in view of Section 35G(9) of the Central Excise Act, which provides that provisions of Code of Civil Procedure, 1908 will apply with respect to appeals to the High Court filed under Section 35G. Hence, we CEA 10 /19 -:8:- are of the considered opinion that, any failure to challenge the order passed by the Tribunal allowing the rectification of mistake, will not in any manner preclude the appellant from challenging the final order in the appeal which was passed after recalling the original order based on allowing the application seeking rectification of mistake, on the ground that recalling of the earlier order itself was illegal. 9. In view of the finding rendered as above on the question of maintainability, the substantial question of law which arise for consideration in this appeal is: Whether the Tribunal was right in reopening a concluded appeal under the guise of rectification of a mistake apparent on the face of record, based on a subsequent decision of the Hon’ble Supreme Court, by treating that the subsequent declaration of law is a reasonable ground to reverse its earlier decision in the appeal and to decide the matter afresh against the appellant? 10. Section 35C(2) provides that the Appellate Tribunal may at any time within six months from the date of the order, with a view to rectify any mistake apparent from the record, amend any order passed by it under sub-section (1) and shall make such amendments if the mistake is brought to its notice by the Principal Commissioner of Central Excise or Commissioner of CEA 10 /19 -:9:- Central Excise or the other party to the appeal. Question to be examined is as to whether any subsequent decision of the Hon’ble Supreme Court on any legal point which was already decided in an appeal, which is having the effect of reversing the decision, can be considered as a mistake apparent from the record. In this regard, in a catena of decisions of the Hon’ble apex court it is held that, 'a mistake apparent on the record' must be an obvious and patent mistake and the mistake should not be such which can be established by a long drawn process of reasoning. The power to rectify a mistake should be exercised when the mistake is a patent one and should be quite obvious. The mistake cannot be such, which can be ascertained by a long drawn process of reasoning. Further, while rectifying a mistake, an erroneous view of law or a debatable point cannot be decided; or an incorrect application of law can also not be corrected. The above principle is evolved from the decisions of the Apex Court in The Income Tax Officer v. The Asok Textiles Ltd. (1961) 41 ITR 732 (SC), T.S.Balaram v. Volkart Brothers, Bombay (1971) 82 ITR 50 (SC). Therefore it is contended by learned counsel for the appellant that a subsequent judicial decision will not come within the ambit and scope of 'obvious and patent CEA 10 /19 -:10:- mistake' which could be rectified in exercise of power vested under Section 35C(2) of the Act. 11. On the contrary, learned Standing Counsel argued that, the judicial decision acts retrospectively. It is not the function of the court to pronounce a new Rule, but to maintain and expound the old one. The judges do not make law. They only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, the latter decision does not make any new law. It only discovers the correct principle of law, which has to be applied retrospectively. Even where an earlier decision of the court operates for quite sometime, the decision rendered later clarifying the legal position would have retrospective effect, which was not correctly understood earlier. In this respect, he placed reliance on a decision of the apex court in Assistant Commissioner, Income Tax, Rajkot v. Saurashtra Kutch Stock Exchange Ltd. (2008 (230) ELT 385 (S.C.). He also placed reliance on a decision of the High Court of Gujarat in Suhrid Geigy Ltd. V. Commissioner of Surtax (1999 (237) ITR 834(Guj.) 12. It is always a sound principle that the courts while pronouncing a judgment is not creating a new Rule. Nor it does CEA 10 /19 -:11:- not make law; but only declare the correct position of law. In that respect it has to be accepted that a judicial decision acts on retrospective basis. But the question mooted for decision is whether a subsequent judicial decision settling the correct interpretation of law, which unsettles the earlier precedents, can be considered as a mistake apparent on the face of record, which enables rectification of an earlier decision which had attained finality between parties inter se. In other words, whether a change of opinion declared in a subsequent judicial decision can be treated as a mistake apparent on the face of record to unsettle a decision which had attained finality. Further, it is a question as to whether such subsequent change of opinion will enable the authority to reopen the settled proceedings and to decide it afresh. 13. In this regard learned counsel for the appellant had cited a decision of the hon'ble Supreme Court in Commissioner of Central Excise, Calcutta v. ASCU Ltd., Calcutta[2003 (151) ELT 481(SC)]. After referring various precedents it was held that a mistake apparent on the face of the record must be an obvious and patent mistake and cannot be some thing which would have to be established by long drawn process of reasoning CEA 10 /19 -:12:- on points which there may conceivably be two opinions. A decision on a debatable point of law cannot be a “mistake apparent from the record”. As such it is held that, the scope of correction which can be made by the Tribunal under Section 35C(2) is limited. Undoubtedly, if a decision is based solely on material which is irregular or which could not have been used, then possibly it could be said that there is a mistake apparent from the record. However, if a decision is based on more than one material, then merely because in the process of arriving at the final decision reliance was placed on some material which could not have been used, it can never be said that, in the final decision there is a mistake apparent from the record, because the final opinion could also have been based on the other material which was relevant and which could have been used. 14. In Mepco Industries Ltd. v. Commissioner of Income Tax[2009(248) ELT 3(SC)], the hon'ble Supreme Court had occasion to consider the scope of Section 154 of the Income Tax Act, 1961 which is in pari materia with Section 35C(2) of the Central Excise Act, 1944. Question considered was whether it was open to the Commissioner of Income Tax to rectify its own order under Section 154, on the basis of the CEA 10 /19 -:13:- judgment of the Supreme Court(later judgment). The apex court analyzed as to whether there existed a 'rectifiable mistake' enabling the Department to invoke Section 154 of the Act. It was found that, there is a clear dichotomy between Section 154 and 147 of the Income Tax Act. Section 154 deals with rectification of mistake which inter alia states that, with a view to rectify any mistake apparent from the record, an Income Tax Authority may amend any order passed by it. Whereas Section 147 inter alia, states that, if the Assessing Officer has reason to believe that any income charged to tax had escaped assessment for any assessment year, he may, subject to other provisions contained in the Act, assess or re-assess such income which had escaped the assessment. On the facts of the said case, on the basis of a subsequent decision of the hon'ble Supreme Court the Commissioner of Income Tax took a view that the subsidy in question was a revenue receipt. The hon'ble Supreme Court found that, it is a classic illustration of change of opinion, and it is not a mistake apparent on records. 15. Decision of the Calcutta High Court which was impugned in the above referred case of the hon'ble Supreme Court, finding was that the subsequent decision of the Supreme CEA 10 /19 -:14:- Court will not obliterate the conflict of opinion prior to it. Under such circumstances, a rectification was not permissible on a debatable issue under Section 154 of the Act, was the finding. In Kil Kotagiri Tea and Coffee Estates Company Ltd. v. Income Tax Appellate Tribunal & others(1988) 174 ITR 579, it is held that the rectification contemplated under Section 154 must be a “rectifiable mistake”. It should be a mistake in the light of law in force at the time when the order sought to be rectified was passed. Therefore in Napco Industries Ltd. (supra) it was held by the apex court that, when there is a change of opinion, the department will be erred in invoking Section 154 of the Act. 16. In another decision of the apex court in Commissioner of Sales Tax, U.P. v. Bharat Bone Mill(2007) 210 ELT 6 (SC), after referring to the decision in Income Tax Officer, Alwaye v. The Asok Textiles Ltd. Alwaye[(1961) SCR 236] it was held that, provision for rectification of mistake apparent on the record, cannot be equated with the power of a civil court to review its own order as envisaged under Order XLVII Rule 1 of the Code of Civil Procedure. In the decision of the High Court of Calcutta in CEA 10 /19 -:15:- Smriti Properties Pvt. Ltd. v. Settlement Commission[(2005) 191 ELT 128(Cal)] it was held that, retrospective operation of the Supreme Court pronouncements on the interpretation of law can be made applicable only in cases which had not been decided finally and the same is pending for adjudication. Finding in this respect was made with reference to another Supreme Court decision in M.A. Murthy v. State of Karnataka[(2003) 7 SCC 517]. One cannot take advantage of the subsequent pronouncement of superior court in a closed and settled matter, particularly in matter decided and settled four years back, is the finding therein. 17. In a more recent decision of the apex court in Deva Metal Powders Pvt. Ltd. v. Commissioner, Trade Tax, UP[2008(221) ELT 16(SC)], it was found that “apparent” means visible; capable of being seen, obvious, plain. It means open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming. It was found that, rectification of an order does not mean obliteration of the order originally passed and its substitution by a new order. Where the error is far from self-evident, it ceases to be an apparent error. An error which is apparent from record should be CEA 10 /19 -:16:- one which is not an error which depends for its discovery on elaborate arguments on questions of fact or law. 18. Principle underlying in the above quoted decisions, when analyzed based on the facts of the case at hand, it is evident that, when the appeal was decided by the Tribunal through Annexure A order, the decision was taken based on the law as it stood then. In a subsequent decision of the hon'ble Supreme Court the law was declared as otherwise, based on a change of opinion. Such a change of opinion of law cannot be taken as a 'mistake apparent on the face of the record' which could be rectified by invoking Section 35C(2) of the Central Excise Act. Further, such material cannot be used for unsettling the settled position attained through disposal of the appeal, alleging that there occurred any mistake apparent from the face of the record. It cannot be utilized for reopening a concluded decision, which had attained finality between parties inter se. Therefore we are of the opinion that the above appeal has to succeed. In the result, the question of law framed is answered in favour of the appellant and against the Revenue and the above Central Excise Appeal is hereby allowed to the extent of setting CEA 10 /19 -:17:- aside the impugned order passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zone Bench, Bangalore in E/608/2007-DB, dated 26.07.2018. As a result, the original order passed by the Tribunal(Annexure A) dated 9th September, 2008 would survive. SD/- C.K. ABDUL REHIM, JUDGE. SD/- T.V. ANILKUMAR, JUDGE. vps/ul/- APPENDIX PETITIONER'S EXHIBITS: ANNEXURE A A TRUE COPY OF THE ORDER PASSED BY THE APPELLATE TRIBUNAL DATED 9.9.2008. ANNEXURE B A TRUE COPY OF THE RECTIFICATION PETITION FILED BY THE DEPARTMENT DATED 26.2.2009. ANNEXURE C A TRUE COPY OF THE SUBMISSIONS MADE BY THE APPELLANT. ANNEXURE D A TRUE COPY OF THE SAID ORDER PASSED BY THE APPELLATE TRIBUNAL DATED 14.7.2009. ANNEXURE E A TRUE COPY OF THE WRITTEN SUBMISSION MADE BY THE APPELLANT BEFORE THE TRIBUNAL DATED 18.7.2018. ANNEXURE F A TRUE COPY OF THE IMPUGNED ORDER PASSED BY THE TRIBUNAL DATED 26.7.2018. "