Commr. of S.T. vs Maa Communications Bozell Ltd.

B.V. Nagarathna, J.—This appeal is filed by Revenue by challenging the Order dated 26-6-2006 passed by the CESTAT (Customs, Excise and Service Tax Appellate Tribunal) in 2006 (111) ECC 600 by raising the following substantial questions of law:

(i) Whether, the Hon''ble CESTAT is legal and correct in holding that the issues and facts covered in both the OIO''s namely OIO No. 7/2002, dated 6-5-2002 and OIO No. 1/2005, dated 14-11-2005 are the same?

(ii) Whether the Hon''ble CESTAT is right in applying the ratio of the Apex Court''s Judgment in the case of Nizam Sugar Factory v. CCE 2008 (9) S.T.R. 314 (S.C.) : 2006 (197) E.L.T. 465 (S.C.) to the present case, which involved suppression of facts and facts of which were entirely distinguishable?

The facts leading to filing of this appeal are that initially, a show cause notice dated 4-7-2001 was issued by the Assistant Commissioner of Central Excise to the respondent-assessee which was adjudicated upon and an order came to be passed on 6-5-2002, by which the demand made in the show cause notice for a sum of Rs. 5,43,092/- was confirmed with regard to the service tax for the period October 1998 to March 2001 and interest of Rs. 2,26,689/- was also confirmed with regard to the Service tax for the period October 1998 to March 2001 and interest of Rs. 2,26,689/- was also confirmed by virtue of Section 75 of the Finance Act (for short ''the Act'') 1994 and for the delayed payment of service tax. However, imposition of penalty under Sections 76 - 77 of the said Act was dropped. Subsequently, another show cause notice was issued on 3-4-2003 by the Assistant Commissioner of Central Excise, Bangalore, on the ground that there had been suppression of value of taxable service with an intention to escape payment of Service Tax amounting to Rs. 34,78,209/- and in respect of the total taxable service rendered and therefore, it was stated that the assessee was liable for penal action under Sections 75, 76 and 78 of the said Act. In the said show cause notice, demand was made for payment of service tax amounting to Rs. 34,78,209/- as well as questioning as to why interest and penalty should not be imposed for the failure of payment of service tax. In response to the said show cause notice, a reply was given by the respondent-assessee and thereafter the said notice was also adjudicated upon and an Order-in-Original dated 14-11-2005 came to be passed by the Commissioner of Central Excise, by which the demand made was confirmed u/s 73 of the Act and it was also directed that interest to be paid u/s 75 of the Act and as well as penalty u/s 76 of the Act. Being aggrieved by the said order, the respondent herein preferred an appeal before the CESTAT (for short ''the Tribunal''). The Tribunal by its order dated 26-6-2006 allowed the appeal of the respondent-assessee by placing reliance on a decision of the Apex Court in the case of Nizam Sugar Factory v. CCE reported in 2008 (9) S.T.R. 314 (S.C.) : 2006 (197) E.L.T. 465 (S.C.). The said order of the Tribunal is challenged in this appeal by the Revenue.

We have heard the learned Counsel for the appellant and learned Counsel for the respondent-assessee and perused the material on record and also the memorandum of appeal filed by the respondent before the Tribunal, which is furnished by the learned Counsel for the respondent during the course of his submission.

On consideration of the submission on both sides and on perusal of the material on record, we are of the view that the matter requires to be reconsidered by the Tribunal for the simple reason that the entire dispute has been adjudicated, without making any reference to the allegation of suppression regarding the value of taxable service, the nature of suppression and other details, the Tribunal, simply by placing reliance on the decision of the Apex Court has allowed the appeal.

In the instant case, we note that, after the adjudication of the first show cause notice, which culminated in an order passed by the Commissioner of the Central Excise on 6-5-2002, a second show cause-notice was issued on 3-4-2003. The said notice also in fact does not refer to the period in which the suppression is said to have been made by the respondent-assessee. However, the same is apparent from the order of the Commissioner of Service Tax (Annexure-E) wherein it is clearly mentioned that the assessee suppressed the value of taxable service pertaining to the year 1999-2000. In the absence of the details mentioned in the second show cause-notice with regard to suppression, we have to rely only on the order of the Commissioner of Service Tax to ascertain what was the nature of suppression referred to issue second show-cause notice. Being aggrieved by the order of the Commissioner, the assessee preferred an appeal before the Tribunal alleging that there was in fact no suppression of material before the Department and issue of second show cause notice was not valid in the eye of law. However, the Tribunal has not considered these facts nor given any finding as to whether the second show-cause notice is valid in the eye of law, but merely referring to the case of Nizam Sugar Factory and has granted relief to the respondent. We find that the approach of the Tribunal in this particular case has been very cursory. In fact, in a matter like this, if the facts are involved pertaining to suppression of material and second show cause notice has been issued, the entire factual matrix had to be considered in order to give a finding with regard to validity of the second show cause notice issued by the Assistant Commissioner. In the absence of there being any application of mind on this issue, the Tribunal could not have allowed the appeal of the assessee by merely relying on the Apex Court''s decision. The Tribunal could not have passed such an order by merely referring to a precedent and dispose of the matter without laying any foundation for the same in the form of narrating the facts and giving reasons and only by relying on the basis of the facts narrated and the contentions urged by the counsel.

In fact, it is only in a reasoned order that the application of mind of a judicial or a quasi judicial authority would become apparent.

The mandate of giving reasons or passing a reasoned order or giving a reasoned decision is not only a part of natural justice but it is a safeguard against arbitrariness. When an adjudicator is obliged to give his reasons for conclusions, it will make it necessary for him to consider the matter carefully. The compulsion to give reasons introduces clarity in the order and minimizes chances of irrelevant considerations from entering a decisional process. In fact, recording of reasons ensures that the authority has applied its mind to the case and the reasons that compelled the authority to take a decision in question are germane to the contents and scope of power vested in the authority. Therefore, in the absence of a speaking order, Courts would not be able to understand the application of mind to the facts and issues raised in the case. In the case of The Siemens Engineering and Manufacturing Co. of India Ltd. Vs. The Union of India (UOI) and Another, , it is reiterated that reasons to be given in support of an order is a basic principle of natural justice, which must inform not only a judicial process but also a quasi judicial process.

In this context, it is also relevant to note that the appellate authority must give reasons where it is reversing the order of the lower authority. In the case of Commissioner of Income Tax, Bombay Vs. Walchand and Co. Private Ltd., , the Income Tax Appellate Authority did not agree with the view of the income tax officer, but without assigning any reasons the Tribunal allowed the claims of the assessee partially. It was held that the Tribunal must record its reasons in support of its claims. In fact, even when the appellate authority affirmed a decision of a lower body, it should give its own reasons and atleast, it, should be indicated clearly by the appellate authority that it is accepting the reasons given by the lower authority. In the case of Travancore Rayon Ltd. Vs. Union of India (UOI), , which is a case regarding assessment of Excise Duty when the Central Government in exercise of its revisional powers had affirmed the collectors decision by a non-speaking order, the Apex Court stressed that the appellate body should give its own reasons even when it was affirming the order of a lower body. In fact, in a hierarchical order, as in the case of assessment of customs duty, each authority should pass a speaking order. Therefore, giving of reasons by an adjudicating body goes to the every root of the process of decision making or adjudication and therefore, it is not just a formal requirement but indicates that the adjudicatory body has applied its own mind to the merits of the case and also to avoid any doubt as to any perfunctory approach.

In the instant case, we find that in the absence of such an application of mind by the Tribunal, it would be difficult, for this Court to answer with regard to validity of second show cause notice. There is also no discussion as to how the ratio of the decision in the case of Nizam Sugar Factory applies to the facts of the present case.

For the aforesaid reasons, the order impugned in this appeal is set aside. The matter is remanded back to the Tribunal to re-consider the entire issue including the validity of the second show cause notice issued by the Assistant Commissioner of Central Excise on 3-4-2003 while considering the correctness of the order passed by the Commissioner of Central Tax dated 14-11-2005.

Since the matter has been remitted, the substantial questions of law do not require to be answered at this stage.

All contentions of both the parties are left open.