The Hon’ble HC, Sikkim in the matter of the Commissioner of Central Excise & Service Tax v. Sikkim Manipal University of Health, Medical and Technological Science, Tadong, Gangtok, Sikkim [Tax Appeal No. 1 and 2 of 2017 decided on December 6, 2019] has dismissed the appeal filed by the Revenue authorities under Section 35G of the Central Excise Act, 1944 (“Excise Act”) against CESTAT order for determining applicability of Service Tax, as not maintainable. It was emphasised that an appeal against any order passed by the CESTAT relating 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 shall lie directly to the Hon’ble Supreme Court.
Tax Appeal No. 01 of 2017
A show cause-cum-demand notice dated March 7, 2012 (“SCN-1”) was issued to Sikkim Manipal University (“Respondents” or “SMU”), on the allegation that SMU was found engaged in providing “franchise service” and has failed to obtain Service Tax registration for providing franchise service, which is a taxable service, and it failed to discharge its due Service Tax liability inclusive of Education Cess and Secondary & Higher Education Cess amounting to ₹ 1,13,06,993/- for the period from April 2007 to February 2011.
Order-in-Original (“OIO-1”) dated October 1, 2012 held that SMU had collected registration fee, accreditation fee, affiliation fee and inspection fee from different Learning Centres spread throughout the country. It was also recorded that there was a relationship of ‘franchisor’ and ‘franchisee’ in between SMU as ‘franchisor’ and Learning Centres as ‘franchisee’ for the purpose of the Finance Act, 1994 (“Finance Act”). Thus, non-payment of Service Tax did not appear to be bona fide and facts were suppressed from the Department by not submitting statutory returns.
SCN-1 had taken the amount received by SMU from Learned Centres as accreditation fee/registration and inspection fee as taxable value and had indicated Service Tax amount as ₹ 1,13,06,993/-. On recalculation, the Commissioner in OIO-1 determined the total amount of Service Tax inclusive of Education Cess and Secondary & Higher Education Cess to be ₹ 1,01,51,705/-.
The CESTAT accepted the argument of the Respondent that when the fee charged by SMU and shared with Learning Centres is not subject to Service Tax, amount in respect of accreditation fee cannot be brought under the net of Service Tax.
Tax Appeal No. 02 of 2017
A show cause-cum-demand notice dated April 8, 2016 (“SCN-2”) was issued stating that SMU had been collecting alumni fees along with admission fee at the time of registration from their students and had failed to obtain Service Tax registration and pay Service Tax amounting to ₹ 2,25,64,753/- for the period from 2011-12 to 2015-16 (up to September 2015) in respect of alumni fee so collected by them which was taxable to Service Tax under the category of ‘Business Auxiliary Services’ for the period up to June 30, 2012 and thereafter under ‘Other than Negative Services’ for the period from July 1, 2012 under Section 66B of the Finance Act.
Order-in-Original (“OIO-2”) dated September 8, 2019 observed that the activity of the alumni services provided by SMU is not in relation to furtherance of education and the same is for the benefit of the former students and not for the existing students; and accordingly, held that taxability of alumni fees prior to July 1, 2012 will fall under sub-clause (6) of the definition of ‘Business Auxiliary Services’ and post July 1, 2012 under ‘Other than Negative Service’. It was also recorded that there was suppression of facts with intention to evade payment of Service Tax.
The CESTAT recorded a finding that SMU had collected some money in the name of alumni fee but without providing any service and so, when no service is provided then applicability of Service Tax is not in question.
Being aggrieved, the Revenue filed an appeal before the HC.
Whether the above appeal of the Revenue is maintainable before the HC under Section 35G of the Excise Act?
The Hon’ble HC, Sikkim in the Tax Appeal No. 1 and 2 of 2017 decided on December 6, 2019 held as under:
- A perusal of Section 35L(1)(b) of the Excise Act shows that an appeal against any order passed by the CESTAT 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 shall lie directly to the Hon’ble Supreme Court.
- Such order, as is noticed earlier, is not made appealable to the High Court, as Section 35G of the Excise Act specifically excludes such an order from being a subject matter of an appeal before the High Court.
- A perusal of the judgment of the High Court of Delhi in Ernst & Young Pvt. Ltd. [2014 (2) TMI 1133 – DELHI HIGH COURT]shows that a contention was advanced by the Revenue that the expression ‘rate of duty’ or ‘value of service’ should be construed in a narrow manner limiting it to the rate of duty payable on the service chargeable to tax or the valuation of the service which is chargeable to tax and that the same will not encompass the question as to whether the activity is a taxable service under the charging section. The High Court of Delhi held that determination of any question relating to rate of tax would necessarily directly and proximately involve the question, which is, whether the activity falls within the charging section and Service Tax is leviable on the said activity. It was further held that 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 words ‘rate of tax’ in relation to rate of tax would include the question whether or not the activity is excisable to tax under a particular or specific provision.
- While respectfully following the decision of High Court of Delhi in Ernst & Young Pvt. Ltd. (supra), we also note that Section 35L(2) of the Excise Act, which was inserted by the Finance (No.2) Act, 2014 with effect from August 6, 2014, makes it abundantly clear that the determination of any question having relation to the rate of duty shall include determination of taxability or excisability of goods for the purpose of assessment.
- Thus, present appeals are not maintainable under Section 35G of the Excise Act.
Section 35L (1)(b) and (2) of the Central Excise Act
“Section 35L. Appeal to the Supreme Court.
(1) An appeal shall lie to the Supreme Court from—
(b) any order passed 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.
2) For the purposes of this Chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment”
Section 35G (1) of the Central Excise Act
“Appeal, to High Court. –
(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or after 1st 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.”