SNEHA MINERALS Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) IN this appeal filed by the Assessee, the prayer is to set aside the demand of service tax confirmed against them by the original authority and also to set aside the penalties imposed on them by the revisionary authority. Appellant was engaged in the mining of iron ores under a contract entered into between them and one M/s. Sri Santhipriya Minerals Ltd. during the material period. They did not pay service tax on the amount collected from M/s. Sri Santhipriya Minerals Ltd., under the said contract for the period from 16.6.2005 to 31.12.2005. The Superintendent of Service Tax having jurisdiction over the Appellant called for and examined the relevant agreement and, thereupon, required the Appellant to pay service tax on the aforesaid amount. The Appellant obliged this instruction of the superintendent and accordingly paid an amount of Rs. 3,56,460 towards service tax and education cess and an amount of Rs. 52,255 towards interest thereon. These payments were made on 23.12.2006. Later on, the Dy. Commissioner of Central Excise issued show -cause notice dated 22.2.2007 under Section 73(1) of the Finance Act, 1994 proposing to appropriate the above payments towards demand of service tax and interest as also to impose penalties on the Appellant under Sections 76, 77 and 78 of the Act. In reply to this notice, the Assessee mentioned their financial difficulties and also pleaded ignorance of the relevant rules as an explanation for the delayed payment of tax plus interest. They prayed for a lenient view in the matter of penalties. In adjudication of the show -cause notice, the Dy. Commissioner confirmed the demand of Rs. 3,56,460 (service tax and education cess) against the Assessee on a taxable value of Rs. 34,94,709 under the head "Business Auxiliary Services" for the period from 16.6.2005 to 31.12.2005 and appropriated their earlier payments towards such demand. The adjudicating authority, however, refrained from imposing any penalty on the Assessee, considering the fact that they had accepted their 'lapses' and had immediately paid the service tax with interest thereon. The Assessee had no grievance against the Dy. Commissioner's order. Later on, they were taken by surprise when they received fresh show -cause notice from the Commissioner, which was issued under Section 84 of the Finance Act, 1994. In this show -cause notice (issued on 7.1.2008), the Commissioner proposed to revise the order -in -original passed by the Dy. Commissioner insofar as the proposal for imposition of penalties under Sections 76 to 78 was concerned. The Commissioner wanted to impose such penalties on the Assessee, alleging that the Assessee had failed to show that there was reasonable cause for their failure to pay service tax in due time and observing that they could not be held to be ignorant of the legal provisions. In reply to this show -cause notice, the Appellant not only contested the proposal of penalties but also raised a new plea against the demand of service tax. They stated that they were not to pay service tax prior to 1.6.2007, on which date the service of mining of minerals was introduced for the first time for the propose of levy of service tax vide Section 65(105)(zzzy) of the Finance Act, 1994. They submitted that, prior to 1.6.2007, they were not liable to pay service tax under any other head such as "Business Auxiliary Services" on the amount collected by them from M/s Sri Santhipriya Minerals Ltd. The Appellant also relied on certain decisions of this Tribunal in this context. With regard to the Commissioner's proposal for imposing penalties, they claimed the benefit of Section 80 of the Finance Act, 1994. In adjudication of the dispute, the learned Commissioner passed the impugned order wherein penalties of Rs. 1,48,238, Rs. 1,000 and Rs. 3,56,460 were imposed on the Assessee under Sections 76, 77 and 78 respectively. In the present appeal against the Commissioner's order, the Appellant's prayer is for setting aside the demand of service tax confirmed against them by the Dy. Commissioner as well as for vacating the penalties imposed on them by the Commissioner.

(2.) WE have heard both sides. At the outset, the learned Counsel has argued that the Dy. Commissioner's order should be taken as having merged with the Commissioner's order and, therefore, the Appellant is entitled to challenge the demand of service tax as well. In this connection, he has heavily relied on the Hon'ble Supreme Court's judgment in Kunhayammed v. State of Kerala : 2001 (129) ELT 11 wherein the scope of the doctrine of merger was examined by their Lordships and landmark rulings were laid down in para 44 of their judgment, reproduced below:

(3.) AFTER considering the argument of both sides, we find that under Sub -section (1) of Section 84 of the Finance Act, 1994, the Commissioner may call for the record of proceedings in which the adjudicating authority subordinate to him has passed any decision or order and may make such enquiry or cause such enquiry to be made and pass such order therein as he thinks fit. Sub -section (2) mandates that no order prejudicial to the Assessee shall be passed under this section unless the Assessee has been given an opportunity of being heard. These provisions of Section 84 were scrupulously followed by the Commissioner in issuing a show -cause notice to the party, considering their reply and also giving them an opportunity of being personally heard. It needs to be noted that the revisionary authority can make such enquiry as he thinks fit and pass such order thereon as he thinks fit. In the present case, the Commissioner thought it fit to revise the Dy. Commissioner's order only partly. He did not want to interfere with the Dy. Commissioner's decision on tax liability. He chose to interfere with the subordinate authority's decision on the penalty -related issue and, therefore, the enquiry made by the Commissioner was limited to the penalty -related issue. On this issue, whatever submissions were made by the Assessee through their reply to the show -cause notice or through their counsel were considered by the Commissioner and, ultimately, he decided to impose penalties on them under Sections 76, 77 and 78 of the Act. No doubt, the Commissioner's order is a revisionary order which, in appropriate situations, is amenable to the doctrine of merger. The question before us is whether the present situation is appropriate for merger on the tax liability issue.