Service Tax Credit

MUMBAI, MAR 25, 2008 : THE issue in this appeal before the Tribunal is regarding availment of Cenvat credit on the input service (security agency) utilized by the appellants for residential colony which is adjacent to the factory. It is the contention of the Revenue that the security services utilized by the appellant would not fall under the category of input service for residential colony used directly or indirectly in the manufacture of final products. The adjudicating authority upheld the charges alleged in the show cause notice and confirmed the demand. The appellants aggrieved by such order preferred an appeal before the Commissioner (Appeals) who also upheld the order-in-original. So, they are now before the Tribunal. The appellant vociferously argued that the issue involved in this case requires de novo adjudication proceedings as the first appellate authority had not given any findings on merits inasmuch as he has only reproduced the findings that have been arrived at by the lower adjudicating authority & not given any findings against the grounds of appeal filed by the appellants. To fortify the justification for such a request, the appellant cited the Supreme Court decision in Cyril Lasrado (dead) & others vs. Juliana Maria Lasrado (2004-TIOL-130-SC-MISC) & the following relevant paragraphs from the same – 11. Reasons introduce clarity in an order. On plainest consideration of justice, the High Court ought to have set forth its reasons, howsoever brief, in its order indicative of an application of its mind, all the more when its order is amenable to further avenue of challenge. The absence of reasons has rendered the High Court’s judgement not sustainable. 12. Even in respect of administrative orders Lord Denning, M.R. in Breen v. Amalgamated Engg. Union observed (All ER p.1154h) “The giving of reason is one of the fundamentals of good administration.” In Alexander Machinery (Dudley) Ltd. V. Crabtree it was observed: “Failure to given reasons amounts to denial of justice. Reasons are live links between the mind of the decision taken to the controversy in question and the decision or conclusion arrived at.” Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the “inscrutable face of the sphinx”, it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before court. Another rationale is that the effected party can know why the decision has gone against him. One of the salutary requirements of natural justice spelling out reasons for the order made, in other words, a speaking one. The “inscrutable face of the sphinx” is ordinarily incongruous with a judicial or quasi judicial performance.” The Tribunal observed that the Commissioner(Appeals) had merely reproduced a couple of paragraphs from the o-in-o and concluded that the service (security agency) utilized in the residential colony of the factory is not covered in the definition of input service & thus held that the lower authority had correctly denied the credit. Furthermore, the appellants had taken various grounds of appeal before the Commissioner(A) as was reflected from the o-in-a inasmuch as the very findings on which the Commissioner(A) is agreeing with the adjudicating authority is challenged by the appellant but the same were not dealt with. In fine, the Bench held that the ratio of the Apex Court decision was squarely applicable to the facts of the case & hence without expressing any opinion on the merits, the order was held to be un-sustainable & hence remanded back for de novo proceedings to the Commissioner(Appeals). Just speaking: The ground reality is that the brief facts of the case are usually prepared by the staff & the deciding authority pens only the operative portion. So, such slips cannot be completely ruled out when the quasi-judicial authority fails to go through the brief facts. By the way, the most commonly used phrases are – “The case laws relied upon by the assessee do not apply to the facts of the case/are distinguishable” or if that sounds bland, then it would be “The case laws relied upon do not apply on all fours to the present issue” or simply – “I have gone through the submissions made & find that they do not merit consideration”. Unfortunately, this “secret” came to be made public by the Tribunal in that famous case of Perfect Industries vs. CCE, Pune [2002-TIOL-400-CESTAT-DEL-SB] where it was held – “A quasi-judicial officer has to apply his own mind to the facts and circumstances of the case and reach at his own decision unfettered by anything else. From this it follows that even the narration of facts in an adjudication order has to be drafted by the adjudicating officer himself.” Do take a look at some earlier reported decisions 2008-TIOL-133-CESTAT-MUM & 2008-TIOL-199-CESTAT-MUM to see what the future holds for the present case. (See 2008-TIOL-459-CESTAT-MUM in 'Service Tax' + 2008-TIOL-459-CESTAT-MUM in 'Legal Corner')