Madras High Court
Royal Sundaram General Insurance ... vs Commissioner Of Central Excise And ... on 24 May, 2024
Author: Mohammed Shaffiq
Bench: R.Mahadevan, Mohammed Shaffiq
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 24.05.2024
CORAM
THE HONOURABLE MR.R.MAHADEVAN, ACTING CHIEF JUSTICE
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
Writ Petition Nos. 31725 and 31726 of 2023
and
W.M.P.Nos.31354 and 31356 of 2024
---
WP No. 31725 of 2023
Royal Sundaram General Insurance Company Limited
represented by its Authorised Signatory
Mr. Vaibhav Kabra
Vishranti Melaram Towers
No.2/319, Rajiv Gandhi Salai (OMR)
Karapakkam, Chennai - 600 097 .. Petitioner
Versus
1. Commissioner of Central Excise and Service Tax
Large Taxpayer Unit
1775, Jawaharlal Nehru Inner Ring Road
Anna Nagar Western Extension
Chennai - 600 101
2. Assistant Commissioner of GST and Central Excise
Sholinganallur Division, Chennai South
692, MHU Complex, Nandanam
Anna Salai, Chennai - 600 035 .. Respondents
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Page 1/37
WP No. 31726 of 2023
Royal Sundaram General Insurance Company Limited
represented by its Authorised Signatory
Mr. Vaibhav Kabra
Vishranti Melaram Towers
No.2/319, Rajiv Gandhi Salai (OMR)
Karapakkam, Chennai - 600 097 .. Petitioner
Versus
The Commissioner of GST Central Excise
Chennai South Commissionerate
MHU Complex, No.692, Anna Salai
Nandanam, Chennai - 600 035 .. Respondent
Writ Petitions filed under Article 226 of The Constitution of India
praying to issue a Writ of Certiorari calling for the records relating to the
impugned order bearing Interim Order number 40007-40008/2023 dated
25.07.2023 passed in Appeal Nos. ST/40810/2017 and ST/40198/2020 by the
Customs, Excise and Service Tax Appellate Tribunal, Chennai to the extent it
is prejudicial to the petitioner and quash the same.
For Petitioner : Mr. Arvind P. Datar, Senior Advocate
for Mrs.R.Charulatha
M/s. Lakshmi Kumaran and Sridharan Attorneys
in both the writ petitions
For Respondents : Mr. Rajnish Pathiyil
Senior Panel Counsel
in both the writ petitions
COMMON ORDER
THE ACTING CHIEF JUSTICE
Both the writ petitions are filed by M/s. Royal Sundaram General
Insurance Company Limited, Chennai questioning the validity and/or
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correctness of the order dated 25.07.2023 passed by the Customs, Excise and
Service Tax Appellate Tribunal, Chennai, (in short, “the CESTAT”) in Interim
Order Nos.40007 – 40008/2023 in Appeal Nos. ST/40810/2017 and
ST/40198/2020, to the extent it is prejudicial to them. For ease of reference, the
operative portion of the order impugned herein, is reproduced below:
DIFFERENCE OF OPINION
In view of the difference of opinion between the Members, the
following questions are framed for resolving the difference:-
Whether the appeals is to be allowed by setting aside the
impugned orders as held by Member (Judicial)?
(OR)
Whether the appeals is to be dismissed by upholding the
impugned orders as held by Member (Technical)?
BRIEF FACTS:
2.(i) The petitioner is engaged in the business of providing general
insurance services relating to Motor Insurance, Health Insurance, Property
Insurance, Engineering Insurance, liability insurance and other miscellaneous
insurance and it was registered with the Service Tax Department under
Registration No.AABCR7106GST001. The petitioner is carrying on such
business from 2001 and they also registered themselves with Insurance
Regulatory Development Authority of India (IRDAI) to conduct business of
general insurance.
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(ii) According to the petitioner, during the course of their business,
they have entered into facilitating agreements with various automobile
manufacturers and dealers, who, at the time of sale of automobiles, through
their established dealer network, assist the buyers of such automobiles to
obtain motor insurance. In that context, the dealers of the automobiles are
considered as the first point of contact with the buyers of motor vehicles and
also motor insurance. The petitioner offered to their customers, insurance
services through their automobile manufacturers/dealers as per the agreements
entered into with them. Apart from facilitation agreements, the petitioner also
entered into Service Provider Agreements with the dealers and availed the
services of the dealers. In certain instances, tripartite agreements have been
entered into with automobile manufacturers and infrastructure service
providers. For taxation purpose, the dealers declared those infrastructure
support service as taxable service and remitted service tax. For several years,
the payment of tax by the dealers has been accepted by the first respondent and
no proceedings have been initiated under Section 77 (1) (e) of the Finance Act,
1994 in respect of any discrepancy.
(iii) While so, on the basis of an alleged investigation conducted by the
officers of the Chennai Zonal Unit, an issue was raised in relation to the
eligibility of the petitioner to avail Central Value Added Tax (CENVAT) credit
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on service tax charged by the dealers on the infrastructure services provided in
respect of motor insurance policies. As per the investigation conducted by the
Chennai Zonal Unit, the dealers of motor vehicles not being
Agents/Brokers/Intermediaries of Insurance Companies, are neither permitted
to do insurance business nor to receive commission. However, the dealers have
been soliciting business of insurance on behalf of the petitioner, while selling
the vehicles to their customers. For this purpose, the petitioner pays
commission to the dealers for soliciting insurance business on their behalf,
which is prohibited under the Insurance Act and IRDA Regulations. The
dealers/manufacturers are not permitted to do insurance business and to receive
commission. The investigation revealed that invoices have been raised
describing the service so rendered by the brokers as "Data Processing and
Policy Serving related Activities". But, in reality, the dealers did not provide
any such service to the petitioner, much less the service described in the
invoices. The invoices have been raised in such a manner only to pass over the
insurance commission to the dealers under the garb of providing services. The
dealers pay service tax on the amount collected from the petitioner as per the
invoices, based on which the petitioner has availed CENVAT credit for the
service tax paid by them. According to the Department, the availment of such
credit is irregular inasmuch as no service, as described in the invoices, has been
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provided by the dealer to the petitioner. The investigation also unfolded that all
the computer generated invoices are not in conformity to Rule 4A of the Service
Tax Rules, 1994 inasmuch as the invoices did not bear the signature of the
dealer evidencing as to who has issued the invoice. The investigation officials,
therefore, concluded that the credit availed on invoices is to be declared as
ineligible.
(iv) In this context, show cause notice for the period from 2010-2011
to 2014-2015 was issued and ultimately, Order-in-Original dated 23.12.2016
was passed by the Commissioner of Large Taxpayer Unit, Chennai.
Subsequently, statement of demand for the period from April 2015 to July
2017 was made and the Order-in-Original dated 28.11.2019 was passed by the
Commissioner of GST & Central Excise, Chennai South, disallowing the
CENVAT Credit and confirming the demands made along with interest.
Aggrieved by the said Orders-in-Original dated 23.12.2016 and 28.11.2019,
the petitioner has filed appeals in ST Nos.40810/2017 and 40198/2020 before
the CESTAT along with interim applications.
3.(i) Before the CESTAT, it was contended on behalf of the petitioner
that the dealers/service providers have always indicated the description of
service in their tax invoice as per Rule 4A of the Service Tax Rules, 1994. The
description given is in the nature of infrastructure support services and the
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dealers/service providers have accordingly remitted service tax. The remittance
of service tax all along by the dealers has been accepted by the Department and
there was no show cause notice issued against the dealers/service providers for
non-compliance of Rule 4A of the Service Tax Rules, 1994 nor penalty was
imposed under Section 77 (1) (e) of the Act for any discrepancy in service.
Once the nature and description of service, as mentioned in the invoice, are not
disputed at the service providers' end, the same cannot be questioned by the
Department. The assessment based on the returns in the hands of the service
providers has become final and the Department has also accepted those returns
based on the declarations made by the service providers. Having accepted the
same, it is no longer open to the Department to raise the issue at the service
recipient's end. The petitioner also placed reliance on the decision of this Court
in the case of M/s. Modular Auto Limited, CCE, Chennai reported in 2008
VIL 541 Madras ST which was also followed by the Tribunal in the case of
M/s. Ford India Pvt Ltd., vs. Commissioner of GST & CCE - 2019 VIL 182
CESTAT CHE-ST. In the said decision of this Court, it was held that when it
is not disputed that the dealer has paid service tax on the services described in
the invoices, the denial of credit at the recipient's end cannot be justified
without re-opening the assessment at the dealers' end.
(ii) It was further argued on behalf of the petitioner that the denial of
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CENVAT credit on unsigned computer generated invoice issued by M/s.
Honda Motors India Pvt Ltd., to the petitioner is untenable. According to the
learned counsel, the CENVAT credit cannot be denied to the petitioner merely
because there was no signature in the invoices. When the tax is paid by the
petitioner and it is not the case of the Department that the invoices are fake or
bogus, the denial of CENVAT credit is legally unsustainable. In this context,
reliance was placed on the decision of the Tribunal at Chandigarh in Automax
vs. CCE Delhi reported in 2018 (363) ELT 1121 (Tri:-Chand) to contend that
when there is no dispute qua duty paid, nature of the goods transacted and the
actual receipt of the goods in the recipient's factory, then, the credit cannot be
denied on the mere ground that the description of goods in the invoice is
incorrect. The learned counsel further submitted that in that decision, the
Tribunal at Chandigarh concluded that when no investigation was initiated at
the hands of the transporter or supplier, then the denial of CENVAT credit at
the recipient's end is unlawful.
(iii) The learned counsel for the petitioner also contended that the
denial of CENVAT credit was on the ground that the invoices issued by TVS
Sundaram Motors reflect the existence of two sets of invoices. According to the
learned counsel, in the invoices issued to the petitioner, the services are
described as "data processing and policy servicing services". The invoices at
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the dealers' end show 'additional incentive'. Only one invoice describing the
service as 'data processing and policy servicing services' was issued to the
petitioner and they are unaware of a second set maintained by the dealer.
While so, the petitioner cannot be penalised by denying CENVAT credit for the
invoices maintained by the service providers on their own volition. Thus, the
learned counsel prayed for allowing the appeals.
4.(i) Opposing the appeals before the CESTAT, it was contended on
behalf of the Department that investigation carried out has unfolded that the
issuance of invoices is a tool employed by the dealers/manufacturers to claim
undue payment (commission) under the garb of providing services, when no
such service is rendered by them. The dealers/manufacturers of motor vehicles
not being insurance agents/brokers/intermediaries of the insurance companies,
cannot be permitted to solicit insurance business. Consequently, they are
dis-entitled to receive any insurance commission from the petitioner. However,
the dealers/manufacturers have been soliciting insurance business for and on
behalf of the petitioner. When the dealers cannot receive commission from the
petitioner, the dealers and manufacturers raise invoices on the instructions
given by the petitioner describing in the invoices as 'data processing and policy
servicing related activities' so that the commission for promoting insurance
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business can be paid to the dealers/manufacturers. In this regard, reliance was
placed on Section 40(1) of Insurance Act, 1938 which expressly mandates that
no person shall after expiry of six months from commencement of the Act, pay
any remuneration or reward, whether by way of commission or otherwise, for
soliciting or procuring insurance business in India to any person, except an
insurance agent or an intermediary or insurance intermediary. Reference
was also made to IRDA Circular dated 25.08.2008 issued under Section 14 of
IRDA Act, which limits the payment of commission or brokerage to 10%. In
the circular dated 25.08.2008, it was specifically mentioned that "no payment
of any kind including 'administrative or servicing charges' is permitted to be
made to the agent or broker in respect of the business of which he is paid
agency commission or brokerage.' Contrary to the guidelines issued in the
Circular, the petitioner maintains business connection with automobile dealers
for procuring insurance policy from the vehicle buyers. The petitioner is not
authorised to outsource such insurance services. As per Section 40 of the
Insurance Act, only licensed brokers are permitted to do insurance business
and entitled to receive commission. For the purpose of receiving commission,
the dealers of the petitioner have raised invoices describing the services as 'data
processing and policy servicing activities', but, in fact, they render no such
service. The taxable value and the service tax is calculated as a percentage of
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own damage (OD) premium and intimated by the petitioner to the dealers
through e-mail. These facts have been brought out during the investigation
conducted by the department. Before passing the orders, which were impugned
before the CESTAT, it was contended that the statement of Sri Venkatachalam
Sekar, authorised representative of the petitioner was taken into consideration,
who has stated that the petitioner has entered into service provider agreements
for 'data processing and policy servicing and related activities services' and the
rates for the services have not been specified in the agreements. It was also
admitted that the petitioner gives a specific percentage of value of the insurance
policy as payout to the dealers. Similar statement obtained during the course of
investigation was also relied on by the Department while passing the orders
which were impugned in the appeals before the CESTAT. Accordingly, the
Department justified the orders passed by the authorities which were impugned
in the appeals and prayed for dismissal of the appeals.
5. When the appeals were taken up for hearing, the Tribunal,
consisting of a Member (Judicial) and a Member (Technical), by order dated
25.07.2023, differed in its views. While the Member (Judicial) held that the
orders, which were impugned in the appeals, denying CENVAT credit are
unjust and allowed the appeals, the Member (Technical) differed from such
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view and passed a separate verdict dismissing the appeals filed by the
petitioner. In view of such split verdict, a reference was made to a third
Member for deciding the issue.
6. Challenging the portion of the order dated 25.07.2023, which
prejudices the petitioner, the present writ petitions are filed.
7. (i) Mr. Arvind P. Datar, learned Senior Counsel for the petitioner
submitted that even though there is a statutory appeal remedy against the
impugned order of the Tribunal under Section 35-G of the Central Excise Act
read with Section 83 of the Finance Act, inasmuch as the order of the Tribunal,
which prejudices the petitioner, suffers from arbitrariness, perversity and
violation of principles of judicial discipline and ignores the law settled by this
Court, the petitioner was constrained to invoke the jurisdiction of this
Honourable Court. Hence, the writ petitions are maintainable before this
Court.
(ii) The learned Senior counsel also submitted that there is no dispute
with regard to the fact that the dealers have paid the service tax collected from
the petitioner. While so, the department is not justified in issuing a show cause
notice to the petitioner proposing to deny the CENVAT credit availed by them.
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The dealers of the petitioner have indeed provided service to the petitioner and
collected charges for the same along with service tax, which had gone
unnoticed. The department has opted to retain the tax collected, but sought to
deny the credit to the petitioner without questioning or disturbing the
assessment of the dealers. The learned Senior counsel for the petitioner invited
the attention of this Court to the decision in Modular Auto Ltd., vs. CCE,
Chennai, reported in 2018 (8) TMI 691 Madras, wherein it was held that
denial of credit at the hands of the petitioner is not justified. However, the
Member (Technical) of the Tribunal held against the petitioner by holding that
the car manufacturers only facilitate insurance companies to have business
through their dealer and apart from this, there is no service provided by them.
It was also concluded that in furtherance of the sale of policy, the dealers
receive the insurance premium from the customers, take out a print out of the
insurance policy to complete the sale and hand it over to the customers and
except the same, no other service activity is provided to the petitioner. This
conclusion of the Member (Technical) of the Tribunal, according to the learned
Senior Counsel for the petitioner, is perverse and arbitrary. The petitioner is a
service recipient and they are questioned as to the manner of service provided,
on the other hand, the same service rendered by the service provider/dealer has
not been subjected to any verification by the department.
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(iii) The learned Senior counsel for the petitioner further submitted
that in the decision of this Court in Modular Auto mentioned supra, reference
was made to the decision of State of Karnataka vs. M/s. Ecom Gill Coffee
Trading Private Limited reported in 2023 (72) G.S.T.L. 134 (SC) wherein it
was held that the dealers from whom the purchaser (who claimed Input Tax
Credit) purchased the readymade garments have either got their registration
cancelled or have filed NIL returns and in some cases, the sale has been
disputed by the dealers. While so, it was held that the Assessing Officer
doubted the sale and the payment of tax on such sale of which Input Tax Credit
was claimed and therefore, the issue of burden of proof attained traction. In
the present case, there is no dispute on the transaction made by the petitioner
nor on the payment or the registration of the dealer got cancelled. While so,
the prejudicial portion of the impugned order of the Tribunal has to be ignored
as per the dictum laid down in the case of Modular Auto mentioned supra.
(iv) According to the learned Senior counsel for the petitioner, the
issue involved in this case is settled by a series of decisions of the Coordinate
Benches of the Tribunal, however, the Tribunal failed to place reliance on the
same. In this context, he referred to the decisions in Cholamandalam MS
General Insurance Company Ltd., vs. Commissioner of GST and Central
Excise (2021) (3) TMI 24 - CESTAT Chennai; and in ICICI Lombard General
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Insurance Company Ltd., vs. Commissioner of CGST and Central Excise,
Mumbai (2023) (2) TMI 1093 CESTAT Mumbai.
(v) The learned Senior counsel for the petitioner has further placed
reliance on the decision in the case of East India Commercial Co., Ltd., vs.
Collector of Customs, Calcutta reported in 1983 (13) ELT 1342 (SC) and
contended that the Law declared by the highest Court in the State is binding on
the Tribunal under its superintendence and they cannot ignore it in either
initiating a proceeding or deciding on the rights involved in such a proceeding.
In this case, identical issue has already been decided and settled by this Court
and it was also followed by the Coordinate Benches of the Tribunal. Even
though the aforesaid decisions have been placed before the Tribunal, the
impugned order was passed by the Tribunal.
(vi) The learned Senior counsel for the petitioner invited the attention
of this court to the prejudicial portion of the order of the Tribunal in para
No.45 and submitted that the attempts made by the Tribunal to distinguish the
case laws submitted by the petitioner are improper. When identical decisions
rendered by the Coordinate Benches of the Tribunal have been placed, in order
to maintain judicial propriety, the Tribunal ought to have followed them or in
the event of the same not being followed, the only option is to place the matter
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before a larger bench for deciding the matter. In this context, the learned Senior
counsel referred to the decisions in Jindal Dye Intermediaries Limited vs.
Collector of Customs, Mumbai (2006) (197) E.L.T. 471 (SC) and Jayswals
Neco Ltd., vs. CCE, Nagpur (2006( 195) E.L.T. 142 (S.C) wherein it was
held that if a Bench does not agree with the view taken by a Coordinate Bench,
then, it should refer the matter to a larger bench and refrain from taking a
contrary view. The Tribunal, without any valid reasons, rejected the decisions
of the coordinate Benches of the Tribunal. With these submissions and case
laws, the learned Senior counsel prayed for allowing the writ petitions filed by
the petitioner as prayed for.
8. (i) Per contra, Mr. Rajnish Pathiyil, learned Senior Panel Counsel for
the respondents submitted that the writ petitions are not maintainable
especially when the order of the Tribunal is not final and a decision is yet to be
taken in the matter of reference of the matter to a Third Member. While so, the
relief sought for in the writ petitions is premature. In this context, the learned
Senior Panel Counsel placed reliance on the decision of the Honourable
Supreme Court in the case of Zenith Computers Limited vs. Commissioner
of Central Excise reported in 2014 (303) E.L.T. 336 (Bom) wherein it was
held that in the event of split verdict by the members of the Tribunal, those
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orders partake the character of mere opinion rendered by the members of the
Tribunal and they are not enforceable. While so, the present writ petitions filed
by the petitioner against the split verdict of the Tribunal, which is not
enforceable under law, is not maintainable.
(ii) The learned Senior Panel counsel for the respondents also placed
reliance on the decision of this Court in the case of M.M. Rubber Company
Limited vs. Union of India reported in 2007 (210) E.L.T. 670 (Madras)
wherein it was held that when an appeal is filed against an order of split verdict
by the Tribunal and when the matter was referred to a third member, the writ
petition under Article 226 of the Constitution of India is not maintainable.
When the matter is pending before a third member for decision, the order of the
Tribunal can only be construed as an expression of opinion by one of the
members and it is enforceable only when an order is passed by the third
member.
(iii) For the same proposition, the learned Senior Panel counsel for the
respondents also placed reliance on the order passed by the Division Bench of
this Court in the case of Income Tax Officer, Company Circle II (I),
Madras and others vs. Vice-President, Income Tax Appellate Tribunal,
Madras and others reported in 1983 SCC Online Madras 358 = 1985 (155)
ITR 310 wherein this Court, referring to Section 255 (4) of the Income Tax
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Act held that if there is a difference of opinion among the members, the
assessee has to await the order to be passed by the third member and without
knowing the majority verdict of the Tribunal, the writ petitions filed by the
petitioner are not maintainable. Accordingly, the learned Senior Panel Counsel
submitted that the matter has been referred to a third member for opinion. Even
before the third member renders his opinion, the petitioner rushed to this Court
with these writ petitions. Therefore, the learned Senior Panel Counsel prayed
for dismissal of the writ petitions.
9. We have heard the learned Senior counsel for the petitioner and
the learned Senior Panel Counsel for the respondents and also perused the
record.
10. The present writ petitions are filed mainly on the ground that the
conclusion reached by the Member (Technical) to the effect that no service has
been provided to the petitioner by the dealers or manufacturers and
consequently, the petitioner, as a provider of output service, cannot avail
CENVAT input credit on the invoices generated by the dealers, is legally not
sustainable. According to the learned Senior Counsel for the petitioner, the very
same issue has been considered and decided by the jurisdictional High Court as
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well as other High Courts in favour of the assessees and hence, the prejudicial
portion of the order passed by the Tribunal cannot be sustained and is liable to
be set aside.
11. At the outset, it is important to point out that the co-ordinate
benches of the Tribunal, in several cases, have dealt with the aforesaid issue. In
this connection, reference was made to the decision of the CESTAT, Chennai
in the case of M/s. Cholamandalam MS General Insurance Co Ltd vs. The
Commissioner of G.S.T. & Central Excise, Chennai reported in 2021 (3) TMI
24 - CESTAT Chennai, by the learned Senior Counsel for the petitioner. In
that case, the assessee entered into agreements with car dealers and Insurance
policies have been issued through dealer network. While so, the Credit availed
by the Insurance company on the basis of invoices issued by dealers of motor
vehicles has been questioned by the Commissioner of GST Central Excise. The
Tribunal, following the decision of Modular Auto mentioned supra, has held
that unless and until the assessment made by the dealer is revised, the credit at
the recipient's end cannot be denied and consequently, allowed the appeal filed
by the assessee.
12. In the decision of the CESTAT, Mumbai in the case of ICICI
Lombard General Insurance Co., Ltd., vs. Commissioner of CGST and
Central Excise, Mumbai reported in 2023 (2) TMI 1093, relied on the side of
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the petitioner, on the basis of the invoices issued by the automotive dealers,
service tax was paid by the automotive dealer to the government and the service
recipient availed CENVAT credit. However, the Commissioner of CGST and
Central Excise, Mumbai not only questioned the availment of CENVAT credit,
but also recovered it along with interest and penalty. When the denial of
CENVAT credit and recovery of the same were questioned, the CESTAT,
Mumbai, following the ratio laid down in Cholamandalam case mentioned
supra, held that when tax had undisputedly been received by the Government
from the automotive dealers, the denial of CENVAT credit is unreasonable and
arbitrary. In yet another order passed by the CESTAT Chennai in
Cholamandalam MS General Insurance Company Limited vs. Commissioner
of GST and Centtral Excise, Chennai reported in 2021 (9) TMI 442, it was
once again held that the order passed by the respondent therein cannot be
sustained and the Service Tax Appeal filed by the appellant therein was
allowed.
13. The learned senior counsel for the petitioner also relied on the
order passed by the CESTAT, Hyderabad in the case of Conneqt Business
solutions Limited vs. CCE reported in 2023 (7) TMI 204. In that case, a
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Tripartite agreement was entered into for the dealer to provide space,
infrastructure, manpower etc., to enable the assessee to seek insurance
business for their company. The issue involved in that case was whether for
such services provided by the dealers, the Assessee would be eligible for
Cenvat Credit. The CESTAT Tribunal, Hyderabad, following the decisions
rendered in Modular Auto as well as Cholamandalam-I as well as ICICI
Lombard case mentioned supra, held that when the service tax paid at the end
of the service provider is not questioned and when there is no doubt that the
service tax in question has been paid, the CENVAT Credit taken by the
recipient cannot be denied. Further, unless and until the assessment made at
the dealer's end is revised or altered, the CENVAT credit availed on the basis of
invoices by the recipient's unit cannot be denied or whittled down.
14. Referring to the decisions of the Honourable Supreme Court in
Union of India vs. Kamlakshi Finance Corporation Limited reported in
1992 Suppl (1) Supreme Court Cases 443 and in East India Commercial
Co. Ltd vs. Collector of Customs, Calcutta reported in 1983 (13) E.L.T.
1342 (SC), the learned Senior counsel for the petitioner submitted that judicial
discipline demands that the decision reached by the coordinate benches has to
be scrupulously followed by the other Tribunal. However, in this case, the
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Tribunal has taken a contrary decision and refused to place reliance on the
decisions of the Coordinate Benches. Thus, according to the learned Senior
Counsel, without taking note of the ratio laid down by the Coordinate Benches,
on the very same issue, the Member (Technical) has passed the prejudicial
portion of the order, which cannot be allowed to be sustained.
15. We find much force in the submissions so made by the learned
Senior counsel for the petitioner. The prejudicial portion of the order has been
passed by the Tribunal in derogation of the various orders passed by the
coordinate benches of the Tribunal on the very same issue. In Para No.45.1 of
the order passed by the Member (Technical) of the Tribunal, the decision cited
on behalf of the petitioner in ICICI Lombard General Insurance
Company Limited vs. CGST & CE reported in 2023 (2) TMI 1093
was referred to. However, the Member (Technical) of the Tribunal held that
the aforesaid decision factually differs and therefore, it cannot be
relied upon. Such a conclusion reached by the Member (Technical)
of the Tribunal cannot be countenanced. The coordinate bench of the
Tribunal - CESTAT, Mumbai, in the case of ICICI Lombard
General Insurance Company Limited mentioned supra, had dealt with an
identical issue and concluded in para No.6 of the order dated 06.02.2023 that
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the conclusion reached by the original authority that no commission could have
been paid by the assessee to the automotive dealer under Section 40 of the
Insurance Act and that such payment, which is recorded by the automotive
dealers in their books of account as a commission, is illegal. The Tribunal
further held that such a finding is untenable on the question of the eligibility to
avail CENVAT Credit especially when the tax had undisputedly been received
by the Government from the automotive dealers. When such a clear and
categorical finding was rendered by the CESTAT - Mumbai, being a coordinate
bench, which was also followed by the other Coordinate Benches in various
other cases, there is no reason for the Member (Technical) to independently
assess the merits of the case and to reach a different conclusion. Therefore, we
hold that the very reference made by the Tribunal to determine as to whether
the conclusion reached by the Member (Judicial) is right or the one made by
the Member (Judicial) itself is unnecessary. The issue before the Tribunal has
already been examined and adjudicated by the coordinate benches and it binds
the Tribunal in all respects. While so, the Tribunal cannot go beyond the
settled issue and to re-adjudicate the same by referring the dispute to a third
member. Judicial discipline requires that the orders of the coordinate bench or
the jurisdictional High Court have to be followed without in any manner
attempting to factually re-examine or re-adjudicating the same issue.
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16. At this juncture, it would be appropriate to refer to the decision of
Hon'ble Supreme Court in the case of Official Liquidator v. Dayanand and
others, reported in (2009) 1 SCC (L&S) 943, in which, the aspect of judicial
discipline has been discussed in detail. Paragraphs 75 to 92 of the said
judgment are relevant and the same are extracted as under:
“75. By virtue of Article 141 of the Constitution, the
judgment of the Constitution Bench in Secretary, State of
Karnataka vs. Uma Devi (2006 SCC (L&S) 753) is binding on
all the courts including this Court till the same is overruled by a
larger Bench. The ratio of the Constitution Bench judgment has
been followed by different two-Judges Benches for declining to
entertain the claim of regularization of service made by ad
hoc/temporary/ daily wage/casual employees or for reversing
the orders of the High Court granting relief to such employees -
Indian Drugs and Pharamaceuticals Ltd. vs. Workmen [2007 (1)
SCC 408], Gangadhar Pillai vs. Siemens Ltd. [2007 (1) SCC
533], Kendriya Vidyalaya Sangathan vs. L.V. Subramanyeswara
[2007 (5) SCC 326], Hindustan Aeronautics Ltd. vs. Dan
Bahadur Singh [2007 (6) SCC 207]. However, in U.P. SEB vs.
Pooran Chand Pandey [2007 (11) SCC 92] on which reliance
has been placed by Shri Gupta, a two-Judges Bench has
attempted to dilute the Constitution Bench judgment by
suggesting that the said decision cannot be applied to a case
where regularization has been sought for in pursuance of Article
14 of the Constitution and that the same is in conflict with the
judgment of the seven-Judges Bench in Maneka Gandhi vs.
Union of India [1978 (1) SCC 248].
76. The facts of U.P.SEB vs. Pooran Chand Pandey
(supra) were that the respondents (34 in number) were employed
as daily wage employees by the Cooperative Electricity Supply
Society in 1985. The Society was taken over by Uttar Pradesh
Electricity Supply Board in 1997 along with daily wage
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employees. Earlier to this, the Electricity Board had taken a
policy decision on 28.11.1996 to regularize the services of its
employees working on daily wages from before 4.5.1990, subject
to their passing the examination. The respondents moved the
High Court claiming benefit of the policy decision dated
28.11.1996. The learned Single Judge of the High Court held
that once the employees of the society became employees of the
Electricity Board, there was no valid ground to discriminate
them in the matter of regularization of service. The Division
Bench approved the order of the Single Bench. A two-Judges
Bench of this Court dismissed the appeal of the Electricity
Board. In para 11 of its judgment, the two-Judges Bench
distinguished Secretary, State of Karnataka vs. Uma Devi
(supra) by observing that the ratio of that judgment cannot be
applied to a case where regularization has been sought for in
pursuance of Article 14 of the Constitution. The two-Judges
Bench then referred to State of Orissa vs. Sudhanshu Sekhar
Misra [AIR 1968 SC 647], Ambica Quarry Works vs. State of
Gujarat [1987 (1) SCC 213], Bhavnagar University vs. Palitana
Sugar Mill Pvt. Ltd. [2003 (2) SCC 111], Bharat Petroleum
Corpn. Ltd. vs. N.R.Vairamani [2004 (8) SCC 579] and
observed:
"16. We are constrained to refer to the above
decisions and principles contained therein because
we find that often Umadevi (3) case is being applied
by courts mechanically as if it were a Euclid's
formula without seeing the facts of a particular case.
As observed by this Court in Bhavnagar University
and Bharat Petroleum Corpn. Ltd. a little difference
in facts or even one additional fact may make a lot
of difference in the precedential value of a decision.
Hence, in our opinion, Umadevi (3) case cannot be
applied mechanically without seeing the facts of a
particular case, as a little difference in facts can
make Umadevi (3) case inapplicable to the facts of
that case."
“18.We may further point out that a seven-
Judge Bench decision of this Court in Maneka
Gandhi vs. Union of India has held that
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reasonableness and non-arbitrariness is part
of Article 14 of the Constitution. It follows that the
Government must act in a reasonable and non-
arbitrary manner otherwise Article 14 of the
Constitution would be violated. Maneka Gandhi
case is a decision of a seven-Judge Bench, whereas
Umadevi (3) case is a decision of a five-Judge
Bench of this Court. It is well settled that a smaller
Bench decision cannot override a larger Bench
decision of the Court. No doubt, Maneka Gandhi
case does not specifically deal with the question of
regularisation of government employees, but the
principle of reasonableness in executive action and
the law which it has laid down, in our opinion, is of
general application."
[Emphasis supplied]
77. We have carefully analyzed the judgment of the two-
Judges Bench and are of the considered view that the above
reproduced observations were not called for. The only issue
which fell for consideration by two-Judges Bench was whether
the daily wage employees of the society, the establishment of
which was taken over by the Electricity Board along with the
employees, were entitled to be regularized in terms of the policy
decision taken by the Board and whether the High Court
committed an error by invoking Article 14 of the Constitution for
granting relief to the writ petitioners. The question whether the
Electricity Board could frame such a policy was neither raised
nor considered by the High Court and this Court. The High
Court simply adverted to the facts of the case and held that once
the daily wage employees of the society became employees of the
Electricity Board, they could not be discriminated in the matter
of implementation of the policy of regularization. Therefore, the
two-Judges Bench had no occasion to make any adverse
comment on the binding character of the Constitution Bench
judgment in Secretary, State of Karnataka vs. Uma Devi (3)
(2006 SCC (L&S) 753).
78. There have been several instances of different
Benches of the High Courts not following the judgments/orders
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of coordinate and even larger Benches. In some cases, the High
Courts have gone to the extent of ignoring the law laid down by
this Court without any tangible reason. Likewise, there have
been instances in which smaller Benches of this Court have
either ignored or bypassed the ratio of the judgments of the
larger Benches including the Constitution Benches. These cases
are illustrative of non-adherence to the rule of judicial
discipline which is sine qua non for sustaining the system. In
Mahadeolal Kanodia vs. Administrator General of W.B. [1960
(3) SCR 578], this Court observed:
"19.If one thing is more necessary in law than
any other thing, it is the quality of certainty. That
quality would totally disappear if Judges of
coordinate jurisdiction in a High Court start
overruling one another's decisions. If one Division
Bench of a High Court is unable to distinguish a
previous decision of another Division Bench, and
holding the view that the earlier decision is wrong,
itself gives effect to that view the result would be
utter confusion. The position would be equally bad
where a Judge sitting singly in the High Court is of
opinion that the previous decision of another Single
Judge on a question of law is wrong and gives effect
to that view instead of referring the matter to a
larger Bench. In such a case lawyers would not
know how to advise their clients and all courts
subordinate to the High Court would find
themselves in an embarrassing position of having to
choose between dissentient judgments of their own
High Court."
[Emphasis
added]
79. In Lala Shri Bhagwan vs. Ram Chandra [AIR 1965
SC 1767], Gajendragadkar, C.J. Observed:
"18. ... It is hardly necessary to emphasize
that considerations of judicial propriety and
decorum require that if a learned Single Judge
hearing a matter is inclined to take the view that the
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earlier decisions of the High Court, whether of a
Division Bench or of a Single Judge, need to be
reconsidered, he should not embark upon that
enquiry sitting as a Single Judge, but should refer
the matter to a Division Bench or, in a proper case,
place the relevant papers before the Chief Justice to
enable him to constitute a larger bench to examine
the question. That is the proper and traditional way
to deal with such mattes and it is founded on
healthy principles of judicial decorum and
propriety. It is to be regretted that the learned
Single Judge departed from this traditional way in
the present case and chose to examine the question
himself."
80. In Union of India vs. Raghubir Singh [1989 (2) SCC
754], R.S. Pathak, C.J. while recognizing need for constant
development of law and jurisprudence emphasized the necessity
of abiding by the earlier precedents in following words :
"9.The doctrine of binding precedent has the
merit of promoting a certainty and consistency in
judicial decisions, and enables an organic
development of law, besides providing assurance to
the individual as to the consequence of transaction
forming part of his daily affairs. And, therefore, the
need for a clear and consistent enunciation of legal
principle in the decisions of a court."
81. In Sundarjas Kanyalal Bhatija and others vs.
Collector, Thane [1989 (3) SCC 396], a two-Judges Bench
observed as under :
"22.. In our system of judicial review which is
a part of our constitutional scheme, we hold it to be
the duty of judges of superior courts and tribunals
to make the law more predictable. The question of
law directly arising in the case should not be dealt
with apologetic approaches. The law must be made
more effective as a guide to behaviour. It must be
determined with reasons which carry convictions
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within the courts, profession and public. Otherwise,
the lawyers would be in a predicament and would
not know how to advise their clients. Sub-ordinate
courts would find themselves in an embarrassing
position to choose between the conflicting opinion.
The general public would be in dilemma to obey or
not to obey such law and it ultimately falls into
disrepute."
82. In Dr.Vijay Laxmi Sadho vs. Jagdish [2001 (2) SCC
247], this Court considered whether the learned Single Judge of
Madhya Pradesh High Court could ignore the judgment of a
coordinate Bench on the same issue and held:
"33.As the learned Single Judge was not in
agreement with the view expressed in Devilal case it
would have been proper, to maintain judicial
discipline, to refer the matter to a larger Bench
rather than to take a different view. We note it with
regret and distress that the said course was not
followed. It is well-settled that if a Bench of
coordinate jurisdiction disagrees with another
Bench of coordinate jurisdiction whether on the
basis of "different arguments" or otherwise, on a
question of law, it is appropriate that the matter be
referred to a larger Bench for resolution of the
issue rather than to leave two conflicting judgments
to operate, creating confusion. It is not proper to
sacrifice certainty of law. Judicial decorum, no less
than legal propriety forms the basis of judicial
procedure and it must be respected at all costs."
83. In Pradip Chandra Parija and others vs. Pramod
Chandra Patnaik and others [2002 (1) SCC 1], the Constitution
Bench noted that the two learned Judges denuded the
correctness of an earlier Constitution Bench judgment in Bharat
Petroleum Corpn. Ltd. vs. Mumbai Shramik Sangha [2001 (4)
SCC 448] and reiterated the same despite the fact that the
second Constitution Bench refused to reconsider the earlier
verdict and observed:
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“3.We may point out, at the outset, that
in Bharat Petroleum Corpn. Ltd. vs. Mumbai
Shramik Sangha (2001 (4) SCC 448) a Bench of five
Judges considered a somewhat similar question.
Two learned Judges in that case doubted the
correctness of the scope attributed to a certain
provision in an earlier Constitution Bench judgment
and, accordingly, referred the matter before them
directly to a Constitution Bench. The Constitution
Bench that then heard the matter took the view that
the decision of a Constitution Bench binds a Bench
of two learned Judges and that judicial discipline
obliges them to follow it, regardless of their doubts
about its correctness. At the most, the Bench of two
learned Judges could have ordered that the matter
be heard by a Bench of three learned Judges.
***
5.The learned Attorney-General submitted
that a Constitution Bench judgment of this Court
was binding on smaller Benches and a judgment of
three learned Judges was binding on Benches of two
learned Judges -- a proposition that learned
counsel for the appellants did not dispute. The
learned Attorney-General drew our attention to the
judgment of a Constitution Bench in Sub-Committee
of Judicial Accountability v. Union of India (1992
(4) SCC 97) where it has been said that "no
coordinate Bench of this Court can even comment
upon, let alone sit in judgment over, the discretion
exercised or judgment rendered in a cause or
matter before another coordinate Bench" (SCC p.
98, para 5). The learned Attorney-General
submitted that the appropriate course for the Bench
of two learned Judges to have adopted, if it felt so
strongly that the judgment in Nityananda Kar (1991
Supp. (2) SCC 506) was incorrect, was to make a
reference to a Bench of three learned Judges. That
Bench of three learned Judges, if it also took the
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same view of Nityananda Kar, could have referred
the case to a Bench of five learned Judges.
6.In the present case the Bench of two learned
Judges has, in terms, doubted the correctness of a
decision of a Bench of three learned Judges. They
have, therefore, referred the matter directly to a
Bench of five Judges. In our view, judicial discipline
and propriety demands that a Bench of two learned
Judges should follow a decision of a Bench of three
learned Judges. But if a Bench of two learned
Judges concludes that an earlier judgment of three
learned Judges is so very incorrect that in no
circumstances can it be followed, the proper course
for it to adopt is to refer the matter before it to a
Bench of three learned Judges setting out, as has
been done here, the reasons why it could not agree
with the earlier judgment. If, then, the Bench of
three learned Judges also comes to the conclusion
that the earlier judgment of a Bench of three
learned Judges is incorrect, reference to a Bench of
five learned Judges is justified.
[Emphasis supplied]
84. In State of Bihar vs. Kalika Kuer and others [2003
(5) SCC 448], the Court elaborately considered the principle of
per incuriam and held that the earlier judgment by a larger
Bench cannot be ignored by invoking the principle of per
incuriam and the only course open to the coordinate or smaller
Bench is to make a request for reference to the larger Bench.
85. In State of Punjab vs. Devans Modern Breweries
Ltd. [2004 (11) SCC 26], the Court reiterated that if a
coordinate Bench does not agree with the principles of law
enunciated by another Bench, the matter has to be referred to a
larger Bench.
86. In Central Board of Dawoodi Bohra Community vs.
State of Maharashtra [2005 (2) SCC 673], the Constitution
Bench interpreted Article 141, referred to various earlier
judgments including Bharat Petroleum Corpn. Ltd. vs. Mumbai
Shramik Sangha (supra), Pradip Chandra Parija and others vs.
Pramod Chandra Patnaik and others (supra) and held that "the
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law laid down in a decision delivered by a Bench of larger
strength is binding on any subsequent Bench of lesser or co-
equal strength and it would be inappropriate if a Division Bench
of two Judges starts overruling the decisions of Division
Benches of three Judges. The Court further held that such a
practice would be detrimental not only to the rule of discipline
and the doctrine of binding precedents but it will also lead to
inconsistency in decisions on the point of law; consistency and
certainty in the development of law and its contemporary status -
both would be immediate casualty"
87. In State of U.P. and others vs. Jeet S.Bisht and
another [2007 (6) SCC 586], when one of the Hon'ble Judges
(Katju, J.) constituting the Bench criticised the orders passed by
various Benches in the same case, the other Hon'ble Judge
(Sinha, J.) expressed himself in the following words:
"100. For the views been taken herein, I
regret to express my inability to agree with Brother
Katju, J. in regard to the criticisms of various
orders passed in this case itself by other Benches. I
am of the opinion that it is wholly inappropriate to
do so. One Bench of this Court, it is trite, does not
sit in appeal over the other Bench particularly when
it is a coordinate Bench. It is equally inappropriate
for us to express total disagreement in the same
matter as also in similar matters with the directions
and observations made by the larger Bench.
Doctrine of judicial restraint, in my opinion, applies
even in this realm. We should not forget other
doctrines which are equally developed viz. Judicial
Discipline and respect for the Brother Judges."
88. In U.P. Gram Panchayat Adhikari Sangh vs. Daya
Ram Saroj [2007 (2) SCC 138], the Court noted that by ignoring
the earlier decision of a coordinate Bench, a Division Bench of
the High Court directed that part-time tube-well operators
should be treated as permanent employees with same service
conditions as far as possible and observed :
"26.Judicial discipline is self-discipline. It is
an inbuilt mechanism in the system itself. Judicial
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discipline demands that when the decision of a
coordinate Bench of the same High Court is brought
to the notice of the Bench, it is to be respected and
is binding, subject of course, to the right to take a
different view or to doubt the correctness of the
decision and the permissible course then open is to
refer the question or the case to a larger Bench.
This is the minimum discipline and decorum to be
maintained by judicial fraternity."
89. It is interesting to note that in Coir Board,
Ernakulam vs. Indira Devi P.S. [1998 (3) SCC 259], a two-
Judges Bench doubted the correctness of the seven-Judges
Bench judgment in Bangalore Water Supply & Sewerage Board
vs. A.Rajappa [1978 (2) SCC 213] and directed the matter to be
placed before Hon'ble the Chief Justice of India for constituting
a larger Bench. However, a three-Judges Bench headed by Dr.
A.S. Anand, C.J., refused to entertain the reference and
observed that the two-Judges Bench is bound by the judgment of
the larger Bench – Coir Board, Ernakulam, Kerala State vs.
Indira Devai P.S. [2000 (1) SCC 224].
90. We are distressed to note that despite several
pronouncements on the subject, there is substantial increase in
the number of cases involving violation of the basics of judicial
discipline. The learned Single Judges and Benches of the High
Courts refuse to follow and accept the verdict and law laid down
by coordinate and even larger Benches by citing minor
difference in the facts as the ground for doing so. Therefore, it
has become necessary to reiterate that disrespect to
constitutional ethos and breach of discipline have grave impact
on the credibility of judicial institution and encourages chance
litigation. It must be remembered that predictability and
certainty is an important hallmark of judicial jurisprudence
developed in this country in last six decades and increase in the
frequency of conflicting judgments of the superior judiciary will
do incalculable harm to the system inasmuch as the courts at the
grass root will not be able to decide as to which of the judgment
lay down the correct law and which one should be followed.
91. We may add that in our constitutional set up every
citizen is under a duty to abide by the Constitution and respect
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its ideals and institutions. Those who have been entrusted with
the task of administering the system and operating various
constituents of the State and who take oath to act in accordance
with the Constitution and uphold the same, have to set an
example by exhibiting total commitment to the Constitutional
ideals. This principle is required to be observed with greater
rigour by the members of judicial fraternity who have been
bestowed with the power to adjudicate upon important
constitutional and legal issues and protect and preserve rights
of the individuals and society as a whole. Discipline is sine qua
non for effective and efficient functioning of the judicial system.
If the Courts command others to act in accordance with the
provisions of the Constitution and rule of law, it is not possible
to countenance violation of the constitutional principle by those
who are required to lay down the law.
92. In the light of what has been stated above, we deem
it proper to clarify that the comments and observations made by
the two-Judges Bench in UP State Electricity Board vs. Pooran
Chandra Pandey (supra) should be read as obiter and the same
should neither be treated as binding by the High Courts,
Tribunals and other judicial foras nor they should be relied
upon or made basis for bypassing the principles laid down by
the Constitution Bench.”
17. As per the principles enunciated by the Hon'ble Supreme Court in
the aforesaid judgment, it is clear that High Court cannot sit in appeal in an
earlier order passed by it in the same matter, which has already attained finality
and set aside that order. Further, the doctrine of precedents is well explained by
observing that a coordinate Bench of the High Court is bound by the order of
another coordinate Bench where the order has attained finality and judicial
discipline has to be maintained in this regard. Therefore, we are of the view
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that the dissent expressed by the Member (Technical) of the Tribunal in
derogation of the various orders passed by the coordinate benches of the
Tribunal on the very same issue, cannot be countenanced. As such, we hold
that the very reference made to the third member to adjudicate an issue, which
was already set at naught by the coordinate benches of the Tribunal, is
unnecessary.
18. In the result, the prejudicial portion of the order dated 25.07.2023
passed by the Member (Technical) of the CESTAT, is quashed. As a sequel,
both the writ petitions are allowed as prayed for. No costs. Connected
miscellaneous petitions are closed.
[R.M.D., A.C.J.] [M.S.Q., J.]
24.05.2024
Index : Yes / No
Internet : Yes / No
rsh
1. Commissioner of Central Excise and Service Tax
Large Taxpayer Unit
1775, Jawaharlal Nehru Inner Ring Road
Anna Nagar Western Extension
Chennai - 600 101
2. The Commissioner of GST Central Excise
Chennai South Commissionerate
MHU Complex, No.692, Anna Salai
Nandanam, Chennai - 600 035
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3. Assistant Commissioner of GST and Central Excise
Sholinganallur Division, Chennai South
692, MHU Complex, Nandanam
Anna Salai, Chennai - 600 035
https://www.mhc.tn.gov.in/judis
THE HON'BLE ACTING CHIEF JUSTICE
AND
MOHAMMED SHAFFIQ, J
rsh
WP Nos. 31725 and 31726 of 2023
24-05-2024
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