Is six months not sufficient for CESTAT to decide ROM applications?
SECTION 35C(2) of Central Excise Act, 1944 deals with rectification of any mistakes apparent on record in orders passed by the CESTAT. This provision is pari materia with Section 129B(2) of the Customs Act, 1962. For rectification of orders passed by the CESTAT in Service Tax cases the provisions of Central Excise Act, 1944 are applicable.
These provisions stipulate that CESTAT may at any time within six months from the date of the order amend an order passed by it with a view to rectifying any mistake apparent from the record. By virtue of Finance Act, 2002, the period of ‘four years' was replaced by ‘six months'. The applications filed for this purpose are popularly known as ROM applications. Rule 31A of the CESTAT (Procedure) Rules, 1982 prescribes that ROM applications have to be heard by the same Bench unless otherwise directed by the President (of CESTAT).
The question is whether this period of ‘six months' stipulated in Sections 35C(2) / 129B(2) is mandatory or directory i.e. whether an Appellate Tribunal has to invariably decide the ROM application within six months or can the Tribunal take its own sweet time in deciding ROM applications.
Recently, we reported a CESTAT order from the Mumbai Bench in Asiatic Gases Ltd vs. CCE, Mumbai-III = 2010-TIOL-63-CESTAT-MUM, wherein the Tribunal held that it is sufficient if the ROM is filed within six months and that the ROM need not be disposed of within six months as stipulated in Section 35C(2) of Central Excise Act, 1944.
Dismissing the Revenue's objection that the ROM application is liable for dismissal at the threshold in as much as the ROM application should have been disposed of within six months from the date of passing the order for which a rectification is sought, CESTAT held that the ROM application need not be disposed of within six months as stipulated in Section 35C(2). The Tribunal relied on the decision of Apex Court in Sree Ayyanar Spinning and Weaving Mills Ltd. vs. Commissioner of Income Tax - 2008-TIOL-106-SC-IT.
On the contrary, Revenue relied on the decision of Karnataka High Court in Denso Kirloskar Industries vs. CCE - wherein the High Court held that the ROM application should be decided by CESTAT within six months of the date of original order passed by it. The High Court agreed with the Revenue Counsel's contention that the word 'may' used in Section 35C(2) should be read as 'shall'; meaning that it is mandatory for CESTAT to pass orders within six months from the date of passing its first/original order.
In fact, in Sree Ayyanar Spinning and Weaving Mills case , the Supreme Court observed as follows:
“……..Section 254(2) is in two parts. Under the first part, the Appellate Tribunal may, at any time, within four years from the date of the order, rectify any mistake apparent from the record and amend any order passed by it under sub-section (1). Under the second part of Section 254(2) reference is to the amendment of the order passed by the Tribunal under sub-section (1) when the mistake is brought to its notice by the assessee or the Assessing Officer..... In this case we are concerned with the second part of Section 254(2). As stated above, application for rectification was made within four years. Application was well within four years. It is the Tribunal which took its own time to dispose of the application .” (emphasis supplied)
The Apex Court approved the decision of the Rajasthan High Court in Harshavadan Chemicals and Minerals Ltd case – wherein the High Court held that ITAT ought to decide the ROM application on merits and not reject it on the ground of limitation after a lapse of four years, the time limit prescribed for disposal of ROM applications by ITAT under Section 254(2) of IT Act, 1961.
The Apex Court's decision is obviously applicable for cases where the assessee filed a ROM application within a reasonable time but the ROM application was pending in the Tribunal beyond the statutory time period of six months provided to CESTAT to decide such ROM applications.
The Andhra Pradesh High Court in Tirumala Seung Han Textiles Ltd vs. CCE, Hyderabad-III - also held a similar view relying on the decision of the Apex Court in Sree Ayyanar Spinning and Weaving Mills case .
Further in Sunitadevi Singhania Hospital Trust vs. Union of India = the Apex Court observed as follows:
“It is true that the period of limitation specified in terms of Sub-Section (2) of Section 129(B) of the Customs Act is required to be observed but the Tribunal failed to notice that it has inherent power of recalling its own order if sufficient cause is shown therefor. The principles of natural justice, which in a case of this nature, in our opinion, envisage that a mistake committed by the Tribunal in not noticing the facts involved in the appeal which would attract the ancillary and/or incidental power of the Tribunal necessary to discharge its functions effectively for the purpose of doing justice between the parties, were required to be complied with.”
In the above case, the Supreme Court enunciated that the interest of justice has to be considered before adhering to the period of limitation of six months stipulated in Sections 35C(2)/129B(2). The above decisions of the Apex Court clearly hold that the assessee or the Revenue should not be penalized for the delay of disposing ROM applications by the CESTAT.
While this is true, it is also a fact that the Parliament in all its wisdom reduced the time period of four years to six months for deciding ROM applications by CESTAT as there is no justification to keep trivial issues like rectification of mistakes in orders passed by CESTAT hanging fire.
If a ROM application is pending before CESTAT then it naturally follows that the original order passed by CESTAT is not operational and the party in whose favour the order is passed cannot enjoy the fruits of that order till the ROM application is disposed of by CESTAT. Will it not amount to miscarriage of justice?
Maybe the Law should be amended to stipulate that ROM applications have to be filed within six months of the receipt of the order (not the date of the order) and maybe CESTAT should dispose it of within another six months – where it is possible to do so.
In the Income Tax Appellate Tribunal, the time limit for rectification of mistake is still four years. Why this difference between the two Tribunals?