CESTAT - Direct Appeal to Supreme Court - Why?
AS per Section 35G of the Central Excise Act, an appeal lies to the High Court from every order passed by the CESTAT, except an order, among other things, relating to classification (rate of duty) or valuation.
As per Section 35L, an appeal shall lie to the Supreme Court from an order passed by CESTAT among other things, relating to classification (rate of duty) or valuation.
Similar provisions are applicable for Customs and Service Tax.
This means that even if valuation or Classification is one of the issues among many other issues, the appeal from an order of the CESTAT lies to the Supreme Court and the High Court is barred from appellate jurisdiction. It is another matter that the Writ jurisdiction of the High Court cannot be taken away by any law.
Way back in 1982, when the Tribunal (called CEGAT then) was established, classification and valuation were hot issues and of course having All-India effect. As per Section 35D(2), as it then existed, appeals to the Tribunal from orders of the Commissioners, relating to, among other things, classification or valuation, had to be heard by a Special Bench of the Tribunal consisting of three members and the Special Bench had all India jurisdiction. Appeals from these Special Benches, which were dealing with classification/valuation matters, were to lie to the Supreme Court. This was a substantive right of the appellant irrespective of whether a question of Law or a question of fact was involved.
Over the years, Classification and valuation lost their importance in litigation and the Special Benches of the Tribunal were abolished in 1995 and now all Benches of the CESTAT can hear matters relating to Classification and Valuation. When the Special Benches were abolished, there was no reason to continue direct appeals to the Supreme Court on classification/valuation matters. But somebody forgot to make the changes and we are stuck with this system and all matters relating to classification/valuation are still going straight to Supreme Court from the Tribunal.
The Chandra Kumar Effect: In a landmark case, L. Chandra Kumar v. Union of India - , a Constitutional Bench of the Supreme Court held,
1. We hold that all decisions of Tribunals whether created pursuant to Article 323A or Article 323 B of the Constitution, will be subject to the High Court's Writ jurisdiction under Article 226/ Article 227 of the Constitution, before a Division Bench of the High Court within whose territorial jurisdiction the particular Tribunal falls.
2. We may add here that under the existing system, direct appeals have been provided from the decisions of all Tribunals to the Supreme Court under Article 136 of the Constitution. In view of our above-mentioned observations, this situation will also stand modified.
3. In the view that we have taken, no appeal from the decisions of a Tribunal will directly lie before the Supreme Court under Article 136 of the Constitution; but instead, the aggrieved party will be entitled to move the High Court under Article 226/ 227 of the Constitution and from the decision of the Division Bench of the High Court, the aggrieved party could move this court under Article 136 of the Constitution.
The Supreme Court was very emphatic that no appeal shall lie to the Supreme Court from an order of a Tribunal. But the issue did not rest there. Several High Courts held that Chandra Kumar is not applicable to CESTAT and one High Court held that Chandra Kumar decision did not take away the statutory right of appeal provided for in the Central Excise Act. And even the Supreme Court continues to admit appeals directly from the orders of the Tribunal.
In Samruddhi Industries - , the Bombay High Court held that CESTAT was not constituted under Article 323B and so Chandra Kumar is not applicable.
In Delhi Gymkhana Club - , the High Court held that appeal lies to Supreme Court.
In Shalimar Rubber Industries - , the High Court held that the ratio of Chandra Kumar is not to take away right of appeal provided under Section 35L and so the appeal had to be to the Supreme Court.
The Basic Doubt - Is CESTAT a Tribunal constituted under Article 323B? We need not have much discussion on this as the Supreme Court had in the Chandra Kumar case itself clarified this issue. In para 26 of the order, the Supreme Court observed,
"in R.K.Jain V. Union of India ()... A Division Bench of this Court consisting of three of us (Ahmedi, CJI, Punchhi and Ramaswamy, JJ) had occasion to deal with complaints concerning the functioning of the Customs, Excise and Gold (control) Appellate Tribunal, which was set up by exercising the power conferred by Article 323B".
So it has been confirmed by the Supreme Court itself that CEGAT/CESTAT is set up by exercising the powers under Article 323B. In fact in the R.K.Jain case, the Hon'ble Court had suggested that the possibility of an appeal from the Tribunal to the High Courts be pursued and one of the reasons for the Chandra Kumar judgment was that this suggestion of the Apex Court was not followed up.
So, in spite of Section 35L, as per the Supreme Court judgement in Chandra Kumar , there should be no direct appeal from Tribunal to Supreme Court.
In spite of Chandra Kumar, High Courts are rejecting appeals from CESTAT on classification and valuation matters and even the Supreme Court is accepting direct appeals against CESTAT orders!
Have we quietly buried Chandra Kumar?
Going to the Supreme Court is not as easy as going to the High Court and is prohibitively expensive and many an assessee would rather accept his fate rather than going to the Supreme Court.
The National Tax Tribunal is perhaps the answer.