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HIGH COURT OF DELHI
Date of Decision: 17.07.2018
RADICO KHAITAN LIMITED ..... Appellant
Through: Mr. L. Badri Narayanan, Advocate with Mr. Yogendra Aldak, Mr. Karan Sachdev, Mr. Shrey Ashat, Ms. Apeksha Mehta and Mr. Kunal Kapoor, Advocates.
Through: Mr. Harpreet Singh, Sr. Standing Counsel for respondent with
Mr. Suresh Chaudhary, Advocate.
HON'BLE MR. JUSTICE A. K. CHAWLA
HON'BLE MR. JUSTICE S. RAVINDRA BHAT (ORAL)
Allowed, subject to all just exceptions.
JUDGMENT
2. Issue notice. 2018:DHC:4249-DB
3. Mr. Harpreet Singh, Sr. Standing Counsel for the respondent accepts notice.
4. The appellant’s grievance in the present proceedings under Section 35G of the Central Excise Act, 1944 is that the final order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) remanding the matter for fresh adjudication by the Commissioner is erroneous, inasmuch as, the Tribunal failed to discharge its obligations to consider the record.
5. The appellant was issued with a show cause notice which alleged that it was receiving services from M/s Jefferies International Limited (JIL) and that for the period 2006-07 it was liable to pay service tax to the tune of `1,37,64,000/- and other amounts and penalties under the Finance Act, 1994. The show cause notice (dated 14.10.2011) was replied to and the allegations made by the Revenue were refuted. Apart from various submissions, the appellant contended that it had entered into an agreement dated 30.06.2006 with JIL and that the allegation with respect to its liability on account of a Memorandum of Understanding dated 20.04.2006 was not correct. The Commissioner accepted the assessee’s contentions and dropped the demand discharging the show cause notice.
6. The relevant part of the order reflecting this aspect is as follows:-
49. I further find that the subscription agreement dt: 30-06-2006 is the authentic, genuine and legally binding agreement and the so called agreement (letter of engagement) dated 20-04-2006 was not a binding agreement which is clearly evident from the following paras/language in the said letter dt: 20-04-2006. (A) The final terms and conditions governing the transactions shall be mutually agreed between the company and Jefferies. (B) The terms of the transaction will be governed by one or more definitive agreements. This agreement is not intended to constitute a binding agreement to consummate the transaction or to enter into any agreement in relation to the transaction nothing in this agreement shall give rise to any underwriting or purchase obligation on the part of Jefferies in relation to the transaction. Similarly, nothing in this agreement shall give rise to any obligation on the part of the company to issue or sell the securities or to enter into any agreement in relation thereto.
50. Further, clause 21 of the agreement dt: 30-06- 2006 states that “this agreement and the offering circular, constitute the entire agreement and understanding of the parties and supersedes any previous agreement between the parties relating to the subject matter of this agreement.
51. Accordingly reading of both the letter dt: 20-04- 2006 and agreement dt: 30-06-2006 indicates that the agreement dt: 30-06-2006 is the only legal document following the letter dt: 20-04-2006. Both are genuine documents but the later one is legally binding and the one which has superseded the earlier one, i.e. dt: 20-04- 2006.”
7. After considering these materials and on the basis of other reasons, the show cause notice was discharged. The appeal, which the Revenue preferred to the CESTAT, disputed the findings. The Revenue’s arguments in its grounds of appeal on this point are as follows:- “The adjudicating authority failed to consider that the said letter dated 20.04.2008 was a relevant evidence in the present case and established the fact that the foreign service provider was indeed engaged and appointed by the notice as lead manager and sole placement agent for certain purpose and provision of services for raising FCCB of US$50 Millions in the FY 2006-07. The adjudicating authority erred in taking into account only the agreement MOU between the said parties dated 20.04.2006. It is pertinent to take note of the relevant fact that the transaction between the parties were initiated only through letter agreement dated 20.04.2006 and it is relevant as to the purpose, the motive and the intention behind the transaction to be carried out between the parties. Also, it is not disputed that only the letter agreement dated 20-04-2006 was translated into a further agreement MOU between the parties vide subscription agreement dated 30-06-2006. The adjudicating authority further failed to consider the essence and substance of the said further agreement dated 30.06.2006 that the essential purpose remained the same, i.e. to issue US $ 40 Millions 3.5% convertible bonds due 2011. Also, it is pertinent to take note of the fact that even in terms of the agreement dated 30.06.2006, the foreign service provider remained the manager to the issue of FCCB for raising FCCB of US$
50 Millions. The notice granted only as option to the manager, i.e. the foreign service provider, to subscribe to the bonds and, moreover, this option was at the discretion of the said service provider. Thus, the Adjudicating Authority failed to appreciate that even in terms of the later agreement dated 30.06.2006 the relationship between the notice and the foreign service provider remained as that of an „issuer of the FCCB‟ and „manager to the issue of the FCCB‟, respectively. Thus, the „underwriting‟ was only optional and only an optional accessory or auxiliary service vis-à-vis the essential service provided by the foreign service provider in relation to the raising FCCB of US $ 50 Millions. Therefore, the findings of the Adjudicating Authority were perverse to the extent that in terms of the later and binding agreement dated 30.06.2006, the service provided were „underwriting service‟ and not „Banking and Other Financial service‟.”
8. In the impugned order the CESTAT noticed this aspect and remitted the matter for de novo fresh consideration by the Commissioner in the following terms.
9. Before this Court, the appellant contended that given the nature of findings by the Commissioner and the limited nature of the appeal by the Revenue – which did not appear to indicate any dispute vis-àvis the genuineness of the agreement of 30.06.2006, the open remand on all aspects, was not justified.
10. Learned counsel for the Revenue on the other hand submitted that the appellant had disclosed the existence of the agreement for the first time in the reply to the show cause notice and appears to have thereafter produced it and as a result it could not be verified. It was submitted that in view of these peculiar features, the remand order of the Tribunal was in order. It is evident from the consideration of the record that the Commissioner rendered elaborate findings on both the genuineness of the document (agreement dated 30.06.2006) as well as on its interpretation. Given these facts, if the Tribunal was in doubt as to whether the document was genuine, the least that it could have done was to limit the findings on remand while retaining Revenue’s appeal on the file. This Court notices that CESTAT has been repeatedly passing remand orders virtually abdicating its responsibility as an Appellate Court. This trend is unhealthy given that it is the final Court of fact and is required to adjudicate both on the issues of fact and law, especially in matters such as the present one i.e. where the appeal before it was by way of the first appeal.
11. In these circumstances, this Court hereby sets aside the impugned order. The Tribunal is hereby directed to render specific findings on the issue after taking into account the submissions of the parties and calling for a limited remand findings on the issue of genuineness of the document alone. The appeal stands allowed in the above terms.
S. RAVINDRA BHAT, J
A. K. CHAWLA, J