As per Section 35G of the Central Excise Act, 1944, an appeal against the Customs Excise and Service Tax Appellate Tribunal’s (‘CESTAT’) order can be filed before the High Court (‘HC’). However, any CESTAT order relating to determination of any question having relation to rate of service tax or value of services can be appealed against (from a plain reading of the section) only before the Supreme Court (‘SC’) and not the HC.

Jurisdiction of High Courts to admit appeals against CESTAT orders in service tax cases has always been a subject matter of litigation. 

It appears that, with the above judgment, parties aggrieved by CESTAT orders on classification issues under service tax may be left with the only option to directly appeal before the Supreme Court.

It is also to be seen as to whether now the classification issues under service tax pending before various High Courts will be rejected and directed to the Supreme Court or will be disposed of by the High Courts.

Even under the Negative list regime, issues on chargeability of service tax such as whether activities fall in the negative list, mega exemption list, or qualify for an abatement scheme, etc could be referred to the SC and not to the HC.

Clarity on the above could be brought on the above ambiguity either by the Hon'ble Supreme Court or an amendment in the legislation. 

The decision of the Delhi High Court is in line with the existing judicial precedents on the subject matter and provides greater clarity on the jurisdiction of High Courts to entertain appeals against the order passed by the Customs Excise and Service Tax Appellate Tribunal (“CESTAT”) in service tax cases. It elaborates on  what constitutes a question having a relation to the rate of duty or to the value of goods (services) as enunciated in Section 35G of the Central Excise Act, 1944 (“CE Act”). The said judgment along with other judicial precedents on the issue makes it clear that Section 35G of the CE Act read with Section 83 of the Finance Act leaves High Court with very limited jurisdiction to entertain service tax appeals arising from CESTAT orders. Amongst others, the appeals which can be entertained by High Courts would involve questions pertaining to denial of stay, refund issues, simple penalty questions not involving any question on rate of tax etc. However, admissibility of such questions would also be dependent on the facts and circumstances of each and every case. 

The said judgment strongly indicates as to how jurisdictional issues of such nature should be resolved in on-going litigations and wouldbe binding in Delhi and undoubtedly would have a strong persuasive value for other high courts as well.

It is important to note that restriction of High Courts’ jurisdiction to entertain service tax appeals especially on the question of chargeability of service tax etc. has to be appreciated in light of the legislative intent behind such restriction. In order to ensure uniformity and consistency in service tax legislation and avoid inconsistency and litigation before different High Courts, the legislature has thought it appropriate that the Supreme Court should have the exclusive jurisdiction to determine such questions.

The decision of the Delhi High Court in case of Commissioner of Service Tax v. Ernst & Young Pvt. Ltd. and others [TS-50-HC-2014-ST] is not abridging the High Court’s jurisdiction to decide the substantial questions of law. The decision has merely reaffirmed the statutory scheme contained under section 35G and 35L of the Central Excise Act, 1944. Section 35 G provides that an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment). Similarly Section 35L(b) provides that any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment shall lie before the Supreme Court. Both the above sections are unambiguous and consistent and clearly mandate that wherever the issue pertains to rate of duty and value of goods the appeal would lie to the Supreme Court – this mandate applies mutatis mutandis to service tax too.

This decision is also consistent with the earlier Delhi High Court decision in Commissioner of Service Tax vs. Delhi Gymkhana Club Ltd. 2009 (16) STR 129 where it was held that the question, whether a particular activity falls within the charging Section and service tax is leviable on the said activity necessarily relates to the determination of rate of tax. In the case of Ernst & Young Pvt. Ltd. and others also the issue was whether the services provided by the various assessees would get covered under “management consultancy service” and thus related to chargeability of service tax. Therefore the Delhi High Court has followed its earlier decision in the Delhi Gymkhana (supra) and held that the Appeal should be filed before the Supreme Court. Thus, in my view, this ruling doesn’t strip the HC’s jurisdiction beyond what was envisaged under section 35G and 35L of the Central Excise Act, 1944. 

The ruling is clarificatory and in line with the statutory provisions relating to appeals envisaged under the Central Excise Act and to that extent may mitigate disputes pertaining to jurisdiction. However this would not have much impact on the on-going litigations as the assesses/revenue who were filing the appeal before the High court on issues relating to determination of rate of duty and value of goods would now merely file the appeals directly before the Supreme Court.