The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a taxpayer cannot be penalized for relying upon an incorrect statement of law contained in an adjudication order issued by the tax department itself.
The Bench of Ajay Sharma (Judicial Member) and Rajeev Tandon (Technical Member) has set aside an order dismissing an appeal on limitation grounds and restored the matter to the Commissioner (Appeals) for fresh consideration.
The controversy arose from an Order-in-Original dated November 9, 2012, which was received by the appellant on December 15, 2012. The taxpayer filed an appeal before the Commissioner (Appeals) on March 13, 2013.
Under Section 85 of the Finance Act, 1994, an appeal against an adjudication order was required to be filed within two months from the date of receipt of the order, with a further one-month period available for condonation of delay upon showing sufficient cause. Since the appeal had been filed beyond the initial two-month period, a condonation application was technically required. However, no such application accompanied the appeal.
Consequently, the Commissioner (Appeals) dismissed the appeal solely on the ground that it had been filed beyond the prescribed limitation period without any application seeking condonation of delay.
Before the Tribunal, the appellant argued that the omission was not deliberate. The taxpayer pointed out that the preamble to the Order-in-Original itself stated that an appeal could be filed within three months from the date of communication of the order.
Relying upon this explicit statement contained in the departmental order, the appellant believed that the appeal filed within three months was well within the prescribed time limit and therefore saw no need to file a condonation application.
The appellant contended that the department’s own misstatement of the law had created a legitimate expectation and directly caused the procedural lapse.
The Tribunal noted that Section 85 clearly prescribed a limitation period of two months, along with a discretionary power to condone delay of up to one additional month. Thus, while an appeal filed within three months was capable of being entertained, it still required a formal application seeking condonation of delay.
At the same time, the Bench emphasized that the case involved an unusual circumstance where the adjudicating authority had affirmatively represented in its own order that the appeal period was three months.
The Tribunal observed that this was not a mere omission or ambiguity but a positive and incorrect statement regarding a mandatory statutory provision. Such a statement, coming from the very authority whose order was being challenged, was capable of misleading a litigant regarding the procedural requirements for filing an appeal.
The Bench highlighted that the doctrine of legitimate expectation is a well-established principle of administrative law. When a public authority makes a representation through an official communication or order, a person acting on that representation is entitled to a degree of protection.
According to the Tribunal, it would be unjust to dismiss an appeal for failure to file a condonation application when that failure was directly caused by the authority’s own incorrect statement of law. The Bench reiterated the settled principle that a litigant should not be made to suffer because of a mistake committed by the authorities.
The Tribunal further found fault with the approach adopted by the Commissioner (Appeals), observing that the appellate authority had mechanically dismissed the appeal without examining the reasons that led to the absence of a condonation application.
The Bench stated that where the procedural defect itself was traceable to an incorrect representation made by the department, the appellate authority was duty-bound to consider those circumstances and provide the appellant an opportunity to rectify the defect rather than summarily rejecting the appeal.
The Tribunal observed that such summary dismissal effectively denied the appellant a valuable statutory right of appeal and resulted in grave injustice.
Setting aside the Order-in-Appeal dated January 12, 2017, the Tribunal restored the first appeal to the file of the Commissioner (Appeals). The appellant has been directed to file a formal application for condonation of delay, which must be considered in light of the fact that the delay was induced by the erroneous statement contained in the Order-in-Original.
The Bench also directed the appellant to participate in the proceedings and submit all relevant documents and evidence in support of the appeal. Thereafter, the Commissioner (Appeals) shall decide the matter on merits in accordance with law.
Considering that the appeal has remained pending for more than a decade, the Tribunal expressed the expectation that the Commissioner (Appeals) would dispose of the matter expeditiously, preferably within three months from receipt of the Tribunal’s order.
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