The Delhi High Court has held that the Revenue cannot pursue appeals below the prescribed monetary limit merely because the dispute has a cascading effect or involves a recurring legal issue and dismissed 9 departmental appeals concerning air travel agent services, observing that none fell within the exceptions to the binding litigation policy.

A Division Bench of Justice Avneesh Jhingan and Justice Shail Jain held that the applicable instructions prescribe a ₹2 crore monetary threshold for departmental appeals before the High Court, subject to two specified exceptions concerning the validity of statutory provisions and instruments such as notifications and circulars.

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The appeals were filed under Section 35G of the Central Excise Act, 1944, read with Section 83 of the Finance Act, 1994, challenging CESTAT’s order dated September 25, 2024.

Taking the facts from the lead appeal, the Court noted that a show cause notice dated October 19, 2015, had sought recovery of service tax on services rendered as an air travel agent. An adjudication order dated May 30, 2018, confirmed the demand. The Tribunal subsequently set aside the demand, prompting the Revenue to approach the High Court.

The questions proposed by the department concerned, among other issues, recovery of amounts allegedly retained as service tax under Section 73A(3) of the Finance Act, 1994; the nature of services involving airlines, agents and sub-agents; and the treatment of commission received from airlines and shared with sub-agents.

However, the respondents raised a preliminary objection that the appeals could not be maintained under the instructions dated August 6, 2024, because the amounts involved were below ₹2 crore.

The Revenue accepted that the disputed demand was below ₹2 crore but argued that the issue had cascading effects and should therefore be examined despite the monetary restriction.

It relied on the Supreme Court’s decision in Commissioner of Income Tax v. Surya Herbal Limited, as well as decisions of the Gauhati High Court in Central Goods and Service Tax v. M/s Pan Parag India Limited and the Patna High Court in Commissioner of Central Excise and Service Tax v. Indian Oil Corporation Limited.

The department’s position was that the wider implications of a common or recurring issue justified pursuing an appeal even where the amount in the individual case fell below the threshold.

The Delhi High Court rejected that argument after examining the successive Board instructions.

The Bench traced the evolution of the litigation policy from the instructions dated August 17, 2011.

It noted that those instructions provided two exceptions: cases concerning the validity of provisions of an Act or Rule, and cases where a notification, instruction, order or circular had been held illegal or ultra vires.

A clarification dated December 26, 2014, expressly stated that monetary limits also applied to cases of a recurring nature. It further clarified that subsequent cases involving the same party or another party should not be pursued below the prescribed limit merely because an appeal on the issue was pending before a higher forum.

Although instructions dated December 17, 2015, introduced an additional exception relating to classification and refund issues of a legal or recurring nature, that exception was withdrawn on April 3, 2018.

The August 6, 2024, instructions enhanced the monetary thresholds while retaining the other applicable terms and conditions.

The Court consequently held that no separate exception existed for cascading effects or groups of matters involving a common issue.

Distinguishing Surya Herbal Limited, the Bench observed that the Supreme Court decision concerned a CBDT circular governing appeals under the Income Tax Act, 1961.

According to the High Court, the Supreme Court had not decided the applicability of that circular. It had granted liberty to the Income Tax Department to approach the High Court and point out the alleged cascading effect.

The Bench therefore held that the decision did not assist the Revenue in overcoming the instructions applicable to the present appeals.

The Delhi High Court expressly declined to concur with the view taken by the Gauhati High Court in Pan Parag India Limited.

It examined the August 22, 2019, instructions and noted that their reference to paragraph “1.3” of the August 17, 2011, instructions was actually a reference to paragraph 3. That paragraph contained the specified exceptions, without creating any exception for cascading effects or bunch matters.

Regarding the Patna High Court decision, the Bench observed that the department had failed to bring to that Court’s notice the withdrawal, in April 2018, of the additional exception introduced in December 2015.

The Bench recorded the monetary limits under the instructions considered in the judgment as ₹60 lakh before CESTAT, ₹2 crore before High Courts and ₹5 crore before the Supreme Court.

It identified the surviving exceptions as challenges concerning the constitutional validity of provisions of an Act or Rule, and cases involving notifications, instructions, orders or circulars held illegal or ultra vires.

The Court also expressed concern over departmental appeals being filed contrary to the litigation policy.

“It is noticed regularly that Commissionerate’s are filing appeals despite the binding instructions issued with an object to reduce litigation,” the Bench observed.

It suggested that the department, if it considered appropriate, take up the matter with the Board or Secretary to ensure uniform implementation of the instructions and circulars.

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