Jurisdictional Issues — Challenges before CESTAT

In an adversarial judicial system, the determination of one's own limit, mostly at the instance of either of the parties, has always been a challenging task as such an intriguing issue not only generates an element of biasness but also exhibits the limits within which a court of law has to function. To put it differently, the determination of jurisdiction to entertain and decide a dispute inter se is on the court itself before which the parties are litigating. The issue assumes more significance when the Court gives a decision in support of its jurisdiction and when against it as not having jurisdiction would become an appealable order while having jurisdiction would place the matter in the category of an interlocutory order.

In this world of rapid communication development and technological advancement courts of law are often confronted with jurisdictional issues over e-commerce disputes or cyber crimes, etc. which are being committed outside the territorial boundaries but are violating the inland laws as well as adversely impacting the nationals of one's own country, whose protection remains the primary function of the State, apart from the fact that switching over to a new set of laws from the conventional laws — be it to the Income Tax Act, 1961¹ or electronic evidence from the age-old Evidence Act, 1872² or to the global regime of goods and services tax (GST) from indirect inland taxation laws are also having serious repercussions and bearing on the jurisdictional issues. It is in this background that an attempt is made to broadly define the jurisdiction of the Customs Excise and Service Tax Appellate Tribunal (CESTAT), which was established on 11-10-1982, that is, 40 years back.

As we know CESTAT comes into existence through Section 129(1)³ of the Customs Act, 1962 (hereinafter referred to as “the Customs Act”) and its territorial jurisdiction is defined under Section 1(2)⁴ while jurisdiction over the subject-matter and pecuniary aspects are enumerated under Sections 129-A⁵ and 129-C⁶ respectively. Before amendment was brought into Section 1(2) of the Customs Act through the Finance Act of 2018⁷ w.e.f. 29-3-2018, it was held to have no authority to deal with contraventions or offences committed outside India by any person.

It is worth mentioning here that almost in all judicial forums, cases are either won or lost due to some narrow technical considerations, including some wrong placement of the headnotes in legal journals, which are usually taken as true on its face value and it has a wider repercussion since unsettling the same would be considered as breaching the judicial precedent. For instance, a defective head noting of the only constitutional Bench judgment on the appointment of District Judges in Chandra Mohan v. State of U.P.⁸, passed on 8-8-1966 has deprived all lower judicial officers from becoming eligible for direct recruitment as District Judges for the last 5 decades, despite the fact that the findings in the said decision was that not all public servants were eligible and only persons from judicial services and advocates were eligible for the post of District Judge covered under Article 233(2)⁹ of the Constitution of India. In the same way, while dealing with the pre-amended Customs Act as existed before 29-3-2018 concerning territorial jurisdiction, the decision of this Tribunal was followed, passed in Hi Lingos Co. Ltd. v. Collector of Customs¹⁰ that was confirmed as the leading case by the Supreme Court in the field but a close look at the said decision would reveal that one of the two members had opined that such misdeclaration of description of goods was within the mischief of Section 112¹¹ of the Customs Act even though the importers were in a foreign country. It was another thing that penalty under Section 112 was set aside for a different reason. Further the appeal in the Supreme Court was dismissed for non-prosecution for which it also cannot be said that the order had received the approval of the Supreme Court.

In the author's opinion, the correct analysis of the extent of territorial jurisdiction is required to be attempted. It has to be borne in mind that no municipal law/State law can ever be extended beyond the territorial boundaries of a country including its continental shelf and exclusive economic zone, whether or not there is an express provision in the Act or statute to stretch the same beyond the country’s territory since the same would amount to encroachment upon the territorial authority of any other State. It is therefore defined in the statute of the country that the said Act has its application within the territorial limits of the country. Likewise in the case of penal statute, it is clearly defined that the “act or its violation” should have its effect and consequence within the territorial limit of the said country. If violation of the provision of statute is committed within the said country, then the consequence in conformity to the legal provision of the country would ensue, no matter whether the violator is a resident of the country or an alien. It is, therefore, necessary to determine if the “Act or its omission” committed is in violation of law and accordingly to punish the violator and not to determine if such violation has been committed by a legal person based in the country or not.

Moreover, a sovereign country asserts extra-territorial jurisdiction in criminal laws though the principal basis of jurisdiction over crime is the territorial principle which permits a State in control of its territory to prescribe, adjudicate and enforce its law in the territory. The crime is said to be committed even partly in a State’s territory when any essential constituent element itself is consummated in the territory. Therefore, when an offence's adverse effect endangers a State’s security or Government’s function, extra-territorial jurisdiction is enforced. The customs law from an international criminal law prospective requires a consideration of the classification between criminal law and administrative law and the same is required to be placed under the administrative penal law though in a legal sense it is not penal but nevertheless retributive.¹²

In a nutshell, the discussion above would reflect the principle that whether a violation of an Act has an adverse effect on the State’s interest, the same violation is to be dealt with by the State itself and the violator is to be penalised irrespective of his/her nationality or place of residence. It is in this prospective, the jurisdiction of a sovereign State is to be understood though the general understanding of jurisdiction is based on the nationality of the perpetrator since nationals of a State remained under the sovereignty and owe their allegiance to it despite the fact that they are free to travel and reside outside its territory.

The issue of both pecuniary jurisdiction and jurisdiction over the subject-matter is well addressed by Sections 129-C and 129-A of the Customs Act respectively. While the Division Bench of the Tribunal is vested with unlimited pecuniary jurisdiction and also the authority to regulate its own procedure for functioning, a Single Member Bench is empowered to exercise jurisdiction over cases having less than Rs 50 lakhs of financial implications concerning duty component or fine or penalty other than determination of rate of duty or value of goods. Moreover, going by the literal meaning of the statute, a Single Member cannot admit an appeal for hearing either by ordering for removal of defects or by condoning the delay in filing an appeal nor even by permitting hearing of an appeal of less than Rs 2 lakh financial implications, but it can certainly hear an appeal that has been assigned to it by the President or his/her authorised representatives but that by itself never delimits its power or weaken the precedent value of the order of the Single Member Bench and makes it subservient to the order of a Division Bench, like that of the order of Benches of the High Court where letter patent appeal provision allows appeals against the order of Single Member Bench to the Division/different Bench of the same High Court. It is required to be added here that there was no direct provision for constitution of a larger Bench of CESTAT except that it has been evolved through judicial process and addition of sub-clause (5) to Section 129-C w.e.f. 31-5-1990 which adds a feather to it. The coterminous provisions are either expressly available or mutatis mutandis followed in respect of appeals concerning service tax and excise matters.

The transition from one system to another is invariably fraught with strong resistance to change. In the indirect taxation field, the introduction and adoption of the GST mechanism has been experiencing acceptability jerks besides operational difficulties. Taxpayers, mostly from the industry sectors, are running from pillar to post to have their grievances redressed but jurisdictional issues keep their expectations away from an immediate solution. It can mainly be attributed to the non-availability of the GST Tribunal and the lack of jurisdiction of CESTAT to deal with GST matters. However, a close look at the situation would reveal that the disputes per se are mainly linked to the improper transition process adopted by the assesses or that the dues under the erstwhile Excise Act and service tax laws were not matured at the time of transition besides reluctance of the Benches to hear the disputes due to contradictory decisions concerning the jurisdiction of CESTAT to hear and adjudicate such disputes. I would, at this juncture, place the relevant text of Section 174¹³ of the Odisha Goods and Services Tax Act, 2017 on record for assessment of the jurisdiction of CESTAT so as to provide a speedy, effective, and efficacious remedy to the justice seekers/stakeholders.

Section 174 repeal and savings clause read at sub-section (2)

The repeal of the said Acts and the amendment of the Finance Act, 1994¹⁴ (hereafter referred to as “such amendment” or “the amended Act ”, as the case may be) to the extent mentioned in sub-section (1) or Section 173¹⁵ shall not—

(a) … ( b) * * *

(f) affect any proceedings including that relating to an appeal, review or reference, instituted before, on or after the appointed day under the said amended Acts or repealed Acts and such proceedings shall be continued under the said amended Acts or repealed Acts as if this Act had not come into force and the said Acts had not been amended or repealed. ( emphasis supplied)

The above provision would clearly reveal that any proceeding, including an appeal if filed after the appointed day under the amended/repealed Act also, the same shall be continued under the said Act as if the GST Act has not come into force and the previous Act has not been amended or repealed. A parting note, therefore, could be that the presence of CESTAT would still be felt even after the extinction of certain laws by way of repeal.