workshop on understanding the amended law of service tax dated 03.09.2014 session 4
DESCRIPTION
Workshop on Understanding the Amended law of Service TaxTRANSCRIPT
CORPORATE KNOWLEDGE FOUNDATION
Presents
Workshop
On
Understanding the Amended Law of Service Tax
Conducted by
Dr. Sanjiv AgarwalFCA, FCS
Wednesday, 3rd September, 2014 @ Mumbai © Dr. Sanjiv
Agarwal
1
Session – IV
Adjudication
of
Demand
in
Service Tax2
ADJUDICATION OF DEMAND IN SERVICE TAX
This presentation covers –
• Triggers for SCN
• Show Cause Notice – Contents, when and how
• Handling SCN’s
• Adjudication process
• Issuance of demand order
• Consequences / options after Order
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4
TRIGGERS FOR SCN
• Where any service tax has not been levied or paid, or has been short
levied or short paid, erroneously refunded including suppression
cases (Section 73 )
• Any enquiry which makes officer believe that it may result into a
demand / tax dues
• Any audit conducted by the Department which raises audit para for
possible demand / tax dues
• Any summons issued to assessee which may lead to any demand /
tax dues
• Service Tax collected but not deposited (section 73A)
• Cases of best judgment assessment (Section 72)
• Levy of penalties (sections 76, 77, 78)
• Wrong availment of Cenvat credit
• Rejection of refund claim
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DEMAND OF SERVICE TAX
What is Demand Demand – A legal rightA claim / request made as a rightDemand of tax – something more than what is dueSomething which is being demanded as a legal
rightDemand of amount of tax not paidBeyond assessment / voluntary action
When does a demand arise in Service TaxTaxable service is renderedValue of taxable services leads to payment of
service taxCharge of service tax (section 66B)Person liable All these to be present
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DEMAND OF SERVICE TAX Section 66B Charge of Service Tax
(Levy of Service Tax @ 12.36% of the value of taxable service)
Section 68(2) Charge of Service Tax on services
under reverse charge
Section 67 Valuation of taxable service for charging
Service Tax
Section 68 Payment of Service Tax (Rule 6)
Section 69 Registration of assessee / person liable
[Rule 2(1) (d); Rule 4]
Section 70 Furnishing of returns under self assessment
[Rule 7]
If these sections are not complied with, situation for demand of Service
Tax/ penalties may arise.
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DEMAND OF SERVICE TAX
Recovery of Service Tax not levied or paid or short levied or short paid or erroneously refunded (Section 73)
Demand involvesNon- payment / short payment / erroneous refund
for : Eighteen months (one year upto 27.05.2012 ) in normal
course five years in cases of suppression, fraud, etc.
From Relevant dateSteps involved
Issuance of Show Cause Notice (SCN)Adjudication ( Section 83A)Determination of demandDemand confirmation (subject to Appeal)Recovery Proceedings
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SHOW CAUSE NOTICE • Adjudicating authority can issue / serve Show Cause Notice (SCN) to the
person liable asking him to show cause why recovery of service tax not be
made from him
• SCN to be issued within following time limits-
Short levy/ short payment / erroneous refund arising due to specified reasons within - five years from the relevant date
Short levy / short payment / erroneous refund arising due to any other reasons – within eighteen months (w.e.f. 28.05.2012) from the relevant date
Specified reasons may be one or more of following –
Fraud
Collusion
Willful mis- statement
Suppression of facts
Contravention of any provisions / rule
with the intention to evade service tax
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SHOW CAUSE NOTICE What is Relevant Date
• Where service tax has not been levied/paid/short levied /short paid:
When return filed – date of filing of return
When return not filed –due date on which return was to
be filed
Where revised return filed – date of filing of revised return
Any other case- date on which service tax should have
been paid
• Where service tax is assessed on provisional basis- date of
adjustment of service tax after its final assessment
• Where service tax has been erroneously refunded - date of such
refund
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SHOW CAUSE NOTICE
What should SCN contain
• SCN should include / specify
Brief facts
Specific allegations against the assessee / noticee
Amount of service tax sought to be recovered
Basis on which such service tax is payable
Category of taxable service under which tax is sought to be levied
Proposed penalties
Documents on which reliance is made (RUDs)
Time within which show cause must be shown
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SHOW CAUSE NOTICE
Understanding SCNs
• Before any SCN is issued, it is desirable and expected that a written
communication be sent to the assessee so that does not plead
ignorance, non intimation or innocence at a later stage. Such letter
may contain necessary particulars about period, nature of demand,
amount, non compliances etc.
• Department raises demands by way of SCN to assessee when
irregularities are observed or suspected.
• SCN is a mandatory requirement for raising any demand of
duty/service tax.
• A SCN should follow certain principles to be legally sustainable.
• SCN should be clear, precise and unambiguous.
• The basic aim of SCN is to provide a reasonable opportunity to
assessee to present his case or show cause to the proposed demand
before any demand is confirmed.
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Understanding SCNs
• SCN to be issued timely. The time limit for issuance of SCN is eighteen months
/ five years from the relevant date ,i.e., date of filling of the return. Belated
SCNs are liable to be dropped.
• If any SCN is to be issued on the basis of audit para, it would be desirable that
the audit team provides inputs / draft of SCN to the adjudicating authority
with necessary documentary evidences and enclosures.
• Writ Jurisdiction is not available against a SCN where matter requires factual
examination.
• SCN cum-demand notice merely on the basis of audit para without
documentary evidences may not be sustainable.
• SCN is the first limb of principle of natural justice – no one should be
condemned unheard.
SHOW CAUSE NOTICE
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Understanding SCNs – Natural Justice
• Basic requirements of principles of natural justice are:
Full information about charges to the party
Allowing party to state his defence i.e. through personal hearing
Unbiased authority
Reasoned Order
• The natural justice hangs on the following elements –
No man shall be judge in his own cause
Both sides shall be heard – ‘audi alteram partem’
The parties to a proceeding must have due notice of when
the Court / Tribunal will proceed
The Court / Tribunal must act honestly and impartially and
not under the direction of any other person to whom
authority is not given by law.
SHOW CAUSE NOTICE
SHOW CAUSE NOTICE
Adjudicating SCN - Natural Justice Principle
• not capable of a definition
• root of judicial process
• to check arbitrary exercise of power
• duty to act fairly
• to secure justice or to prevent miscarriage of justice
• No person should be condemned or held guilty unheard or an
opportunity should be given for being heard
• Orders without giving adjournment sought
• Denial of cross examination
• Non- return of RUDs
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SHOW CAUSE NOTICE
Understanding SCNs
• Reasonable time may be given for adjudication to take place.
Issue of order one day after the SCN has been held to be bad in
law [Ganesh Polytex Ltd. v Union of India (2011) 264 ELT
35(Allahabad)].
• A proper SCN has to specify the demand, i.e., quantify the
demand and liability in clear terms
• A letter from the Department is not a proper SCN [CCE v.
Merchant Impex (2012) 276 ELT 458 (Karnataka)]
• Periodical or follow-on SCN is issued when the issues under
consideration are not decided and such issues continue for a
longer period.
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SHOW CAUSE NOTICE Handling of Show Cause Notice
• Proper and detailed reply to be submitted to the Department
along with annexures and supporting documents
• Reply should be submitted on time as specified in SCN
• Reply to all departmental letters on time or seek extention of
time
• Submit information as desired by the Department during the
course of adjudication
• Opt for and attend to personal hearings
• Don’t seek adjournments , if it is possible to attend the hearing
• In case personal hearing cannot be attended , adjournment
should be demanded in writing citing the reasons
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ADJUDICATION OF SCN
Principles of Sound Adjudication
• The authorities are quasi-judicial authorities.
• Adjudication is a quasi judicial function
• Duty bound to justify their existence and carry
credibility with the people by inspiring confidence
in the adjudication process.
• No economic loss is caused on both sides.
• No injustice with innocent person.
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ADJUDICATION OF SCN
• Adjudication pre-supposes issuance of a show cause notice
(SCN) – an intimation to show cause, explain or defend the
proposed action as mentioned in the SCN.
• Adjudication is a legal process of deciding on issue relating
to tax matters through departmental authorities.
• Adjudicating proceedings is important aspect because it
provides an opportunity to the assessee to be heard and
SCN before any action is taken against him.
• Adjudication is an important function of Revenue Officers
• Powers of adjudication are subject to jurisdiction and
monetary limits for different officers
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ADJUDICATION OF SCN
Adjudication Process
• SCNs are issued under provisions of the Finance Act,
1994 charging any person for contravention of any
provisions of the said Act and rules and/or notifications
issued thereunder and penal action is proposed
• Competent officers of the Department adjudge the case
• Adjudication is a process involving various steps
• Hearing of other party/ defence grounds to be
considered
• Issuance of adjudication order
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• Issue of SCN is a pre-condition to a proper adjudication.
• Adjudication proceedings shall be conducted by observing
principles of natural justice.
• Adjudicating order should comply with the principle of natural
justice. [Meenakshi Associates Pvt. Ltd. v. CCE, Noida (2009)
245 ELT 362 (Cestat, Delhi); Afloat Textiles Pvt. Ltd. v. CCE,
Vapi (2007) 215 ELT 198 (Cestat, Ahmedabad)]
• In case of multiple show cause notices, adjudication shall be
done by the authority competent to adjudicate the SCN
involving highest amount of tax/duty.
• For genuine reasons, three adjournments should be given to
assessee opportunity of hearing for three occasions before
passing any order.
ADJUDICATION OF SCN
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ADJUDICATION OF SCN
• Cases remanded back for de novo adjudication should be
decided by authority which passed the remanded order.
• Adjudicating authority cannot pass two orders on same SCN,
though corrigendum may be issued on minor issues without
substantially altering the order
• Order can not travel beyond the scope of SCN. [MCnally Bharat
Engineering Co. Ltd. v. CCE (2012) 25 STR 496 (Jharkhand)]
• Adjudicating order should be in accordance with judicial
discipline which must be strictly adhered to.
• Order of adjudication must show application of mind and be self-
speaking/reasoned order. Reasons for order would ensure justice
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ADJUDICATION OF SCN
• Adjudication order must be a speaking order giving clear findings
on all the points raised by the defence dropping the proposed
allegations or rebuttal of defence points.
• Adjudication order has to be dated and signed by the
adjudicating authority.
• Adjudicating authority should communicate the order/decision
within a reasonable time after the personal hearing is held (say,
upto one month). However, this does not happen in reality and
even the time taken is more than six months in many cases.
• Conditional orders or orders subject to verification are to be
avoided and should not be passed.
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ADJUDICATION OF SCN
• Adjudication orders must be dispatched by registered post
acknowledgement due.
• The period of filing of appeal has to be reckoned from the
date of receipt of order.
• Finance Act, 2014 stipulates time limit for adjudication of
SCN within :
Six months (of SCN) extended period not invoked (18
months)
One Year (of SCN) extended period invoked (upto 5
years)
• But language used is vague – ‘ where it is possible to do so’
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ADJUDICATION OF SCN
De Novo Adjudication
• De Novo - a new hearing / a hearing for the second time
• DE Novo adjudication can be sought for the following reasons- Non-speaking order Non-acceptance of evidence Non-consideration of the submissions Non-application of mind by the adjudication authority Submission of additional evidences to higher appellate
forum which were not considered by lower authorities Non-furnishing of the relied upon document in the SCN Denial of natural justice such as appropriate notice /
reasonable opportunity / sufficient time not given to assessee
Non-consideration of evidence by the adjudicating authority
ADJUDICATION OF SCNJudicial Discipline / Precedent
• Order can not be passed which is inconsistent with judgment
of Apex Court
• Tribunal’s decision have overriding effect over departmental
clarification
• Larger Bench decisions to be followed by smaller Bench.
• Decision delivered on peculiar set of facts can not be applied
to situation in different set of facts
• One can not pick a sentence from here and there in judgment
and characterize it to be ratio of case.
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ADJUDICATION OF SCN
Reasoned / Speaking Order
• Countering grounds / defence
• Order should give reason for arriving at conclusion showing proper
application of mind
• Order should be supported by reasons of rationality
• Out come of observance of principles of natural justice
• Orders without assigning any valid reason and without discussion are not-
speaking orders
• Mere reproduction of submissions in the body of order is not enough.
Findings of deciding authority on those submissions is necessary.
• Order must give specific findings on submission, judgments relied upon
and distinguishing features pointed out by both parties
• Cryptic orders not bringing out reason why assessee faced demand set
aside. 26
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ADJUDICATION POWERSS.No.
Central Excise Officer
Amount of service tax /CENVAT credit specified in a notice for the purpose of adjudication under section 73/ 83A
1 Superintendent of Central Excise
< Rs.1 lakh (excluding cases relating to taxability of services or valuation of services and cases involving extended period of limitation.)
2 AC/DC of Central Excise
< Rs. 5 lakhs (except cases where Superintendents are empowered to adjudicate)
3 JC of Central Excise <Rs. 5 lakhs >= 50 lakhs
4 Addl. Commissioner of Central Excise
< Rs. 20 lakhs >= Rs. 50 lakhs
5 Commissioner of Central Excise
Without limit
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ADJUDICATION OF SCN
• In Shree Renuka Sugars Ltd v CCE, Mangalore (2013) 293 ELT 616
(Cestat, Bangalore), it was held that adjudicating proceedings has to be
based on evidences relied upon in show cause notice and adjudication
order could not go beyond those evidences. [ Also see: Welspun Corpn.
Ltd v. CCE, Vadodara-II (2013) 40 STT 327 (Cestat, Ahmedabad) ]
• In Vishnu Steels v. Union of India (2014) 299 ELT 292; (2013) 40 STT
408;35 taxmann.com 75 (Bombay), it was held that adjudication is
complete only after authority dispatches order. Prior to such dispatch,
adjudication remains pending, therefore application for settlement filed
before date of dispatch of order but after signing thereof, held to be
valid.
• In Sunita Ispat Pvt. Ltd. v. CCE (2014) 300 ELT 326 (Allahabad), it was
held that there must be a demand in the SCN which is to be confirmed in
the order.
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ADJUDICATION OF SCN• In Union of India v. Madras Steel Re-rollers Association (2013) 38 STT 346 (SC), it was
held that assessing/adjudicating authorities, appellate and revisional authorities are
creatures of Act and are quasi-judicial authorities. The adjudication authorities must pass
their order by exercising independent mind and without impartiality. While doing so, they
are required to consider various evidences made available to them
• In Bestilo Packaging Pvt. Ltd v. CCE, Chandigarh 2012 (25) STR 440 (Cestat, Delhi), it
was held that adjudication order cannot be based only on audit observation which were
basis to issue show cause notice when the authority fails to examine the issue
independently.
• In Delhi Public School Society v. CST, New Delhi (2014) 43 GST 421; 41 taxmann.com
377; (2013) 32 STR 179 (Cestat, New Delhi), where Department issued corrigendum to
show cause notice to convey the arithmetical computation of tax and such corrigendum
was served after expiry of normal time-limit, it was held that in fact by corrigendum, only
arithmetic re-computation of alleged liability was conveyed and there was no fresh
attribution of fact or law was made against the assessee. Hence, show-cause notice
which was served in time could not be considered as time-barred.
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ADJUDICATION OF SCNIn TRF Ltd. v. CCE & ST, Jamshedpur (2013) 293 ELT 172
(Jharkhand), it was held that–
a) Challenge to SCN is not ordinarily permissible. It is justified only in exceptional circumstances (Article 226 of Constitution).
b) SCN should not show pre-determined mind of department. Such a notice cannot be treated to be a notice to show cause in any manner.
c) Reasons for forming opinion against assessee is required to be reflected in the notice itself. It cannot render notice illegal as being issued with pre-determined mind. However, notice reflecting in unequivocal terms decision on contentious issues rather than putting question to assessee, may sometimes reflect pre-determined mind of issuing authority. This distinction is required to be found out from facts of each case.
d) Neither issuing authority nor assessee should make any prestige issue in SCN. It is especially so as quasi judicial proceedings are initiated by officers exercising vast statutory powers and jurisdiction, which should not be misunderstood to have been exercised to humiliate person holding position in assessee company.
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ADJUDICATION OF SCN
Call Book Cases
• Why some cases cannot be adjudicated
Department in appeal
Injunction from Courts
Contesting of CERA audit objections
• Need for monthly review
• March, 2013 – 8637 cases in call book
involving Rs. 21340 Crores
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ADJUDICATION OF SCN
Consequences of / Options on Adjudication
• To deposit full demand with interest and penalties within 30 days to avail an
option to only pay @ 25% of total penalty under section 78.
• To deposit demand with interest and entire penalties after 30 days of receipt
of order.
• To file an appeal to the Department against the order –
within 2 months from the receipt of the order Commissioner (Appeals)
within 3 months from the receipt of the order Cestat
• For Order passed below the rank of the Commissioner, appeal is to be filed
before Commissioner (Appeals)
• For Order passed by the Commissioner or Commissioner (Appeals), appeal is
to be filed before Cestat
• W.e.f. 6.08.2014, mandatory pre-deposit has to be deposited
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THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur / Delhi