Circular No. 1023/11/2016-CX
F. No. 206/02/2010-CX.6
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
New Delhi, the 8th April, 2016
All Principal Chief Commissioners/Chief Commissioners of Customs, Central Excise & Service Tax;
All Director Generals/Directors of Customs, Central Excise & Service Tax;
All Principal Commissioners/Commissioners of Customs, Central Excise & Service Tax holding charge of Chief Commissioners;
Subject: – Adjudication of Show Cause Notices issued on the basis of CERA/CRA objection reg.
Central Board of Excise and Customs has issued instructions from time to time regarding adjudication of show cause notices issued on the basis of audit objections of Central Excise Revenue Audit (CERA) and Customs Revenue Audit (CRA), which is receipt audit wing of the Comptroller and Auditor General of India. The pendency position of such notices in the Call-Book has been reviewed and found to be larger than the number of audit objections which have been converted into Audit Paragraphs. After due examination, it was felt that there was a need to review the past practices and issue revised consolidated guidelines to provide a clear procedure for the field officers to deal with the CERA / CRA objections. The Tax Administration Reform Commission (TARC) report, representations received form trade and inputs received from field officers also indicated that there was a need to review past instructions to improve the ease of doing business and bring certainty regarding tax liability of an assessee. Accordingly, all past circulars and instructions on the subject are hereby rescinded and following procedure is prescribed for dealing with audit objections raised by CERA / CRA.
2. An audit objection may mature into an Audit Paragraph and become part of Audit Report periodically submitted by the office of CAG to the Parliament. Various stages involved in the life cycle of an audit objection and the timeliness prescribed for replying thereto may be noted and strictly adhered to by the departmental officers. These stages and timeliness are as follows :
(i) Half Margin: Half margin/audit memo is issued to the Superintendent of the Range during the course of audit on points noticed by CERA. The half margin is to be replied to immediately and in any case before the end of the audit of Range/Division/ Commissionerate concerned.
(ii) Local Audit Report (LAR): LAR containing audit paragraphs is generally issued by the headquarters of the local CAG Office to the Assistant/ Deputy Commissioner generally within one month of the completion of the audit by the headquarters of the Director General or Principal Director of Audit. The Assistant/Deputy Commissioner is expected to reply to the LAR within thirty days.
(iii) Statement of Facts (SoF): SoF is issued to the jurisdictional Commissioner/Addl. Commissioner on the major audit observations which may feature in Audit Reports. It has been decided that SoF shall be replied within six weeks where the audit objection is not contested. Where the audit objection is contested and the amount of duty involved in the audit objection is rupees fifty lakhs or less, SoF shall be replied with the approval of the Commissioner and for audit objections involving higher amounts of duty, SoF shall be replied with the approval of the Chief Commissioner. Detailed reasons for contesting the audit objection should be recorded in the file quoting relevant case-laws and circulars, if any.
(iv) Draft Audit Para (DAP): Potential audit paragraphs considered fit for inclusion in the Audit Report are issued by the CAG officer to the Ministry (CBEC) as DAPs. CBEC is expected to reply to DAP within four weeks of its receipt.
(v) Audit Paragraphs: CAG’s office, after considering the reply of the CBEC may convert a DAP into Audit Paragraph. Audit Paragraphs are periodically compiled and are submitted by the office of CAG to the Parliament in the form of a report called Audit Report. CBEC is expected to furnish an Action Taken Note on each of the paragraphs in the Audit Report. The ATNs received are examined by the office of CAG and duly vetted ATNs are submitted to the PAC. The process of submission of ATN, due vetting and submission to PAC is expected to be completed within four months of submission of Audit Report. At both the DAP and Audit Para stages, it is essential that field formations concerned give a detailed reply including the present status of the objection to facilitate a meaningful reply by CBEC.
3. One of the reasons for pendency in adjudication of CERA/CRA objection is the lack of mechanism for periodic reconciliation of the status of audit objections. It has, therefore, been decided that a quarterly coordination meeting would be held in each of the Zones by the officers of the revenue department with the officers of CAG to ensure that the list of audit objections, replies given by revenue and final view taken by CERA/CRA can be discussed. Chief Commissioner shall identify a nodal officer, [preferably Additional Commissioner/ Joint Commissioner, CCU] to coordinate and attend such meetings. An audit objection is considered settled when the views of CERA/CRA and revenue converge due to either CERA/CRA dropping the audit objection or revenue admitting the audit objection.
Issue of Show Cause Notice:
4.1 Audit objection at LAR and SoF Stage : Once an LAR or SOF is received, it should be replied by the department forthwith. Based on the reply sent by the department, they can be divided in following categories :
4.1.1 Where the department has agreed with the audit objection on merits: Audit objections where department has agreed to the merits of the objections constitute a large proportion of the audit objections. In such cases, Show Cause Notices should be issued immediately. Such cases should not be transferred to the Call-Book and should be adjudicated forthwith and revenue realized in cases of confirmed demand at the earliest.
4.1.2 Where the department has not agreed with the audit objection on merits : No show cause notice should be issued in cases where department has not agreed with the audit objection on merits. In such cases audit objection should be replied following the procedure laid in clause (iii) of paragraph 2.
4.2 Show Cause Notice at the direction of the Board: Where a contested audit objection has become DAP and on examination it is found by the Commissioner (PAC) or joint Secretary (Customs) in CBEC that the objection should have been admitted, they may give necessary directions to the field to issue show cause notice and adjudicate the case on merits.
4.3 No transfer to call-book: It may be noted that the procedure of transferring the show cause notice arising out of CAG objection to call-book has been discontinued and in future no such show cause notice should be transferred to the call-book. Circular nos 162/73/95-CX dated 14.12.1995 and 385/18/98-CX dated 30.03.98 on transfer of cases to the call book arising out of CAG objections stands amended accordingly.
Adjudication of Show Cause Notices :
5.1 Adjudication of SoFs/LARs not converted into DAP: SoFs/LARs are replied by the Commissionerate and therefore these cases may be adjudicated after ensuring that the reply given by the Commissionerate is available on record.
5.2 Adjudication of admitted DAPs/APs : DAPs are replied by the Ministry (CBEC) and therefore adjudication of DAPs should be undertaken after ensuring that the reply given by the Ministry (CBEC) is available on record.
5.3 Adjudicating authority is a quasi-judicial authority and is legally bound to adjudicate the case independently and judiciously taking into consideration the audit objection by CERA/CRA, reply of the department as referred above, reply of the party, relevant legal provisions, case laws on the subject and relevant circulars of the Board, if any. It is expected that the factum of SCN being a consequence of CERA/CRA objection, would be incorporated in the brief facts of the case in the adjudication order.
5.4 Where an issue was under audit objection and has been subsequently either judicially settled, by say judgment of Hon’ble Supreme Court or where a circular of the Board has been issued on the subject, further correspondence with the Board on the audit objections, even if they have become DAPs, is not necessary and such cases may be adjudicated on merits taking into consideration the latest judgments and circulars.
6.1 All audit objections relating to Central Excise and Service tax issued prior to 1.3.2014 shall be compared with the pending Action Taken Notes (ATNs), received from the office of CAG, enclosed as Annexure B with the Circular. For Customs, the list shall be separately issued. Show Cause Notices (SCNs) relating to audit objections figuring in the list should not be adjudicated and further action may be taken on them in consultation with the Commissioner (PAC). The rest of the objections stand finally vetted by CAG Audit with no further comments which means that the reply of the department has been accepted by the CAG office. SCNs relating to these objections may be taken up for adjudication on merit, including those in the call-book, following the procedure prescribed in paragraph 5.
6.2 For audit objections raised after 1.3.2014 and till the date of issue of this circular, where SCNs have been issued, list of pending ATNs would be issued in due course. These show cause notices pertaining to these objections may be adjudicated, mutatis-mutandis following the procedure prescribed in paragraph 6.1 read with paragraph 5.
7. All audit objections in Customs, Central Excise and Service tax received after the issue of this circular or past audit objections where no show cause notice has been issued shall be dealt as per the provisions of this circular.
8. Difficulty, if any, in implementing the circular may be brought to the notice of the Board. Hindi version would follow.
(Shankar Prasad Sarma)
Under Secretary to the Government of India
ANNEXURE – A
DETAILS OF THE AUDIT OBJECTION
LAR/ SoF No.
Audit Para No.
Gist of the Objection
Gist of the Department’s reply
Relevant Board’s Circular/Instruction/Judgment, in any
NOTE : The copy of audit objection and the reply should be enclosed with this proforma.