A.K.Parthasarathy
Central Excise
NEW Section 11 A of the Central Excise Act Vivisected after the Budget 2011
(A) Demand of Excise Duty — Before Issue of Show Cause Notice- Section 11A (1) (b) ONE YEAR PERIOD.
(A)[i] Other than the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this act—
In Sub-section (1) Clause (b) The Person Chargeable with duty may, before issue of notice under clause (a) pay on the basis of –(i) his own ascertainment of such duty; or (ii) duty ascertained by the Central Excise Officer, along with interest payable thereon under section 1 1AA.
(A)[ii] Intimation to the Central Excise Officer-No show cause notice will be issued.
Under Sub section (2) of Section 1 1A, the person who has paid the duty under clause (b) of Sub section (1) of Section 11 A shall inform the central excise officer of such payment in writing, who, on receipt of such information, shall not issue any notice under clause (a) of Sub Section 1 1A in respect of the duty so paid or any penalty leviable under the provisions of this Act or the rules made there under.
(A)[iii] Issue of show cause notice when duty payable fall short of the actual duty payable.
Under Sub Section (3) of Section 1 1A, where the central excise officer is of the opinion that the amount paid under clause (b) of Section 1 1A (1) falls short of the amount actually payable, then, he shall proceed to issue the notice as provided under clause (a) of Section 11 A(1) for demand of excise duty within one year from the date of receipt of information under sub-section (2) of Section 1 1A.
(A) [iv] Demand of Excise Duty – ISSUE OF SHOW CAUSE NOTICE FOR ONE YEAR PERIOD. Section 11A (1) (a).
[Other than the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this act
Under Sub-section (1) Clause (a) of Section 1 1A the Central excise Officer Shall, within one year from the relevant date, issue show cause notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice along with interest under Section 11AA.
(B) ISSUE OF SHOW CAUSE NOTICE FOR 5 YEAR PERIOD.
Under Section 1 1A(4) where any duty of excise has not been levied or paid or has been short levied or short-paid or erroneously refunded, by the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this act or for rules made there under with intent to evade payment of duty.
Central Excise officer shall demand excise duty by issuing show cause notice, invoking five year period from the relevant date along with interest under section 1 1AA and penalty from any person chargeable with the duty.
(C) DEMAND OF EXCISE DUTY – INTERNAL AUDIT, INVESTIGATION & VERIFICATION. –BY INVOKING 5 YEAR PERIOD. WITH 50% PENALTY EQUIVALENT TO EXCISE DUTY.
Under Section 11A(5) during the course of internal audit, investigation and verification, if it is found that any duty of excise has not been levied or paid or has been short levied or short-paid or erroneously refunded for the reason mentioned in clause (a) or (b) or (c) or (d) or (e) of sub-section (4) of Section 1 1A, the details relating to the transaction are available in the specified record, then, the central excise officer, within five year period from the relevant date, issued show cause notice for demand of excise duty on the person chargeable with the duty along with interest under section 11AA with penalty equivalent to 50% of such duty demanded.
(C) (i) Demand of Excise Duty – Before Issue of Show Cause Notice- Section 11A (6) – PENLATY EQUAL TO 1%OF SUCH DUTY PER MONTH BUT NOT EXCEEDING A MAXIMUM OF 25% OF THE DUTY.-
INTIMATION TO CENTRAL EXCISE OFFICER IN WRITING FOR DUTY PAYMENT.
Under Section 1 1A (6) if any person chargeable with duty under Section1 1A (5), before issue of show cause notice on him, pay the duty in full or in part, as may be accepted by him along with interest payable thereon under section 11AA and penalty equal to 1% percent of such duty per month to be calculated from the month following the month in which such duty was payable, but not exceeding a maximum of 25% of the duty and inform the central excise officer of such payment in writing.
(C) (ii) AFTER RECEIPT OF INTIMATION LETTE FROM THE PERSON FOR PAYMENT OF DUTY , NO SHOW CAUSE NOTICE WILL BE ISSUED:SECTION 11A(7)
Under Section1 1A (7) the central excise officer, on receipt of information 1 intimation under Section 1 1A(6) shall, (i) not issue any show cause notice in respect of the amount so paid and all proceedings in respect of the said duty shall be deemed to be concluded where it is found by the central excise officer that the amount of duty, interest and penalty as provided under section 1 1A (6) has been fully paid; (ii) the excise officer shall proceed for recovery of such amount if found to be short-paid in the manner specified under Section 1 1A (1) and the period of one year shall be computed from the date of receipt of such information.
(D) COMPUTATION OF DUTY DEMAND PERIOD- 1 YEAR OR 5 YEARS – EXCLUSION OF STAY PERIOD.— SECTION 11A (8)
Under Section1 1A (8) while calculating the duty demand period of 1 year given under section 11 A( 1) (a) or 5 years given under section 11 A (4) or (5), the period during which there was any stay by an order of the court or tribunal in respect of payment of such duty shall be excluded.
(D)(i) CONVERSION OF EXTENDED PERIOD OF 5 YEARS TO 1 YEAR PERIOD BY THE CENTRAL EXCISE OFFICER FOR DEMAND DUTY.-SECTION 11A (9)
Under Section 1 1A(9), the central excise officer shall determine the duty of excise payable by the person chargeable with duty for the period of 1 year instead of 5 years, if any appellate authority or Tribunal or court concludes that the notice issued under Section 11 A(4) is not sustainable for the reason that the charges of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this act or for rules made there under with intent to evade payment of duty has not been established against the person to whom the notice was issued.
(E) PERSONAL HEARING # DETERMINATION OF DUTY.– SECTION 11A (10)
Under Section 1 1A(10) The central excise officer after giving an opportunity of being heard, and after considering the representation being made by such person, determine the duty of excise due from such person not being in excess of the amount specified in the notice.
(E)(i) DETERMINATION OF AMOUNT OF DUTY DEMANDED- TIME PERIOD – SECTION 11A(11)
Under Section 1 1A (11) the central excise officer shall determine the amount of duty of excise under Section 1 1A (10) by following two time periods:-
(a) within 6 months from the date of notice in respect of cases falling under Section 11 A(1),
(b) within 1 year from the date of notice in respect of cases falling under Section 11 A(4) & Section11 A (5).
(F) MODIFICATION OF DUTY DEMANDED, INTEREST & PENALTY BY THE APPELLATE AUTHORITY-SECTION 11 A (12)
Under Section 1 1A (12) the amount of duty determined by the central excise office under Section 11 A (10) is modified by the appellate authority, then, the amount of penalties, interest under this section shall stand modified accordingly, taking into account the amount of duty of excise so modified.
(F) (i) ENHANCEMENT OF AMOUNT OF DUTY DETERMINED BY THE APPELLATE AUTHORITY – DATE OF CALCULATING THE INTEREST & PENALTY – SECTION 11 A (13)
Under Section 11 A (13), where the amount as modified by the appellate authority is more than the amount determined under section 11 A (10) by the central excise officer, the time within which the interest or penalty is payable under this act shall be the date of the order of the appellate authority in respect of such increased amount
(G) INTEREST PAYABLE SEPARATELY – WHEN THE ORDER DETERMINING THE DUTY OF EXCISE IS PASSED BY CENTRAL EXCISE OFFICER – SECTION 11 A (14)
Under Section 11 A (14) where an order determining the duty of excise is passed by the central excise officer under this section, the person liable to pay the said duty of excise shall pay the amount so determined along with the interest due on such amount whether or not the amount of interest is specified separately.
Explanation:- For the purpose of this section and section h~A C
(a) “refund” includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
(b) “relevant date” means,—
(i) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid, and no periodical return as required by the provisions of this Act has been filed, the last date on which such return is required to be filed under this Act and the rules made here under.
(ii)in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid and the return has been filed on due date, the date on which such return has been filed.
(iii) in any other case, the date on which duty of excise is required to be paid under this Act or the rules made there under.
(iv) in a case where duty of excise is provisionally assessed under this Act or the rules made there under, the date of adjustment of duty after the final assessment thereof.
(v) in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund.
(c) “specified records” means records including computerised records maintained by the person chargeable with the duty in accordance with any law for the time being in force.’.
Principles of Natural Justice
The principle of natural justice forms the root of judicial process. The basic rule is that no person should be condemned or held guilty unheard or an opportunity should be given for being heard.
Rules of natural justice are not embodied rules. The expression nature justice is also not capable of a precise definition. The underlying principle of natural justice, evolved under the common law is to check arbitrary exercise of power by the state or its functionaries. Therefore, the principle implies a duty to act fairly, i.e, fair play in action. The aim of rules of natural justice is to secure justice or, to put it negatively, to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. They do not supplant the law but supplement it. [as held in Sahar India (Firm) v. CIT 2008 -TMI – 3592 – Supreme Court].
In Ashwani & Associates v. Commissioner of Central Excise, 2005 -TMI – 23 – CEGAT, NEW DELHI, it was observed that it is mandatory on the part of revenue to follow the principles of natural justice i.e., audi altarem partem rule meaning that other party should be heard, before imposing any penalty and provide an opportunity to assessee to prove that there was a reasonable cause. (Also see CCE, Calcutta I, v. Suraj Ratan Mohta 2005 – TMI – 20 – CEGAT, CALCUTTA. In Anchor Shipping Agencies v. CCE Mumbai I, 2005 – TMI – 24 – CEGAT, MUMBAI, penalty under Section 77 was reduced when subsequently law was amended to reduce the penalty, taking cognizance of subsequent reduction in penalty.
Natural justice implies that even assessee or taxpayer or aggrieved party or notice is given a fair chance of being heard and present his case or defense. Being heard implies that the party could either give oral defense or submit written arguments and submissions which must be considered by the adjudicating authority. Thus, the party can legally contest and defend the allegations before the final order. Giving a fair and reasonable opportunity leads to fair and transparent adjudication. The principle of natural justice ensures fairness in the process of adjudication.
In taxation, natural justice would imply any one or more or all of the following –
(a) Service of notice before adjudication takes place, i.e, intimation.
(b) Supply of documents relied upon should be given to noticee so that he can know what are the relied upon documents (RUDs) based on which allegations have been made so that he can argue accordingly.
(c) Right of inspection of documents which are in the possession of department.
(d) Right to obtain copies of records and documents which are not in his possession but form the basis for allegations. It was held by apex court in Kothari Filaments Vs. CC (Port) Kolkata 2008 -TMI – 31872 – SUPREME COURT and Sanghi Textile Processors v Union of India 2008 – TMI – 43503 – SUPREME COURT OF INDIA that assessee is entitled to copy of documents and that he can inspect the records on completion of investigation.
(e) All documents which are not relied upon documents ought to be returned back to the assessee as those are his property.
(f) Right of cross examination should be given in all reasonable cases calling for such examination.
Natural Justice & Reasoned Order
In Asstt. Commissioner, Commercial Taxes Department Vs. Shukla Brothers 2010 -TMI – 76374 – SUPREME COURT OF INDIA, it has been held that principle of natural justice has twin ingredients, the person likely to be adversely affected by action of authorities should be given notice to show cause and should be granted an opportunity of hearing. The orders passed by authorities should give reasons for arriving at conclusion showing proper application of mind. The violation of either of them vitiates the order itself. The order should be supported by reasons of rationality.
A reasoned order by the adjudicating authority is the outcome of observance of principles of natural justice. The orders passed without assigning any valid reasons and without discussion are thus nonspeaking orders.
In Premier Plastics Vs. CCE, Kanpur 2009 -TMI – 7734 1 – (CESTAT, NEW DELHI), it was held that it was necessary to records reason for taking a particular view and also, it is necessary for the aggrieved party to know the grounds as to why the order has been passed. Failure on the part of the authority to record reasons would result in injustice to the aggrieved party.
Evidence for Show Cause Notice:
In ‘Commissioner of Central Excise V. Castrol India Ltd’ – 2009 (238) ELT 199 (Tri. Ahmd) the department contended that factually a show cause notice has been issued to the supplier and the amount of duty and penalty under the provisions of Sections 1 1A(1) and 1 1AC of the Act were invoked and duty and penalty have been confirmed in addition to the demand of interest under the provisions of Section 1 1AB. The appeal is against the order of the tribunal that there is nothing on record to indicate that the input supplier was issued a show cause invoking the first proviso to Section 1 1A for short payment made by him. The tribunal held that in the absence of any record before the Bench on that date, the conclusion reached by the Bench in that order is correct.
Show Cause notice to pinpoint exact quantum of liability:
In ‘Aviat Health Care Private Limited V. Commissioner of Customs and Central Excise, Belapur’ – [2009 -TMI – 33774 – CESTAT, MUMBAI] – it was held that the specific heads of expenditure have not been particularized in the show cause notice. The Commissioner observed that though it is customary to pin point an exact quantum of liability in the show cause notice yet he does not think that it would be great short coming of the notice so long as the ways and means of working of the differential values is evident from the notice itself, that is to say, the transaction value has been arrived at by deducting element of duties and taxes from the MRP. The tribunal is not inclined to agree with these observations of the Commissioner. It is indeed a great shortcoming not to pin point the exact quantum of duty liability in the show cause notice. It is fundamental that a show cause notice is required to be extremely exact in making specific and cogent allegations, in pinpointing and producing cogent evidence in support thereof and finally in setting out the exact calculation of duty together with the evidence to support such calculation, when it proposes recovery thereof from the assessee.
Order without considering corrigendum to show cause notice is illegal
In ‘Kali Aerated Water Works V. Commissioner of Central Excise, Salem’ – 2009 (238) ELT 363 (Tri. Chennai) the original authority has passed an order in adjudication of a show cause notice demanding duty to the extent of Rs. 3,64,3071- from the assessee by invoking the extended period of limitation and imposing on them equal amount of penalty. The Original Authority overlooked the corrigendum issued to the show cause notice, wherein the department has proposed to restrict the demand of duty to Rs. 2,97,5831- The tribunal held that the order passed by the Original Authority without considering the corrigendum to the show cause notice is illegal.
The tribunal set aside the order and directs the Original Authority to pass fresh order of adjudication of show cause notice as amended by the corrigendum.
Contradictory show cause notices:
In ‘Sun Polytron Industries Ltd., V. Commissioner of Central Excise, Vapi’ – [2009 – TMI – 33964 – CESTAT, AHMEDABAD] two different show cause notices in respect of the same very goods and for the same period were issued, one admitting goods cleared by appellant alleging undervaluation and another alleging that goods are not cleared. The tribunal held that the department cannot blow hot and cold in the same breath and has to adopt only one stand. The tribunal is of the view it would be just and proper for the Commissioner to adjudicate all the notices by a single adjudication order so as to make the stand of the Revenue clear.
Disclosure of Circular relied on in show cause notice:
In ‘Sidh Petrochem Private Limited V. Commissioner of Central Excise, Rohtak’ – 2009 (238) ELT 325 (Tri. Del) a show cause notice was issued on the basis of test reports and the statements given by a Director and Chemist of the appellant company. The Commissioner held that the product cannot be considered as waste oil as claimed by the appellant and it is having characteristics of light diesel oil as well as fuel oil and accordingly demanded duty along with interest and imposed equal penalty. The appellant contended that the department has not given any evidence to show that the product is useable as primary fuel or secondary fuel. Board’s circular relied upon by the Commissioner to come to a conclusion that residual oil can be treated as fuel oil1light diesel oil has not been disclosed in the show cause notice. The tribunal agreed with the contentions of the appellant and held that the appellants have made out a case of waiver of pre deposit.
Revenue cannot plead ignorance on second show cause notice on the same issue:
In ‘Atul Ltd., V. Commissioner of Central Excise, Surat-II’ – [2009 -TMI – 33630 – CESTAT AHMEDABAD] the appeal is against the demand, interest and penalties imposed on the grounds that the appellants had cleared excisable goods to another unit of their company situated at Valsad at a lower price as compared to the selling price to other customers. The appellant contended that a show cause notice had been issued by the Revenue on 31.7.96 on the same ground which was adjudicated by Dy. Commissioner. The tribunal found that in this case suppression of fact with intention to evade duty cannot be alleged in view of the fact that on the same issue a show cause notice had been issued. The Commissioner (Appeals) has taken the view that the fact the appellants had paid differential duty in August 1996 after issue of show cause notice shows that they had intentionally avoided paying duty at a higher price. The tribunal is unable to agree with the view in view of the facts that the show cause notice was adjudicated only in January 2001 and therefore it cannot be said that the matter had attained finality earlier. Having issued show cause noticed on 31.7.96 Revenue cannot plead ignorance and cannot say that it is open to issue a show cause notice invoking suppression there after on the same issue.
Relevant date is the date of filing of periodical return:
In ‘Hilltop Rubbers (P) Ltd., V. Commissioner of Central Excise, Meerut’ – 2009 (237) ELT 666 (Tri. Del) the period for which the show cause notice was issued under Section 1 1A relates to July 1997 to September 1997 and the impugned notice was on 20.3.1998. The contention of the appellants is that no notice could have been issued under Section 1 1A after the expiry or the period of six months from the relevant date. The tribunal held that the appellants were required to file periodical return and accordingly, had, in fact, filed RT-12 return and the notice was issued within six months from the date of filing such return. Therefore the department was justified in issuing show cause notice under Section 1 1A for recovery of short levy and imposition of penalty in accordance with the provisions of law.
A.K.Parthasarathy
Chairman –Editor- Tax Consultant
Bangalore / Chennai / Hyderabad
9444825517 / 8144839647
[email protected]
