With budget session being round the corner and it being susceptible to both national and international scrutiny, the need for streamlining adjudication machinery for Customs, Central Excise and Service Tax matters has become extremely important. Tax litigations are a natural consequence of growing economy. However, complexities of taxation laws and the sheer determination of the revenue department to maximize collections have resulted in multifarious but avoidable litigations all across the country.
Through this article, we attempt to highlight some of the issues faced by the assessees and our recommendations in such cases.
The Back-Breaking Mandatory Pre-Deposit
1. The Finance (No.2) Act, 2014 made the pre-deposit mandatory for filing of the appeal which in effect became one of the major drawbacks in the adjudication system. Under the new scheme, there was a requirement of pre-depositing an amount of 7.5% of duty demand/ penalty for filing an Appeal before the Commissioner (Appeals) and an amount of 10% of duty demand/ penalty for filing an appeal with the Tribunal. Before such requirement was made mandatory, the discretion was accorded with the Commissioner (Appeals)/ Tribunal for deciding the issue of pre-deposit. Thus earlier the amount of pre-deposit was based on the merits of individual case.
2. Though this enactment has brought equality among the assessees, yet at the same time it has greatly encumbered the litigants who find it difficult to arrange exaggerated sums of money just to file the appeals. Further, it is pertinent to note that the amount of pre-deposit is calculated as a percentage of inflated impugned demand (as explained above).
3. As per a recent report by FICCI, 80% of cases are adjudicated against the Revenue at the stage of Tribunal. Thus, in 80% of the cases, the assesse is required to block its working capital for a long period of time owing to the arbitrary demand raised by the assessing officer.
4. Further, the interest payable by Revenue on pre–deposit is nominal in case of favorable orders whereas the interest charged from assesse in case of adverse order is much higher.
5. Basis the above, following is recommended to be made part of the legislation: –
Arbitrary Figures and Mandatory Penalty Augmenting the Impugned Demand
6. In majority of instances it is observed that the adjudication is not neutral and does not follow the statute. The current approach of the Revenue authorities is prejudiced severely in their own favor.
7. At the time of issuing a show cause notice, the valuation of goods and services (which are in dispute) are inflated to a staggering amount, basis which the impugned demand is levied. The frivolous amount levied on the assesse is never supported by any evidence substantiating computation of demand.
8. Such demand does not only harass the assessee but also burdens him with un-necessary requirement of pre-deposit. Even the interest payable by Revenue authorities (on pre-deposit) in case of refund has not deterred them from issuing arbitrary demand on issues which have already been settled by the higher authorities in favor of theassesse. The approach at the adjudication is to invariably confirm all demand notices.
9. It seems that decisions devoid of judicial indiscipline and open disrespect for the decision of the Tribunal and the Higher Courts have become the order of the day. The issue of persistent judicial indiscipline has caused so much furore that Central Board of Excise and Customs (‘CBEC”) was compelled to issue a Circular No. 201/01/2014-CX.6 dated 26 June 2014 directing the Revenue authorities to exercise better discipline. The major factor behind the said circular was the severe flak which the Department drew from the Hon’ble High Court of Gujarat in the case of I. DuPont India Pvt. Ltd. [2013 TIOL 1172 HC-AHM-CX].
10. Thereafter, the Legal Cell of CBEC issued instructions vide Circular No. 275/17/2015-CX.8A dated 11 March 2015 wherein it specified certain guidelines to be followed for initiating any litigation. The said instructions were followed by another set of instructions, i.e., Instruction F. No. 390/Misc./67/2014-JC dated 18 December 2015, wherein the CBEC directed to withdraw all Departmental appeals from Tribunal/ High Courts which failed to qualify the monetary limits fixed under the National Litigation Policy (NLP). Instructions were also issued directing the authorities not to file appeals in matters which attained finality by decisions of Supreme Court. Despite these instructions issued, there seem to be no respite to assessee from such vexatious litigation.
11. Another important aspect is the routine levy of penalty by the adjudicating officer. Quite similar to ceremonial paragraph alleging suppression in every Show Cause Notices (“SCN”), there also exist a like paragraph regarding levy of penalty. The adjudication in almost every case has refuted the well settled principle that penalty should only be imposed in cases where there is mens rea or malafide intention. The Department in every case has conveniently ignored such principles and imposed penalty without substantiating the existence of the above two elements. In the current scheme of things, the levy of penalty specifies that Revenue authorities perceive every act/ default of assessee with an intent to defraud the Revenue.
12. Basis the above, following should be made part of the legislation:
Extending limitation period is harassing
13. As per general scheme of taxation laws, the statutory provisions grant power to initiate proceedings against an assessee who has not paid or short paid the duty. The structure of limitation provided by the statute is as under:
14. Basis above limitation of one-year is be the order of the day whereas the five-year period is to be invoked only in the specified exceptional circumstances. However, the actual experience of the assesse is far from reality. It may be noted that most of the SCN have a ceremonial and routine paragraph alleging suppression as justification of all the proposals therein and contain no actual reasons for invocation of the extended period of limitation.
15. Further to worsen the situation, the adjudicating authority gives scant regard to settled law of invoking the limitation period. In our opinion, cases where a Revenue authority has dropped the SCN on the ground of limitation are practically non-existent. Basis such actions, direct message to hapless assesse is:
16. In fact, CBEC even instructed the Revenue authorities to follow the dictum pronounced by the Hon’ble Supreme Court in Chemphar Drugs’ [1989 (40) ELT 276 (SC)] and Padmini Products’ [1989 (43) ELT 195 (SC)] to ensure that only willful suppression and not mere non-declarations are made grounds for invocation of the extended period of limitation. The directions of the Hon’ble Supreme court in CCE v HMM Ltd. [1995 (76) ELT 497 (SC)] wherein it was held that specific ground for invocation of extended period must be given also formed subject matter of the circulars.
17. The circulars and decisions, however, have merely been dead instructions and have had no ramifications on the colonial approach of Revenue authorities. Thus, it indicates a serious need to take a relook at the entire statutory scheme. Such unnecessary litigation not only causes substantial loss to assessee as well as to the exchequer while contributing nothing fruitful to the economy.
18. As even instructions issued by CBEC are not being followed, it is recommended that instructions should be made part of the legislation. Further, it is recommended that strict actions should be taken against assessing officer who un-necessarily and/or without evidence invoke the limitation period.
Time limit for issuance of show-cause notices and adjudicating cases
19. An issue which merits attention is the inordinate delay in deciding the SCN. Although relevant statutes prescribe a time limit for issuance of SCN, no time limit has beenprescribed for their adjudicationresulting in uncertainty and apprehension on the part of the assessees and consequently causing delay in filing appeals/ final decisions.
20. In addition, where relevant statute provides time limit for passing orders (such as re- of bills of entry), the same is not adhered by the assessing officers. Thus assessees face aHobson’s choice ofeither paying the duty under protest or approaching the High Court for getting routine orders passed. Such lackadaisical attitude of the officers is primarily due to lack of accountability which requires to be addressed with alacrity.
21. It is recommended that in order to ensure timely disposal of cases: –
Authored by Bhishm Ahluwalia, Partner, Mimansa Law Offices and Tushar Joshi, Deputy Manager, International Business Advisors. Bhishma can be reached at email@example.com Tushar can be reached at firstname.lastname@example.org
International Business Advisors (www.ibadvisors.co) is a boutique audit, tax and consulting firm run by ex-BIG4 professionals and working extensively with multinational companies operating in varied sectors including e-commerce, mobile, manufacturing, real-estate and hospitality. IBA operate out of its offices in Delhi, Mumbai and Bangalore.
Mimansa Law Offices is the legal arm of International Business Advisors that manages all tax litigations at CESTAT, High Court and Supreme Court.IBA along with Mimansa have litigated on various matters at different courts.