CBSE Master Circular on Show Cause Notice, Adjudication and Recovery

CBEC Master Circular on Show Cause Notice, Adjudication and Recovery

CBEC finally comes out with a master circular no. Circular No. 1053/02/2017-CX dated 10.03.2017, which is issued much before implementation of GST in India.

The vital aspects of this circular  are as below :

a.Issuance of SCN

b.Structure of SCN

c.Discussion on Limitation

d.Limitation to demand duty

It is pertinent to mention here that the thrust of thi scircular is on limitation and various factirs incidental to it and hence are detailed as it is from teh circular as below :

 3.2.Ingredients for extended period:Extended period can be invoked only when there are ingredients necessary to justify the demand for the extended period in a case leading to short payment or non-payment of tax. The onus of establishing that these ingredients are present in a given case is on revenue and these ingredients need to be clearly brought out in the Show Cause Notice alongwith evidence thereof. The active element of intent to evade duty by action or inaction needs to be present for invoking extended period.  

3.3.The Apex Court‟s in the case of M/s Cosmic Dye chemical Vs Collector of Cen. Excise, Bombay [1995 (75) E.L.T. 721 (S.C.), has laid the law on the subject very clearly. The same is reproduced below for ease of reference.

Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word “wilful” preceding the words “mis-statement or suppression of facts” which means with intent to evade duty. The next set of words “contravention of any of the provisions of this Act or Rules” are again qualified by the immediately following words “with intent to evade payment of duty”. It is, therefore, not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Misstatement or suppression of fact must be wilful.

3.4.Extended period in disputed areas of interpretation: There are cases where either no duty was being levied or there was a short levy on any excisable goods on the belief that they were not excisable or were chargeable to lower rate of duty, as the case may be. Both trade and field formations of revenue may have operated under such understanding. Thus, the general practice of assessment can be said to be non-payment of duty or payment at lower rate, as the case may be. In such situations, Board may issue circular clarifying that the general practice of assessment was erroneous and instructing field formations to correct the practice of assessment. Consequent upon such circular, issue of demand notice for extended period of time would be incorrect as it cannot be said that the assessee was intentionally not paying the duty.

3.5 On the other hand, there can be Board circulars which only reiterate the correct practice of assessment which is being followed by the compliant segment of the assessees. In such situations, decision to invoke extended period would depend on examination of facts of a case and where the ingredient to invoke extended period is present, show cause notice for extended period can be issued. In such situations it would be unfair to the compliant segment of the assessees to not invoke the extended period of time, if active ingredients are present to invoke extended period.

3.6 Power to invoke extended period is conditional: Power to issue notice for extended period is restricted by presence of active ingredients which indicate an intent to evade duty as explained above. Indiscriminate use of such restricted powers leads to fruitless adjudications, appeals and reviews, inflates the figures of outstanding demands and above all causes unnecessary harassment of the assessees. Therefore, before invoking extended period, it must be ensured that the necessary and sufficient conditions to invoke extended period exists.

3.7 Second SCN invoking extended period: Issuance of a second SCN invoking extended period after the first SCN invoking extended period of time has been issued is legally not tenable. However, the second SCN, if issued would also need to establish the ingredients required to invoke extended period independently. For example, in cases where clearances are not reported by the assessee in the periodic return, second SCN invoking extended period is quite logical whereas in cases of wilful mis-statement regarding the clearances made under 8 appropriate invoice and recorded in the periodic returns, second SCN invoking extended period would be difficult to sustain as the department comes in possession of all the facts after the time of first SCN. Therefore, as a matter of abundant precaution, it is desirable that after the first SCN invoking extended period, subsequent SCNs should be issued within the normal period of limitation.

3.8 Applicability of limitation in demanding interest: In cases where duty and interest is demanded, it is quite clear that limitation prescribed in Section 11A applies. However, it may be noted that in cases where the duty has been paid belatedly and interest has not been paid, interest needs to be demanded and recovered following the due process of demand and adjudication. In such cases, the period of limitation as prescribed in Section 11A applies for demand of interest. Section 11A(15) may be referred in this regard.

4.1 Demand due to Departmental or CERA (CAG Audit): Show Cause Notice may be required to be issued due to audit objection arising out of either internal audit or CERA conducted by the office of CAG. The decision to issue Show Cause Notice due to internal audit rests with the Audit Commissioner. As far as CERA audit is concerned, a detailed circular has been issued vide Circular No. 1023/11/2016-CX dated 8.4.16. Important directions in the circular in this regard are as follows:

4.2 Where the department has agreed with the audit objection on merits constitute a large proportion of the audit objections. In such situations, Show Cause Notices should be issued immediately and where practicable view of the assessee should be obtained before issue of Show Cause Notice. 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.

4.3 Where the department has not agreed with the audit objection on merits no show cause notice should be issued in cases and should be replied giving detailed reasoning and caselaws on the subject. For further details of the procedure to reply to CERA, the said circular may be referred.

4.4 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 formations to issue show cause notice and adjudicate the case on merits.

4.5 It may be noted that the procedure of transferring the show cause notice arising out of CAG objection to call-book has been discontinued vide the said circular. It may be noted that Para 4.2 to para 4.4 above only give the gist of the instructions regarding issue of Show 9 Cause Notice and for further details, the said circular dated 8.4.2016 may be referred. The procedure for adjudication of Show Cause Notices issued due to CERA objections are contained in the circular dated 8.4.2016(ibid) and have been reproduced from para 18.1 to 18.4 of this circular for ease of reference.

This circular also highlights on issuance of SCN,jurisdiction, recovery under orders etc .

It is equally important to note that it has resulted into rescinding of various circulars with 3 circulars being retained as below :

ANNEXURE-I List of Circulars/Instructions which stand rescinded

89 circulars rescinded

ANNEXURE-II List of Circulars/Instructions which have not been rescinded

3 circuars retained i.e  984/08/2014-CX, dated 16.9.2014,  137/46/2015-S.T., dated 18.8.2015 & 1023/11/2016-CX, dated 8.04.2016

You may refer the entire CBEC Circular by clicking below :

CBEC Master Circular on SCN, Adjudication & Recovery