THE Central Excise Department has already started to breathe its new oxygen GST a little along with its present oxygen i.e. central excise and service tax. The age of GST, though still away, is not so far away and we have to wrap up before it is pack up for the outgoing taxes.
Well, just the change in the tax will not be pack up for the old tax until and unless the department starts wrapping up.
The last remaining interface between the department and the assessees shall be investigations, audit and adjudication. Most of the investigations and audits result in issuance of show cause notices which in most of the cases are issued by invoking extended period of limitation. This means that even from the day GST will come the department shall be able to issue show cause notice till five years. The normal time allowed for adjudication is one year, which in most of the cases is not followed. Thereafter the appellate proceedings may take a good many, two to five to ten years. So the ghost of central excise and service tax shall not be leaving us before another ten years on an average.
The department should be well aware that this ghost of adjudication of cases shall be a great time monger for it because as soon as the GST comes, the focus of the department is going to shift from central excise and service tax to GST and the initial glitches it will come with. Also, as one can understand, it won’t be very long that the departmental officers start to forget the bygone laws and real assets of the department, which are not large in number, shall start getting exclusive work of adjudication. This will also adversely affect the implementation and initial phase of GST.
The question arises what should be the roadmap so that the department is not troubled by adjudication of central excise and service tax cases in the era of GST. The initial obvious target may be to have zero pendency as on the date of onset of GST, so that in the times of GST we have to devote time for adjudication of only newly arising central excise and service tax cases which, given the roadmap is followed, are likely to be not big in number.
For the smooth transition to GST and to have minimal impact of the past taxes, a comprehensive and systematic approach is required by the department. This will require looking into the very source where the show cause notices emanate from, the reasons for delay in adjudication, removal of factors which encourage appeals and some logical futuristic steps which are required to be taken.
Sources of show cause notices:
There is no doubt that we can have zero pendency of adjudication only when all the show cause notices are issued at the earliest without enjoying the limitation. And to see how can all the show cause notices be issued early to enable early adjudication, we have to see the sources of show cause notice.
Sources of show cause notices are:
i. Scrutiny of returns: If returns are not scrutinized in a timely manner, resulting detections shall also be delayed. However, the scrutiny of returns involves two officers-Range Superintendent and the divisional Deputy/Assistant Commissioner. The Deputy/Assistant Commissioner is responsible for final scrutiny of excise returns and the Range Superintendent is responsible for final scrutiny of service tax returns. It must be ensured that no excise return is pending for more than three months and no service tax return is pending for more than six months. Here due regard has been given to period of limitation. This will enable issuance/furnishing the draft of show cause notice at an early date.
ii. Investigations: Large numbers of investigations are pending at Divisional and Headquarters level in the Commissionerates. Investigations are required to be looked into from an open perspective, not just the thing which ought to culminate into big big demand notices. However, all investigations are not less than likely to culminate into issuance of show cause notices. Therefore, dedicated workforce is required which can complete the investigations early so that show cause notices are issued at an early date.
iii. Audit: Audit in also an important source where show cause notices stem from. It must be ensured that show cause notices are issued within a month of the detection of audit objection by the department or when conveyed by CERA by office of the AG.
iv. Recurring demands: Recurring demands are continuous source of show cause notices. It must be ensured that the recurring show cause notices in central excise cases are issued on half yearly basis i.e. for the period from April to September and from October to March and in service tax on yearly basis i.e. from April to March. This will bring in better monitoring and chances of any lapse shall also minimize.
v. Instructions/circulars: Many a times Board instructs on the basis of some judicial decision that demands be issued on a particular subject matter. Sometimes, there are clarificatory circulars or modus operandi circulars which entail issuance of show cause notice. It also happens in many cases that for the sake of uniformity of practice, the Board or the Chief Commissioners issue directions for issuance of show cause notices. In all such cases, the demands should be issued at the earliest.
The show cause notices are feeder channel for adjudication. If proper monitoring for early issuance of show cause notices is made, this will go a long way in having zero level pendency when GST sets in.
Reasons for delay in adjudication proceedings or even initiation thereof:
On the noticee’s part:
It is seen that in most of the cases the time given for replying to the show cause notice to the notices is 30 days. It is also a fact that most of the show cause notices are either of trivial nature or recurring ones. Therefore, there seems no logic in delaying filing the reply on the part of the noticees. This is despite the fact that, in the cases where the department succeeds, the noticees have to bear interest liability. Therefore, it is in the interest of the assessee to file the reply to the show cause notice at the earliest. Delay in reply to show cause notice may increase noticee’s liability in the form of interest and otherwise also prolong litigation.
Similar is the case of noticees’ not attending the personal hearings when granted by the adjudicating authority. Every subsequent grant of hearing delays the adjudication proceedings by weeks’ altogether.
Further, if the noticees have nothing to add further to the reply and feel no need to appear before the adjudicating authority for hearing, they must categorically mention in the reply itself that they do not require to be heard in person and the case may be adjudicated on the basis of their reply. This practice will go a long way in reducing the time taken for adjudication. On the other side, this will also save the time and money spent by the noticees.
On the department’s part:
Lack of proper monitoring is the primal cause of delay in adjudication. This may include poor maintenance of details of pendency. In many cases, the posts of the officers lie vacant and run on additional charge. The person in additional charge is least interested in taking up cases for adjudication. In many cases lethargy in taking up the case for adjudication may also be observed. Sometimes due to change of adjudicating authorities, the adjudication proceedings are to be started afresh.
Removal of factors which encourage appeals:
The following factors encourage appeals:
i. Not following principal of natural justice: In some cases the principal of natural justice is not followed. Following the principal of natural justice would mean following the Latin maxim audi alteram partem – ‘hear the other side’. The noticee’s reply should be well considered and reasonable number of opportunities of personal hearing should be granted to the noticee. The general practice and perception is to grant three opportunities of personal hearing. However, minimum four opportunities for personal hearings are to be granted taking into view that in terms of proviso to section 33A(2) of Central Excise Act, 1944 upto three adjournments may be granted to the noticee.
ii. Not taking justified and liberal view by the adjudicating authorities and not following judicial precedents.
iii. Perception of reviewing authorities towards adjudicating authorities.
The real victory shall be only when the adjudicated cases are not appealed against, by the assessee as well as the department.
What else can be done?
– It is true that the department lacks manpower, specially the kind of manpower required for completion of scrutiny of returns, investigations and audit, and thereafter issuance of such large number of show cause notices and adjudication thereof. It is to be looked by the department that such manpower is well motivated to work extra hours and on weekends so as to follow the roadmap.
– As stated earlier, there is shortage of regular adjudicating authorities. Therefore, those officers who are having comparatively light charge may be specified as adjudicating authorities for particular number of cases.
– All the cases where personal hearings have been held and the adjudicating authorities are transferred in the meantime, should invariably be adjudicated by the same authority whether prior to having been relieved or he may be nominated for adjudication of these cases specifically.
– In the cases where different show cause notices have been issued to an assessee on the same issue answerable to different adjudicating authorities, all the show cause notices should invariably be clubbed and adjudicated by the adjudicating authority competent to decide the cases involving the highest amount of duty (CBEC’s Circular No. 362/78/97-CX dated 09.12.1997 refers).
– Proper issue wise clubbing of cases of various assessees by an adjudicating authority may also be a step forward for early adjudication of cases.
– Increasing the monetary limits for various adjudicating authorities especially Superintendents and Deputy/Assistant Commissioner may also be a reasoned step. Circular No. 922/12/2010-CX dated 18.05.2010 and Circular No. 130/12/2010–ST, dated 20.09.2010 grant the powers of adjudication to the Superintendent. Presently the monetary limit for adjudication of cases is very low for Superintendents and Deputy/Assistant Commissioners. The Superintendents are empowered with limit of Rs. one lakh only and that too for limited nature of cases. The cases are generally of imposition of penalty only for the technical offences or of recurring nature. The cases of recurring nature are also generally transferred to higher authorities in terms of aforesaid Circular No. 362/78/97-CXdated 09.12.1997. Therefore for speedy disposal of adjudication cases, the monetary limit for Superintendents should be increased to Rs. 5 lakh without condition of nature of case and that of Deputy/Assistant Commissioners should be increased from Rs. 5 lakh to Rs. 10 lakh.