SHOW CAUSE NOTICE BEFORE FINALISATION OF ASSESSMENT

[Mr. M. GOVINDARAJAN]

Payment of tax is on self assessment basis.   If there is any evasion on payment of tax then the Department will carry over the assessment.   On completion of the assessment the Department will issue show cause notice indicating the grounds of show cause notice and after getting the reply from the assessee the Department will drop the proceedings or confirm the demand along with interest and penalty if any.   Thus show cause notice is the first stage of adjudication proceedings.   In the show cause notice it is required to show the correct details of demand of tax.   It is, thus, inferred that show cause notice could not be issued before finalization of assessment. 

In ‘International Computers Indian Manufacturers Limited and another v. Union of India and others’ – 1981 (8) ELT 632 (Del) the Division Bench of the Delhi High Court held that Section 28 was not attracted  in case of provisional assessments, but in case of completed assessments, when duty had not been levied or had been short levied.

In ‘Ujagar Prints II V. Union of India’ – 1989 (3) SCC 488 the Supreme Court held that the word ‘levied’ was a wide and generic expression and the question of non levy of short levy could arise only when there was levy in accordance with law.   There could be no levy where there was no final assessment and consequently and demand cum show cause notice for recovery of a non existent levy would clearly be without jurisdiction.

In ‘Commissioner of Central Excise and Customs, Mumbai and others V. ITC Limited and others’ – 2007 (1) SCC 62 the Supreme Court held that Section 11A of the Act provides for a penal provision.   Before a penalty can be levied the procedures laid down therein must be complied with.  For construction of a penal provision, it is trite, the golden rule of the literal interpretation should be applied.   The difficulty which may be faced by the Revenue is of no consequence.   The power under Section 11A of the Act can be invoked only when a duty has not been levied or paid or has been short levied or short paid.   Such a proceeding can be initiated within six months from the relevant date which in terms of Section 11(3)(ii)( b) of the Act in a case where duty of excise is provisionally assessed under the Act or the Rules made there under, is the date of adjustment of duty after the final assessment thereof.  A proceeding under Section 11A of the Act cannot, therefore, be initiated without completing the assessment proceedings. 

In ‘A.S.Syndicate (Water housing) P Limited V. Commissioner of Customs (Port)’ – 2011 (267) ELT 469 (Cal) the petitioners carry on business of import of vatted malt and grain spirit compound which is sold to different distilleries for manufacture of whisky.  The said goods fell under Tariff Heading 2208.10 before 01.01.1996 and finally assessed to duty as ‘Compound Alcoholic preparations of a kind used for the manufacture of beverages’ under Tariff Heading 2208 of the I Schedule to the Customs Tariff Act, 1975.  Goods which fell under Tariff heading 2008 were freely importable and no licence was required for importation of the same.  After 01.01.1996 the alcoholic preparations used in the manufacture of beverages, with an alcoholic strength exceeding 0.5% was transferred from Heading 22.08 to Heading 21.06.  

The said goods imported by the petitioners between the period from March 1997 and October 2000 covered by 54 bills of entry were provisionally assessed under Heading 21.06.   After provisional assessment, the Department was of the opinion that the goods imported by the petitioners should be classified under residuary item 2208.90 and since the petitioners did not have the licence required for import of goods falling under the aforesaid tariff item, the said goods became liable for confiscation.  A demand-cum-show cause notice was issued on 04.07.2001 even before finalization of assessment under Section 28 of the Customs Act to the petitioners demanding Rs.4,15,03,279/- along with interest and penalty.

The petitioner filed the present writ petition.    The petitioner submitted the following before the High Court:

• Where a show cause notice was issued without jurisdiction, or in abuse of the process of law, the writ court would not hesitate to interfere even at the stage of issuance of show cause notice as held by the Supreme Court in ‘Union of India V. VICCO Laboratories’ – 2007 -TMI - 2581 - SUPREME COURT OF INDIA
• There has been flagrant violation of principles of natural justice, in as much as relevant documents such as the order of provisional assessment of the Commissioner dated 12.03.1997 as also copies of even the reference of books and encyclopedia, referred to in the show cause notice, had not been supplied to the petitioners in spite of requests;
• There is no provision for issuance of show cause notice for finalization of assessment;

The Department submitted the following:

• The petitioner’s Advocate had duly been allowed inspection of documents;
• The petitioner had given detailed reply to the show cause;
• No case was made out of any prejudice caused by reason of non supply of any particular document;
• Having replied to the show cause notice the petitioners submitted to the jurisdiction of Commissioner of Customs (Port), being the adjudicating authority;
• It was not open to the petitioners to approbate and reprobate at the same time;
• The petitioners could not now question the show cause notice by invoking the writ jurisdiction of the High Court;
• The show cause notice is for all practical purposes under Section 18 of the Customs Act.

The short question involved in this case is whether the show cause notice issued under Sec. 28 of the Customs Act, 1962 can be issued, unless there has been final assessment.  The High Court did not accept the submissions made by the Department.  The fact that the petitioners might have replied to the show cause notice does not debar the writ petitioners from challenging the impugned show cause notice as without jurisdiction.   The Department did not drop the proceedings on consideration of the reply of the petitioners to the show cause notice.   The argument of the Department that by the show cause notice the petitioners were only given an opportunity to make their submissions before final assessment cannot be accepted, since the petitioner shave also been directed to show cause why the goods should not be held confiscable and why penalty should not be imposed.   There could be no question of confiscation, penalty or interest till final assessment.  There being no final assessment the impugned demand-cum-show cause notice is without jurisdiction and the same is set aside and quashed by the High Court.

Discussions to this article

[jayaprakash gopinathan]

Self assessment in customs is introduced by Finance Act, 2011only. One should not publish articles by culling out some case laws and citations which are contextually irrelevent. To comply with natural justice , an authorised officer has to issue a notice before finalising a provisional assessment and to confirm a demand.The need for a provisional assessment arises  when there is a dispute on classification of goods imported or on value declared for assessment. To avoid delay in removing goods for further use , provisionally goods are released. Half baked informations appears to be detrimental to the interest of stakeholders of TMI. It only add numbers, not the interest of readers.

G.Jayaprakash