SHOW CAUSE NOTICE IS NOT REQUIRED TO BE ISSUED BEFORE FINALISATION OF PROVISIONAL ASSESSMENT

[Mr. M. GOVINDARAJAN]

 

Rule 6 and 7 of the Central Excise Rules, 2002 deal with the assessment of duty. Rule 6 provides that the assessee himself is required to assess the duty payable on the excisable goods. Rule 7 (1) provides that where an assessee is unable to determine the value of the excisable goods or rate of duty applicable thereto, he can request the Assistant/Deputy Commissioner of Central Excise in writing, giving reasons for payment of duty on provisional basis.  The Assistant/Deputy Commissioner of Central Excise may pass a reasoned order rejecting the request or order allowing the payment of duty on provisional basis at such value or rate as may be specified in the order.  The Department cannot suo motu issue direction for resorting to provisional assessment.  Rule 7(2) provides that the payment on provisional basis may be allowed if the assessee executes a bond in the form prescribed by notification by the Board with such surety or security, in such amount as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise as the case may be, deem fit, binding the assessee for payment of difference between the amount of duty as may be finally assessed and the amount of duty provisionally assessed.

Rule 7(3) provides that the Assistant Commissioner/Deputy Commissioner of Central Excise shall pass order for final assessment, as soon as may be, after the relevant information, as may be required for finalizing the assessment, is available but within a period not exceeding six months from the date of the communication of the order issued under Rule 7(1).   This period may be extended by the Commissioner of Central Excise for a further period not exceeding six months on sufficient cause being shown and the reasons recorded in writing.   The Chief Commissioner of Central Excise is having power for further extension as he may deem fit.

Rule 7(4) provides that the assessee shall be liable to pay interest on any amount payable to Central Government, consequent to order for final assessment at the rate specified by the Central Government by Notification issued under Section 11AA of Section 11AB of the Act from the first day of the month succeeding the month for which amount is determined, till the date of payment thereof.

The issue to be discussed in this article is whether the Assistant Commissioner/Deputy Commissioner is required to issue show cause notice to the assessee before finalizing the provisional assessment with reference to decided case law.

In ‘Bharat Heavy Electricals Limited V. Commissioner of Central Excise, Bhopal’ –2011 -TMI - 210203 - CESTAT, DELHI the appellants supply power generation and transmission and distribution equipment to Indian Railways under contracts.   Such supplies are subject to price valuation clause.  The final contract price is determined after indices of major materials, labour for the relevant months consequent to the delivery dates are available and thus nearly after some months consequent to the supply or execution of the contract that the final contractual price rates are computed and are accordingly paid.  The goods at the time of dispatch are billed provisionally on the previously approved price and the excise duty is paid accordingly.  On finalizing the price adjustment bills are raised and consequently supplementary invoices are issued and differential duty, if any, is paid and thus the assessments are finalized.  In relation to the period from 1.4.2002 to 31.3.06 the assessments came to be finalized and on account of delayed payment of duty, the appellants were compelled to pay the interest amounting to Rs.13.49 crores.  The appellant filed this appeal before the Tribunal challenging the liability to pay interest on the delayed payment of duty.

The appellant put forth the following arguments before the Tribunal:

• The order of final assessment is  bad in law as the basic principles of Natural Justice stood violated inasmuch as that the authority proceeded to finalise the assessment without issuing any show cause notice the appellant disclosing the amount and the basis for demand;
• The impugned order which confirms the demand of interest being based on the order passed in the finalization of the assessment the same is also bad in law and should be set aside.

The Department put forth the following arguments before the Tribunal:

• There is no provision for issuance of show cause notice prior to the finalization of the assessment;
• The assessment has been done essentially on the basis of the materials furnished by the appellants themselves;
• It was for the appellants themselves to ascertain the value for the assessment of the goods cleared by them as well as to quantify duty thereon;
• Therefore it cannot be said that there was any violation of principles of natural justice in the matter of finalization of assessment.

The Tribunal held that under Rule 7(3) nowhere provides for any show cause notice as such to the assessee prior to finalization of the assessment. However since the proceedings such authority are in the nature of quasi judicial it is certainly expected that the authority substantially complies with the requirement of the principles of natural justice.

The Tribunal noted that the principles of natural justice do not necessarily require show cause notice in each and every case.  It will depend upon the facts of each case.   In the absence of specific provision requiring issuance of such notice, there would be no obligation on the authority to issue a show cause notice in each and every case.  In case where the materials to be used for deciding the matter are furnished by the assessee himself and apart such materials, no other material is used for deciding the matter, the question of issuance of show cause notice does not arise.   The Tribunal further emphasized that the insistence of show cause notice in such cases would really a futile exercise. 

The Tribunal further held that a provisional assessment can be for various reasons and one of them being possibly on account of price variation of the goods which are the subject matter of assessment, as is the case in the matter in hand.   The provisional assessment is to be based on the price disclosed by the assessee unless there is no reason to take a different view.  In case of finalization also, it primarily depends upon materials furnished by the assessee in relation to the variation of the price of the goods.   Once it is not in dispute that the finalization of the assessment has been in terms of the variation of the price of the goods as disclosed by the assessee, it cannot be said that there was violation of principles of natural justice for want of show cause notice, nor it can be said that no fair opportunity was given to the assessee to defend.