SHOW CAUSE NOTICE UNDER CENTRAL EXCISE ACT, 1944 - SOME ISSUES

[Mr. M. GOVINDARAJAN]

            Section 11A of the Central Excise Act, 1944 ('Act' for short) deals with the recovery of duties not levied or not paid or short paid or erroneously refunded. Section 11A of the Act provides that when any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, whether or not such non levy or non payment, short levy or short payment or erroneous refund as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty or on valuation of excisable goods under any other provisions of this Act, or the rule made there under, a Central Excise Officer may, within one year from the relevant date, service notice on the person chargeable with the duty which has not been levied or paid or which has been short levied or short paid or to whom the refund has been erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or the rules made there under with intent to evade payment of duty by such person, or his agent, then the time limit for issue of show cause notice is five years from the relevant date.  Thus in a case of non payment, short payment or erroneous refund of duty normally three issues are likely to arise relating to-

> Recovery under Section 11A;

> Interest under Section 11AA and Section 11AB; and

> Penalty under Section 11AC.

Section 11A (2B) provides for waiver of show cause notice if duty is paid with interest before issue of show cause notice.   This article will discuss some issues in issuance of show cause notice.

Evidence for Show Cause Notice:

            In 'Commissioner of Central Excise V. Castrol India Ltd' - 2009 (238) ELT 199 (Tri. Ahmd) the department contended that factually a show cause notice has been issued to the supplier and the amount of duty and penalty under the provisions of Sections 11A(1) and 11AC of the Act were invoked and duty and penalty have been confirmed in addition to the demand of interest under the provisions of Section 11AB. The appeal is against the order of the tribunal that there is nothing on record to indicate that the input supplier was issued a show cause invoking the first proviso to Section 11A for short payment made by him. The tribunal held that in the absence of any record before the Bench on that date, the conclusion reached by the Bench in that order is correct.

Show Cause notice to pinpoint exact quantum of liability:

            In 'Aviat Health Care Private Limited V. Commissioner of Customs and Central Excise, Belapur' - [2009 -TMI - 33774 - CESTAT, MUMBAI] - it was held that the specific heads of expenditure have not been particularized in the show cause notice.   The Commissioner observed that though it is customary to pin point an exact quantum of liability in the show cause notice yet he does not think that it would be great short coming of the notice so long as the ways and means of working of the differential values is evident from the notice itself, that is to say, the transaction value has been arrived at by deducting element of duties and taxes from the MRP. The tribunal is not inclined to agree with these observations of the Commissioner. It is indeed a great shortcoming not to pin point the exact quantum of duty liability in the show cause notice. It is fundamental that a show cause notice is required to be extremely exact in making specific and cogent allegations, in pinpointing and producing cogent evidence in support thereof and finally in setting out the exact calculation of duty together with the evidence to support such calculation, when it proposes recovery thereof from the assessee.

Order without considering corrigendum to show cause notice is illegal:

            In 'Kali Aerated Water Works V. Commissioner of Central Excise, Salem' - 2009 (238) ELT 363 (Tri. Chennai) the original authority has passed an order in adjudication of a show cause notice demanding duty to the extent of Rs.3,64,307/- from the assessee by invoking the extended period of limitation and imposing on them equal amount of penalty. The Original Authority overlooked the corrigendum issued to the show cause notice, wherein the department has proposed to restrict the demand of duty to Rs.2,97,583/- The tribunal held that the order passed by the Original Authority without considering the corrigendum to the show cause notice is illegal. The tribunal set aside the order and directs the Original Authority to pass fresh order of adjudication of show cause notice as amended by the corrigendum.

Contradictory show cause notices:

            In 'Sun Polytron Industries Ltd., V. Commissioner of Central Excise, Vapi' - [2009 -TMI - 33964 - CESTAT, AHMEDABAD] two different show cause notices in respect of the same very goods and for the same period were issued, one admitting goods cleared by appellant alleging undervaluation and another alleging that goods are not cleared. The tribunal held that the department cannot blow hot and cold in the same breath and has to adopt only one stand. The tribunal is of the view it would be just and proper for the Commissioner to adjudicate all the notices by a single adjudication order so as to make the stand of the Revenue clear.

Disclosure of Circular relied on in show cause notice:

            In 'Sidh Petrochem Private Limited V. Commissioner of Central Excise, Rohtak' - 2009 (238) ELT 325 (Tri. Del) a  show cause notice was issued on the basis of test reports and the statements given by a Director and Chemist of the appellant company. The Commissioner held that the product cannot be considered as waste oil as claimed by the appellant and it is having characteristics of light diesel oil as well as fuel oil and accordingly demanded duty along with interest and imposed equal penalty. The appellant contended that the department has not given any evidence to show that the product is useable as primary fuel or secondary fuel. Board's circular relied upon by the Commissioner to come to a conclusion that residual oil can be treated as fuel oil/light diesel oil has not been disclosed in the show cause notice. The tribunal agreed with the contentions of the appellant and held that the appellants have made out a case of waiver of pre deposit.

Revenue cannot plead ignorance on second show cause notice on the same issue:

            In 'Atul Ltd., V. Commissioner of Central Excise, Surat-II' - [2009 -TMI - 33630 - CESTAT AHMEDABAD] the appeal is against the demand, interest and penalties imposed on the grounds that the appellants had cleared excisable goods to another unit of their company situated at Valsad at a lower price as compared to the selling price to other customers. The appellant contended that a show cause notice had been issued by the Revenue on 31.7.96 on the same ground which was adjudicated by Dy. Commissioner. The tribunal found that in this case suppression of fact with intention to evade duty cannot be alleged in view of the fact that on the same issue a show cause notice had been issued. The Commissioner (Appeals) has taken the view that the fact the appellants had paid differential duty in August 1996 after issue of show cause notice shows that they had intentionally avoided paying duty at a higher price. The tribunal is unable to agree with the view in view of the facts that the show cause notice was adjudicated only in January 2001 and therefore it cannot be said that the matter had attained finality earlier. Having issued show cause noticed on 31.7.96 Revenue cannot plead ignorance and cannot say that it is open to issue a show cause notice invoking suppression there after on the same issue.

Relevant date is the date of filing of periodical return:

                        In 'Hilltop Rubbers (P) Ltd., V. Commissioner of Central Excise, Meerut' - 2009 (237) ELT 666 (Tri. Del) the period for which the show cause notice was issued under Section 11A relates to July 1997 to September 1997 and the impugned notice was on 20.3.1998. The contention of the appellants is that no notice could have been issued under Section 11A after the expiry or the period of six months from the relevant date.  The tribunal held that the appellants were required to file periodical return and accordingly, had, in fact, filed RT-12 return and the notice was issued within six months from the date of filing such return. Therefore the department was justified in issuing show cause notice under Section 11A for recovery of short levy and imposition of penalty in accordance with the provisions of law.