ADJUDICATION PROCEEDINGS

[Dr. Sanjiv Agarwal]

Statutory Provisions in Central Excise

Statutory provisions have been provided under section 33A of Central Excise Act, 1944 in respect of Adjudication procedure. It requires that the Adjudicating authority shall, give an opportunity of being heard to a party in a proceeding, if the party so desires. Further, section 35Q of the Central Excise Act, 1944 provides for appearance by authorized representative before a central excise officer or Appellate Tribunal in connection with any proceedings. The Adjudicating authority may, if sufficient cause is shown, at any stage of proceeding referred to above, grant time, from time to time, to the parties or any of them and adjourn the hearing for reasons to be recorded in writing. However, no such adjournment shall be granted more than three times to a party during the proceeding.

The above also applied to cases of Service Tax in terms of section 73 of the Finance Act, 1994, wherein sub-section (2) reads as follows:

"(2) The Central Excise Officer shall after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined."

Moreover, the provisions of section 35Q of the Central Excise Act, 1944 with regards to appearance of authorized representatives apply mutatis mutandis to cases of Service Tax. It may be noted that writ jurisdiction is not available against a SCN where matter requires factual examination.

Power of Adjudication - Section 83A in Service Tax

Adjudication proceedings in any assessment or penal proceedings is a very important aspect of tax administration. It provides an opportunity to the assessee to be heard and show cause before any action is taken in proceedings relating to him. Issue of show cause notice is a pre-condition to a proper adjudication which is an intimation to assessee of the proposed action by the department. The adjudicating officer adjudicates the show cause notice by considering the reply to show cause notice and other available or produced evidences by the noticee. A SCN should follow certain principles to be legally sustainable.

The Finance Act, 2005 inserted a new Section 83A which relates to Power of Adjudication. According to Section 83A, where under this Chapter or the Rules made thereunder, any person is liable to a penalty, such penalty may be adjudged by the Central Excise Officer conferred with such power as the Central Board of Excise and Customs constituted under the Central Board of Revenue Act, 1963, may, by notification in the Official Gazette, specify.

General Importance of Adjudication

Adjudication of offences under the Central Excises Act, 1944, or the Customs Act, 1962 or the Finance Act, 1994 (Service Tax) are important functions of the officers of the Central Excise, Customs and Service Tax competent to adjudge offences. It seeks to ensure that no economic loss is caused by the alleged contravention by the imposition of an appropriate penalty after an adjudication. If an innocent person is punished or the punishment is more than warranted by the nature of offence it may undermine the trust between the government and the public. If, on the other hand, a real offender escapes the punishment provided by law, it may tend to encourage commission of offences to the detriment both of the government and the honest tax payers. The authorities exercising quasi-judicial function are duty bound to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process. The public is entitled to have assurance that process of correction is in place and working. It is the requirement of law that correction process of judgments should not only appear to be implemented but also seem to have been properly implemented. These functions, therefore, cast a heavy responsibility on the officers invested with the powers of adjudication and confiscation to use it with utmost care and caution, free from any prejudice or bias, so that the innocent does not suffer by any injustice done to him and the real offender does not escape the punishment provided by law.

Central Excise, Customs and Service Tax laws are self-contained laws. Besides containing the provisions for levy of duty, adjudication of matters relating to the provision of the Law is also provided for in the legal provisions e.g. for demand of duty, credit availed, determination of classification, valuation, confiscation and imposing penalty. The adjudication is done by the departmental officers, and in this capacity they act as quasi-judicial officers. It is an important function of the officers and casts heavy responsibility on the officers invested with the powers of adjudication to use it with utmost care and caution, free from any prejudice or bias. It is important to know and understand the facts of the case, processing them properly and to apply correctly the sections and rules of Central Excise law or Notifications that may be relevant to the facts of each case.

What is Adjudication and Proceedings

Adjudication has not been defined in the Act but according to www. wikipedia. org, "Adjudication is the legal process by which an arbiter or judge reviews evidence and argumentation including legal reasoning set forth by opposing parties or litigants to come to a decision which determines rights and obligation between the parties involved. Three types of dispute are resolved through adjudication:

• Disputes between private parties, such as individuals or corporations.
• Disputes between private parties and public officials.
• Disputes between public officials or public bodies."

To adjudicate means to decide, determine or to settle. Literally, it means the act of adjudicating, the process of trying and determining a case judicially. The application of the law to the facts and an authoritative declaration of the result.

'An adjudication in favour of natural rights'. A solemn or deliberate determination by the judicial power: the act of giving judgment.

Black's Law Dictionary defines the term 'adjudicate' so as to mean 'to settle in the exercise of judicial authority; to determine finally'.

In Global Marine Agencies v. CC (Prev.) Jaipur 2012 (9) TMI 679 - CESTAT, NEW DELHI, it was held that a statutory authority while exercising powers conferred under law must not be permitted to achieve a goal indirectly which he cannot achieve directly. Furthermore, power is to be exercised on sound legal principles and reasonably and no power be exercised under whim or caprice. A reasonable exercise of power by a statutory authority should satisfy the test of reasonability which would embrace within its fold taking of action by initiation of a proceeding within a reasonable time.

In Union of India v. Madras Steel Re-rollers Association 2012 (8) TMI 788 - SUPREME COURT OF INDIA), it was held that assessing/adjudicating authorities, appellate and revisional authorities are creatures of Act and are quasi-judicial authorities. The adjudication authorities must pass their order by exercising independent mind and without impartiality. While doing so, they are required to consider various evidences made available to them. Circulars issued by the Department are in nature of guidance to such authorities and contents of such Circulars can also be considered as evidence available before them.

As per Section 2(a) of Central Excise Act, 1944 Adjudicating authority' means any authority competent to pass any order or decision under this Act, but does not include the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963, Commissioner of Central Excise (Appeals) or Appellate Tribunal.

Adjudication proceedings shall be conducted by observing principles of natural justice. The principles of natural justice must be followed by the Excise authorities at all levels in all proceedings under the Central Excise and Service Tax.

Allahabad High Court (DB) in U.G. Sugar & Industries Ltd. v. CCE 2011 (5) TMI 862 - ALLAHABAD HIGH COURT held that raising of defence in reply to show cause notice did not amount to proof of correctness. It confirmed the CESTAT's order that the onus lies on the person claiming the benefit to maintain the accounts books and then claim the benefit. Once the defence was raised by the appellants, it was essentially for the appellants to lead necessary evidence in that regard. Mere raising of plea in answer to the show cause notice does not by itself mean the proof of correctness of such plea. When the plea relates to certain factual aspect, it is absolutely necessary for the person raising such plea to make the same goods by producing sufficient evidence in support of such plea. Undisputedly, the appellants did not produce any such evidence in support of such plea.

Adjudication pre-supposes issuance of a show cause notice (SCN) - an intimation to show cause, explain or defend the proposed action as mentioned in the SCN. Infact, SCN is the first limb of principle of natural justice i.e., no one should be condemned unheard. SCN should be clear, precise and unambiguous.

Who to Adjudicate

Central Excise Officers conferred with powers of adjudication by CBEC shall be empowered to adjudicate the cases of imposition of penalties. Thus, as per Section 83A Central Excise Officers shall be vested with powers of adjudicating penalties on service providers for defaults under service tax provisions. Such powers shall be notified by the Government later.