ADJUDICATION

[Dr. Sanjiv Agarwal]

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.

Statutory Provisions

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 applies 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.

Natural Justice

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.

Basic requirements of principles of natural justice are:

(i) Full information about charges to the party.

(ii) Allowing party to state his defence i.e. through personal hearing.

(iii) Unbiased authority.

(iv) Reasoning Order.

When show cause notices are issued under provisions of the Finance Act, 1994 charging any person for contravention of any provisions of the said Act and rules and/or notifications issued thereunder and penal action is proposed the competent officers of the Department adjudge the case and issue orders. This process is called adjudication.

Framing of Charges

The following principles should be observed by the Central Excise officers in framing charges and adjudicating offences; these principles may be usefully adopted with necessary modifications for adjudication of offences under the Customs Act and Service tax:

(i) A clear distinction should be drawn between a transaction and an act; a transaction may involve a series of separate and distinct acts of commission or omission. Thus, disposal of matches without payment of duty constitutes a transaction which involves the commission of different acts, e.g.

(1) removal without a transport document;

(2) falsification of statutory accounts.

(ii) If one and the same act constitutes an offence under two or more rules, only a single penalty can be imposed in respect of that act under any one of the rules, which the adjudicating officer may choose to apply, and not a separate and distinct penalty under each of the rules.

(iii) (a) If in the course of a investigation, a number of separate and distinct acts are detected, each such act may be separately punished in the manner provided in (ii) above.

(b) If such acts constitute a single transaction they must be adjudicated upon together, and while in accordance with (a) above a separate punishment may be awarded in respect of each such act, the total of the penalties in respect of all the acts together should not exceed the maximum limits wherever prescribed.

(c) If on the other hand, the acts constitute more than one transaction each set of acts constituting one transaction should be adjudicated upon separately and penalties totaling up to the maximum limits where ever prescribed may where necessary be imposed in respect of acts constituting each transaction in the manner provided in (b) above.

(iv) Where an adjudicating officer considers that a penalty exceeding the maximum limit prescribed for him in section 33A of the Central Excises Act, 1944, Sections 28 and 122 of Customs Act, 1962 or Section 83A of Finance Act, 1994 is deserved in respect of acts constituting any particular transaction, he should refer the case for original adjudication to a superior officer competent to adjudge the desired penalty.