ADJUDICATION

[Dr. Sanjiv Agarwal]

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.

What is Adjudication

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.

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.

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 33(B) 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.

Basic Ingredients of Show Cause Notice/Adjudication

• SCN is a mandatory requirement for raising any demand of duty/service tax.
• The basic aim of SCN is to provide a reasonable opportunity to assessee to present his case or show cause to the proposed demand before any demand is conformed.
• SCN beyond jurisdiction is not sustainable.
• The time limit for issuance of SCN is one year (up to 28-5-2012; 18 months thereafter) from the relevant date, i.e., date of filling of the return.
• Summons u/s 14 of the Central Excise Act, 1944 can be issued before the SCN, if the assessee does not cooperate or submit the sought information forthwith.
• If any SCN is to be issued on the basis of audit para, it would be desirable that the audit team provides the draft of SCN to the adjudicating authority with necessary documentary evidences and enclosures.
• SCN cum-demand notice merely on the basis of audit para without documentary evidences may not be sustainable. Before any SCN is issued, it is desirable and expected that a written communication be sent to the assessee so that does not plead ignorance, non-intimation or innocence at a later stage. Such letter may contain necessary particulars about period, nature of demand, amount, non compliances etc.
• SCN cum-demand notice should be based on proper investigation by the officials and duly supported by valid documentary evidences. [Ram Steel Rolling & Forging Mill v. CCE, Mumbai-II 2006 (9) TMI 332 - CESTAT, MUMBAI; Swastik Tin Works v. CCE, Kanpur 1986 (3) TMI 192 - CEGAT, NEW DELHI].
• SCN is tentative, not decisive. Final decision is taken after hearing the notice. It can not normally be said that adjudicating authority had a pre-determined mind.
• Reasonable time may be given for adjudication to take place. Issue of order one day after the SCN has been held to bad [Ganesh Polytex Ltd. v. Union of India 2010 (9) TMI 299 - ALLAHABAD HIGH COURT ].
• A proper SCN has to specify the demand, i.e., quantify the demand and liability in clear term.
• A letter from the department is not a proper SCN [CCE v. Merchant Impex 2011 (9) TMI 783 - KARNATAKA HIGH COURT]
• Periodical SCN is issued when the issues under consideration are not decided and such issues continue for a longer period.
• Adjudicating authority can not pass two orders on same SCN, though corrigendum may be issued on minor issues without substantially altering the order.
• For genuine reasons, three adjournments should be given to assessee or giving opportunity of hearing for three occasions before passing any order.
• Adjudication is an important function of revenue officers.
• Adjudication is a quasi judicial function.
• Powers of adjudication are subject to jurisdiction and monetary limit for different officers.
• Cases remanded back for de novo adjudication should be decided by authority which passed the remanded order.
• In case of multiple show cause notices, adjudication shall be done by the authority competent to adjudicate the SCN involving highest amount of tax/duty.
• SCN can not be issued during pendency of assessment proceedings.
• Adjudicating order should comply with the principle of natural justice. [Meenakshi Associates Pvt. Ltd. v. CCE, Noida 2009 (1) TMI 552 - CESTAT, NEW DELHI; Afloat Textiles Pvt. Ltd. v. CCE, Vapi 2007 (7) TMI 444 - CESTAT, AHMEDABAD)]
• Order can not travel beyond the scope of SCN. [MCnally Bharat Engineering Co. Ltd. v. CCE  2011 (2) TMI 1240 - JHARKHAND HIGH COURT]
• Adjudicating order should be in accordance with judicial discipline which must be strictly adhered to.
• Order of adjudication must show application of mind and be self-speaking/reasoned order. Reasons for order would ensure justice
• Adjudication order must be a speaking order giving clear findings on all the points raised by the defence dropping the proposed allegations or rebuttal of defence points.
• Adjudication order has to be dated and signed by the adjudicating authority.
• Adjudicating authority should communicate the order/decision within a reasonable time after the personal hearing is held (say, upto one month). However, this does not happen in reality and even the time taken is more than six months in many cases.
• Conditional orders or orders subject to verification are to be avoided and should not be passed.

Adjudication orders must be dispatched by registered post acknowledgement due. The period of filing an appeal has to be reckoned from the date of receipt of adjudication order.

Discussions to this article

[Debtosh Dey]

We are often confronted with multiple audits or multiple surveillance by different wings of Service Tax Dept like audit, investigation, anti-evasion, etc for the same period. We understand, natural justice does not support such muti-proceedings by the same Dept for the same period. It so happened that for same financial years, there were successive investigation and two audits of different groups one after another with trails of correspondence. In once case, Show Cause was issued and this was disputed for nil non-compliance on our part while after almost one year, another audit group took over the same financial year. Though we had responded to their queries, we indeed communicated our reservations on such multiple-audits/ surveillance for the same financial years. In another case, we have responded to anti-evasion group’s series of queries with a note that the periods in question were already audited in-depth under EA-2000.

I wanted to know, if there is any specific provision for multiple-surveillance by different wings of the same dept for the same period at different points of time.

Debtosh Dey, M.Sc (Engg), FIE, C. Engg (I), FCMA, FCS, LL.B.