LIMITATION FOR ISSUING SCN UNDER SECTION 73 ENHANCED

[Pradeep Jain]

It was proposed in the Central Excise Tariff Conference that the time limit for issuing show cause notice under normal period of limitation should be increased and it appears that the suggestion has been considered by the government in this Budget. In this budget, the government has amended section 73 of the Finance Act wherein the time limit for issuing show cause notice under normal period of limitation has been increased from the present ‘eighteen months’ to ‘thirty months’ from the relevant date.

The effect of increase in time limit is favourable or adverse decision of the government from the point of view of assesses will be known in the time to come. However, there are both pros and cons of the amendment made in section 73 of the Finance Act. The favourable and unfavourable consequences of the amendment are discussed in the succeeding paragraphs.

The advantage of enhancing the time limit to issue normal period of limitation may be viewed as beneficial in the sense that the probability of assessees availing the benefit of ‘no penalty’ by concluding the proceedings under section 76 or proviso to section 11AC (1)(a) may increase. This is for the reason that the show cause notice issued within normal period of limitation generally would not allege fraud, suppression of facts or wilful misstatement with intention to evade payment of duty. Consequently, one may believe that the benefit of waiver from penalties may be extended on comparatively large scale. However, it is also not hidden that the penalty provisions of section 78 or section 11AC (1)(c) are always invoked whether there is allegation of fraud, collusion or wilful misstatement or suppression of facts or not.

One may also contend that increasing time limit for issuing show cause notice under normal period of limitation may be perceived as promoting lethargic attitude of the revenue authorities. It is commonly observed that the show cause notices pertaining to audit objections are also issued after 3-4 years by invoking extended period of limitation. Consequently, since the time limit to issue show cause notice under normal period of limitation is increased to 30 months, the policy of delay in issuance of show cause notices would continue even more. Moreover, the thin gap between the normal period of limitation and the extended period of limitation would make the provision of normal period of limitation redundant as 99%, the revenue authorities will have tendency to invoke larger period of limitation.

With the government planning to introduce unified taxation reform GST in the coming year, the provisions regarding time limit to issue show cause notice under normal period of limitation should be kept at minimum like one year as all the data pertaining to tax credit, payments, returns will be electronically filed and accordingly, it would be expected by the government that scrutiny and verification procedures are carried on speedily. Providing enhanced time limit to issue show cause notice would encourage unnecessary delays in verification and assessment mechanism.  

Discussions to this article

[vasudevan unnikrishnan]

Strange is the way in which CBEC propose to cope up with Efiling,scrutiny etc. In CBDT,the time limit for scrutiny of assessment has been reduced to 3 months in this budget.In CBEC,the detailed scrutiny has been prescribed and the time limit for issue of any demand has been enhanced from 18 to 30 months for Service tax and 12 to 24 months for excise and customs. Reckoning from relevant date,the time limit for service tax will be THREE Years...Is it not an open admission of the self proclaimed inefficiency of the CBEC and staff under them.The annual return newly prescribed for Service tax on the lines of Central excise should include a copy of the Balance sheet and this would help assessees to defend thedemand for 5years relying on figures available in the annual accounts statement .

The strange aspect is that unlike the central excise and customs,there is no time limit of ONE year to decide the SCN 'as far as possible' for service tax matters.Similarly fr disposal of appeals as well. The time limit for decisions on SCN,appeal etc should be prescribed which would take a long way in reducing pendency of litigation and even the number of SCNs.