SHOW CAUSE NOTICE

[Mr. M. GOVINDARAJAN]

Show cause notice

The expression ‘show cause notice’ has not been defined under any of the indirect taxes.  Any authority before passing an order against a person should show cause why should not the order be passed against him.  Show cause notice is issued to comply with the principles of Natural Justice. An adjudicating order is to be passed by any competent authority after giving a reasonable opportunity of being heard to the person concerned.

Order without the issue of show cause notice

Any adjudication order passed without issuing a show cause notice to the assessee is void ab initio and liable to be quashed.  It is mandatory to issue show cause notice before passing any order. 

In ‘Commissioner of Central Excise, Calcutta – I V. Suraj Ratan Mohta’ – 1998 (3) TMI 1 - CEGAT, CALCUTTA the Tribunal observed that the Superintendent of Central Excise of Service tax cell straightaway imposed a penalty without giving any show cause notice to the assessee or any opportunity to the assessee.  The assessee has alleged certain factual portion that the tax was imposed for the first time in January 1995 and there has been no failure on his part on any account earlier.   The Tribunal directed the Superintendent to issue a show cause notice to the assessee asking him to show cause as to why the penalty be not imposed on him so that the assessee gets an opportunity to prove that there was a reasonable cause.

In ‘Metal forgings Limited V. Union of India’ – 2002 (11) TMI 90 - SUPREME COURT OF INDIA it was held that communications, orders, suggestions or advices from the Department cannot be deemed to be a show cause notice.   There must be a specific show cause notice indicating the amount demanded and calling upon the assessee to show cause is necessary.

In ‘Sidwal Refrigeration Industries Private Limited V. Commissioner of Central Excise’ – 2002 (8) TMI 145 - CEGAT, COURT NO. II, NEW DELHI it was held that a communication of audit observations/objections and request made to the appellant to deposit the duty mentioned is not sustainable in law.   A show cause notice must be preceded before any demand of duty.

Show cause notice is the foundation

In ‘Commissioner of Central Excise V. Tata Tech Limited’ – 2008 (7) TMI 91 - SUPREME COURT it has been held that the show cause notice is foundation in the matter of levy and recovery of duty, penalty and interest and if the point is not raised in the show cause notice it cannot be raised at the appellate stage.

Assessee is put to notice

In ‘Devam Modern Breweries Limited V. Commissioner of Central Excise, Chandigarh’ – 2006 (8) TMI 15 - SUPREME COURT OF INDIA it was held that the assessee was not put to notice as to which of the various commissions or omissions stated in the proviso to Sec. 11A(1) of the Act had been committed by it and only general show cause notices were issued. 

In ‘United Telecom Limited V. Commissioner of Central Excise, Hyderabad’ – 2010 (10) TMI 348 - CESTAT, BANGALORE  it was held that the Tribunal found that no tax liability can be confirmed against a person without putting him/it on notice as to its liability.   It is essential that the liability is indicated in the notice with reference to the specific statutory provision.   In the instant case, the impugned proceedings did not allege at the show cause notice stage or find at the adjudication stage the specific provision under which the services rendered by the appellant are classifiable.

In ‘Pankaj Gandhi V. Commissioner of Customs, New Delhi’ -2009 (8) TMI 444 - CESTAT, NEW DELHI it was held that persons to whom show cause notice is not issued cannot be proceeded against in adjudication order.

Format of show cause notice

No format is prescribed for the issue of show cause notice in the indirect tax laws. There are many requirements to be included 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 calculations of duty together with the evidence to support such calculations, when it proposes recovery thereof from the assessee.  The show cause notice shall be duly signed by the authority issuing it.

In ‘S.P.S. Steels Rolling Mills Limited V. Commissioner of Central Excise, Bolpur’ – 2007 (2) TMI 537 - CESTAT, KOLKATA the Tribunal held that it is the preliminary rule of law that any proceedings to be initiated should be under authority of law.   The show cause notice dated 31.5.2001 issued was an unsigned document and nothing more than a scrap paper carries any value in the eyes of law.   Accordingly the entire proceeding that was designed against the appellant company without a proper notice is void ab initio.

Jurisdiction

The show cause notice shall be issued by the competent officer of the Department, in other words, he shall have jurisdiction to issue the show cause notice; otherwise the show cause notice will be invalid.   Mostly the statute itself gives powers to authorities to issue show cause notice.  The jurisdiction consists of territorial jurisdiction and pecuniary jurisdiction.   In some cases special jurisdiction is given to the officers to issue the show cause notice.

Allegations

The show cause notice shall consist of the allegations that are framed against the assessees by the issuing authority.  The show cause notice should provide foundation for civil and criminal consequence of law and should categorically bring out to the notice of noticee for rebuttal.   In absence of proper charge being brought for rebuttal in the show cause notice, adjudication fails to touch an issue not covered by show cause notice traveling beyond that.  In addition to support the allegations documentary evidence should be there.

In ‘Larsen & Toubro Limited V. Commissioner of Central Excise, Pune – II’ – 2007 (5) TMI 1 - SUPREME COURT OF INDIA the extension of period of limitation entails both civil and criminal consequences and therefore, the same must be stated in the show cause notice and the allegation in regard to suppression of facts must be clear and explicit in the notice so as to enable the notices to reply thereto effectively.

Limitation

The show cause notice is to be issued within the limitation period.  The indirect tax case laws provide time limitation for issue of show cause notice.  For example the provisions of service tax fix 30 months as limitation period from the relevant date.  This limitation period may be extended to five years if the evasion of duty/tax is due to fraud, mis-declaration, suppression of facts etc., with intention to evade payment of tax/duty.

Quantification

In ‘Metal Forgings V. Union of India’ – 2002 (11) TMI 90 - SUPREME COURT OF INDIA the Supreme Court held that show cause notice is a mandatory requirement for raising demands and that communications, orders, suggestions or advices from department cannot be deemed to be a show cause notice.   A specific show cause notice indicating the amount demanded and calling upon the assessee to put forth their case if he has any objection to such demand has been filed to be a necessary ingredient for confirming demands.

In ‘Karbala Trust V. Commissioner of Central Excise, Trivandrum’ – 2005 (11) TMI 488 - CESTAT BANGALORE the appellants contended that the show cause notice does not speak about the amount of service tax demanded and that there is no application of mind in working out the service tax.   The Tribunal held that the plea taken is justified.   The authority ought to have correctly given the calculation of service tax.                                               

In “Praseetha Suresh V. Commissioner of Central Excise, Trivandrum’ – 2006 (4) TMI 23 - CESTAT, BANGALORE the Tribunal noticed that the show cause notice of 2002 as well as of 2005 has not specified the period of demand nor has quantified the service tax.   In terms of the judgment of High Courts, the demand cannot be confirmed in vacuum without raising and quantifying the same in the show cause notice.

Exact liability

In ‘Faiveley Transport India Limited V. Commissioner of Central Excise, Chennai’ – 2008 (1) TMI 230 - CESTAT, CHENNAI the proceedings, culminating in the impugned order originated with the show cause notice adjudicated by the Original Authority.   The show cause notice did not put the appellants on notice as to their exact liability as the notice did not indicate the category of the service which the assessee has received.   It is a fundamental flaw in the proceedings and the consequential demand is not sustainable.

In ‘Sundaram Textiles Limited V. Commissioner of Central Excise, Tirunelveli’ – 2008 (1) TMI 90 - CESTAT, CHENNAI it was held that tax cannot be demanded in the style of ‘From A and B as assessee when A and B are different legal entities.   If B is an agent of A and liability of A is demanded from B as the agent of A, that position has to be made clear in the notice.

Invoking proper sections

The authority issuing show cause notice shall invoke the relevant section under which the allegations are made and penalty are imposed.

In ‘LVR & Dang In Store Limited V. Collector of Customs, Madras’ – 1994 (1) TMI 157 - CEGAT, MADRAS the Tribunal held that quoting of wrong section or rules in the show cause notice or order is not fatal so long as the nature of violation correctly has been brought out.

In ‘Commissioner of Central Excise V, Lanjekar Sales Corporation’ – 2006 (6) TMI 427 - CESTAT, MUMBAI the Tribunal found that in the show cause notice the charges against the respondents have been clearly spelt out and accordingly mere intention of wrong provision of law when power exercised is available even though under a different provision is not by itself sufficient to invalidate exercise of that power.

Show cause notice not to be issued for levy of interest

In ‘Ashok Leyland V. Commissioner of Central Excise, Chennai’ – 2003 (1) TMI 190 - CEGAT, CHENNAI it was held that show cause notice cannot be issued merely for interest and penalty when duty has already been paid before the issue of show cause notice.

Time to give reply

The show cause notice shall indicate the time within which the assessee is required to give reply to the authority. 

Personal hearing

The show cause notice also requires the assessee to inform in his reply to the show cause notice whether he wants to be heard in person before the authority.

Service of show cause notice

The authority issuing show cause notice is to ensure that the show cause notice is served on the assessee as per the provisions of law.

In ‘Collector of Customs, Cochin V. Trivandrum Rubber Works Limited’ – 1998 (11) TMI 127 - SUPREME COURT OF INDIA the show cause notice was issued under Sec. 28 to the owner/importer as a person chargeable to duty.   The notice must, therefore, be served on the owner/importer.   A service on the clearing agent of the owner/importer after the clearing agent has ceased to deal with the goods in question under the Customs Act, cannot be treated as valid service of notice on the owner/importer.

In ‘Keshwari International V. Commissioner of Customs, Amritsar’ – 2008 (12) TMI 600 - CESTAT, NEW DELHI the show cause notice dated 21.05.2004 was delivered by registered post on 22.05.2004 on the address of the appellant as mentioned in the Bill of Entry, which was returned back with postal remarks ‘unclaimed’.   Therefore it is a valid service of the show cause notice.

In ‘Tara International V. Commissioner of Customs (Exp), Mumbai’ – 2009 (1) TMI 665 - CESTAT, MUMBAI the main grievance in these appeals is that no copy of any show cause notice was served on the appellant and no notice hearing was issued by the adjudicating authority, whereby natural justice was denied to the appellants.  The Tribunal noticed though copies of the show cause notices, were shown to have been dispatched by registered post by the party, the acknowledgement of receipt is not available.   Further, it appears that personal hearing issued to the party, were returned undelivered, the reason for which is not clear from the papers.   In any case, the records do not bear evidence of the show cause notices or personal hearing notices having been duly served on the party.   The grievances of the appellant appear to be genuine.   This grievance of negation of natural justice has to be redressed.   Accordingly the Tribunal set aside the impugned order and allows the appeal by way of remand

Discussions to this article

[RAJESH SANGHVI]

Excellent article sir. i wonder why no such concept of SCN even under Income-tax Act because AO's make additions without formal SCN though for concealment penalty they issue SCN u/s 274 r.w.s 271(1)(c). Any light on this issue sir !!