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TMI BlogMaster Circular on Show Cause Notice, Adjudication and Recovery –reg.X X X X Extracts X X X X X X X X Extracts X X X X ..... lar on the subject of show cause notices, adjudication proceedings and recovery is an effort to compile relevant legal and statutory provisions, circulars of the past and to rescind circulars which have lost relevance. Annexure-I to the circular provides list of the eighty nine circulars which stand rescinded. Three circulars listed in Annexure-II have not been rescinded as they contain comprehensive instructions on the subject they address. 2. The master circular is divided into four parts. Part I deals with Show Cause Notice related issues, Part II deals with issues related to Adjudication proceedings, Part III deals with closure of proceedings and recovery of duty and Part IV deals with miscellaneous issues. 3. The provisions of the Master Circular shall have overriding effect on the CBEC‟s Excise Manual of Supplementary Instructions to the extent they are in conflict. 4. Difficulty, if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version will follow. Shankar Prasad Sarma Under Secretary to the Government of India MASTER CIRCULAR Index: S.No. Subject Para No. Part-I 1 Demand 1.1 -1.2 2 Show Cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken and therefore it should be drafted with utmost care. Issuance of SCN is a statutory requirement and it is the basic document for settlement of any dispute relating to tax liability or any punitive action to be undertaken for contravention of provisions of Central Excise Act and the rules made thereunder. A SCN offers the noticee an opportunity to submit his oral or written submission before the Adjudicating Authoritiy on the charges alleged in the SCN. The issuance of show cause notice is a mandatory requirement according to the principles of natural justice which are commonly known as audi alteram partem which means that no one should be condemned unheard. 2.2 Structure of SCN: A SCN should ideally comprise of the following parts, though it may vary from case to case: a) Introduction of the case b). Legal frame work c). Factual statement and appreciation of evidences d). Discussion, facts and legal frame work, e). Discussion on Limitation f). Calculation of duty and other amounts due g). Statement of charges h). Authority to adjudicate. 2.3 Introduction of the case: This part of the SCN must contain the details of the person to whom the notice is to be iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid or erroneously refunded can be demanded only within normal period i.e. within two years from the relevant date. However, in specific case, where any duty of excise has been not paid or short paid or erroneously refunded, by reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or rules made thereunder with intent to evade payment of duty, then the duty can be demanded within a period of five years from the relevant date. The SCN should clearly spell out the ingredients for invoking the extended period of five years with evidence on record. A more detailed discussion on the subject is contained in paragraph 3.1 to 3.6. 2.8 Quantification of duty demanded: It is desirable that the demand is quantified in the SCN, however if due to some genuine grounds it is not possible to quantify the short levy at the time of issue of SCN, the SCN would not be considered as invalid. It would still be desirable that the principles and manner of computing the amounts due from the noticee are clearly laid down in this part of the SCN. In the case of Gwalior Rayon Mfg. (Wvg.) Co. Vs. UOI, 1982 (010) ELT 0844 (MP), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y wilful mis-statement or suppression of facts or contravention of any of the provisions of the Central Excise Act, 1944 or of the Rules made thereunder with intent to evade payment of duty, a longer period of limitation applies and show cause notice demanding duty can be issued within five years from the relevant date. 3.2 Ingredients for extended period: Extended period can be invoked only when there are ingredients necessary to justify the demand for the extended period in a case leading to short payment or non-payment of tax. The onus of establishing that these ingredients are present in a given case is on revenue and these ingredients need to be clearly brought out in the Show Cause Notice alongwith evidence thereof. The active element of intent to evade duty by action or inaction needs to be present for invoking extended period. 3.3 The Apex Court‟s in the case of M/s Cosmic Dye chemical Vs Collector of Cen. Excise, Bombay [1995 (75) E.L.T. 721 (S.C.), has laid the law on the subject very clearly. The same is reproduced below for ease of reference. Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flates the figures of outstanding demands and above all causes unnecessary harassment of the assessees. Therefore, before invoking extended period, it must be ensured that the necessary and sufficient conditions to invoke extended period exists. 3.7 Second SCN invoking extended period: Issuance of a second SCN invoking extended period after the first SCN invoking extended period of time has been issued is legally not tenable. However, the second SCN, if issued would also need to establish the ingredients required to invoke extended period independently. For example, in cases where clearances are not reported by the assessee in the periodic return, second SCN invoking extended period is quite logical whereas in cases of wilful mis-statement regarding the clearances made under appropriate invoice and recorded in the periodic returns, second SCN invoking extended period would be difficult to sustain as the department comes in possession of all the facts after the time of first SCN. Therefore, as a matter of abundant precaution, it is desirable that after the first SCN invoking extended period, subsequent SCNs should be issued within the normal period of limitation. 3.8 Applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 may be referred. The procedure for adjudication of Show Cause Notices issued due to CERA objections are contained in the circular dated 8.4.2016(ibid) and have been reproduced from para 18.1 to 18.4 of this circular for ease of reference. 5.0 Consultation with the noticee before issue of Show Cause Notice: Board has made pre show cause notice consultation by the Principal Commissioner/ Commissioner prior to issue of show cause notice in cases involving demands of duty above ₹ 50 lakhs (except for preventive/ offence related SCN's) mandatory vide instruction issued from F No. 1080/09/DLA/MISC/15 dated 21st December 2015. Such consultation shall be done by the adjudicating authority with the assessee concerned. This is an important step towards trade facilitation and promoting voluntary compliance and to reduce the necessity of issuing show cause notice. 6.0 Authority to issue SCN: A SCN should ideally be issued by the authority empowered to adjudicate the case as this ensures accountability as well as rigour of examination as demands of higher amounts are adjudicated by the officers of higher rank. Details of authority empowered to adjudicate the cases as per demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved by an officer equal in rank to the officer who is competent to adjudicate such cases. The cases can be closed by the competent authority in DGCEI/Executive Commissionerate/Audit Commissionerate, as the case may be. If multiple issues involving different monetary values arise from the same proceedings, then the sum total involved in all the issues arising from the same proceedings should be considered for conclusion of proceedings. 9.2 The conclusion of proceedings should invariably be intimated to the assessee in writing. There is no need to issue an adjudication order. Further, there is no need to undertake review of such conclusion of proceedings. 9.3 Call-Book Cases: A call book of cases is maintained of such cases which cannot be adjudicated immediately due to certain specified reasons and adjudication is to be kept in abeyance. The following categories of cases can be transferred to call book:- i. Cases in which the Department has gone in appeal to the appropriate authority. ii. Cases where injunction has been issued by Supreme Court/ High Court/ CEGAT, etc. iii.Cases where the Board has specifically ordered the same to be kept pending and to be entered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 35B(1) of the Central Excise Act, 1944 shall be adjudicated in the following manner: S.No. Central Excise Officer Monetary Limits for Central Excise 1 Additional/Joint Commissioner Exceeding ₹ 50 lakh 2 Deputy/Assistant Commissioner Above ₹ 10 lakh but not exceeding ₹ 50 lakh 3 Superintendent Not exceeding ₹ 10 lakh 11.2 Other important points: Cases involving taxability, classification, valuation and extended period of limitation shall be kept out of the purview of adjudication by Superintendents. Such cases, upto rupees 10 Lakhs, shall also be adjudicated by the Deputy Commissioner/ Assistant Commissioner in addition to the cases exceeding rupees 10 Lakhs but not exceeding rupees 50 lakh. i. Refund matters (including rebate), shall be adjudicated by the Deputy Commissioner/ Assistant Commissioner without any monetary limit ii. In case different show cause notices have been issued on the same issue answerable to different adjudicating authorities, Show Cause Notices involving the same issue shall be adjudicated by the adjudicating authority competent to decide the case involving the highest amount of duty. 11.3 Where d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cers of Audit Commissionerate shall continue be an exception rather than as a rule. 12.3 Cases investigated by DGCEI: DGCEI after investigation issues show cause notice which may be answerable to either ADG (Adjudication) or to Executive Commissioner as the case may be. Board has issued detailed circulars regarding adjudication of cases booked by DGCEI vide Circular no 994/01/2015-CX dated 10.02.2015 and Circular No. 1000/7/2015-CX dated the 3rd March, 2015. The salient points of the instruction given are as follows. 12.4 To assign cases for adjudication amongst the Additional Director General (Adjudication) and the field Commissioners, following general guidelines may be followed:- (i) Cases including cases pertaining to the jurisdiction of multiple Commissionerates, where the duty involved is more than ₹ 5 crore shall be adjudicated by the ADG (Adjudication). However in case of large pendency of cases or there being a vacancy in the rank of ADG (Adjudication), Director General, CEI may assign cases involving duty of more than ₹ 5 crore to the field Commissioners following clauses (iv) and (v) of the guidelines. (ii) Director General, CEI may issue general orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon in the Show Cause Notice are required to be returned under proper receipt to the persons from whom they are seized. Show Cause Notice itself may incorporate a clause that unrelied upon records may be collected by the concerned persons within 30 days of receipt of the Show Cause Notice. The designation and address of the officer responsible for returning the relied upon records should also be mentioned in the Show Cause Notice. This would ensure that the adjudication proceedings are not delayed due to non-return of the non-relied upon documents. 14.1 Settlement of Cases: As per Board instruction every show cause notice should be forwarded, along with a letter stating that party can approach settlement of case through Settlement Commission. Where the noticee approaches the Settlement Commission, the matter needs to be transferred to call book till the matter is decided by Settlement Commission. In case matter is not finally accepted for settlement by the settlement commission, the show cause notice should be adjudicated in normal manner, in case the Settlement Commission, settles the matter, the show cause notice should be taken out of call book and shown as disposed off. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he adjudication order should generally contain brief facts of the case, written and oral submissions by the party, observation of the adjudicating authority on the evidences on record and facts of omission and commission during personal hearing and finally the operating order. At any cost, the findings and discussions should not go beyond the scope and grounds of the show cause notice. 14.8 Quantification of demand: The duty demanded and confirmed should be clearly quantified and the order portion must contain the provisions of law under which duty is confirmed and penalty is imposed. The duty demanded in an adjudication order cannot exceed the amount proposed in the Show Cause notice. 14.9 Corroborative evidence and Cross-examination: Where a Statement is relied upon in the adjudication proceedings, it would be required to be established though the process of cross-examination, if the noticee makes a request for cross-examination of the person whose statement is relied upon in the SCN. During investigation, a statement can be fortified by collection of corroborative evidence so that the corroborative evidence support the case of the department, in cases where cross-examination i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP : SoFs/LARs are replied by the Commissionerate and therefore these cases may be adjudicated after ensuring that the reply given by the Commissionerate is available on record. 17.2 Adjudication of admitted DAPs/APs: DAPs are replied by the Ministry (CBEC) and therefore adjudication of DAPs should be undertaken after ensuring that the reply given by the Ministry (CBEC) is available on record. 17.3 Adjudicating authority is a quasi-judicial authority and is legally bound to adjudicate the case independently and judiciously taking into consideration the audit objection by CERA/CRA, reply of the department as referred above, reply of the party, relevant legal provisions, case laws on the subject and relevant circulars of the Board, if any. In this regard the following extract from the judgment in the matter of Simplex Infrastructure Ltd vs Commissioner of Service Tax of the Hon‟ble Kolkata High Court dated 07.04.2016 at para 74 may be followed in letter and spirit while discharging one‟s role as an Adjudicating authority „It is well settled that a quasi-judicial authority must act judiciously and not at the dictates of some other authority. It is quite evident t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essor in business also. It may be noted that under sub-Section (2) of Section 11 of the Central Excise Act, 1944, now Central Excise Officers are empowered to issue an order to any other person from whom money is due to such person from whom recovery of arrears is required to be made. Such notice for recovery to the other person is generally referred as Garnishee Notice. 20. Recovery from the assets under liquidation: Section 53 of the Insolvency and Bankruptcy Code, 2016 provides for order of priority for distribution of proceeds from the sale of the liquidation assets. Pari-materia changes have been made in Section 11E of the Central Excise Act, 1944. In effect, the Central Excise dues shall have first charge, after the dues, if any, under the provisions of Companies Act, Recovery of Debt due to Bank and Financial Institution Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Insolvency and Bankruptcy Code, 2016, have been recovered. 20.1 Recovery during pendency before BIFR/IFCL/OL/DRT/Insolvency and Bankruptcy Code, 2016: When the cases are pending before BIFR/IFCL/OL/ appropriate authority under Insolv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated after sixty days of issue of order provided no stay has been granted by the High Court or Supreme Court as the case may be. 21. Recovery of admitted liability in periodic returns: Rule 8(4) of the Central Excise Rules, 2002 provide that provisions of Section 11 of the Central Excise Act, 1944 would apply for recovery of sums declared payable in periodic returns but not paid. Section 11 provides wide ranging power for recovery of dues as explained in paragraph 21 above. Section 11A(16) on the other hand provides that provisions of Section 11A shall not apply for duty short paid or not paid which is self-assessed and declared in the periodic returns. The conjoined reading of these two provisions provide that where the liability of duty is admitted but not paid by the assessee, adjudication proceedings envisaged under Section 11A are not required to be undertaken. Such self-admitted liability would be covered under the expression duty and any other sums of any kind payable to the Central Government used in Section 11A notice for recovery of admitted liability may be served on the assessee under Section 11 and when such dues are not paid within a reasonable time, recovery pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken forthwith for recovery of arrears. Part IV: Miscellaneous 23: Service of decisions, orders, summons, etc: The statutory provisions for Service of decisions, orders, summons, etc. have been provided under Section 37C of the CEA, 1944. The Section provides that the service of interalia of any order or notice, which would include a SCN or an adjudication order needs to be carried out in prescribed manner for the service to be considered complete. The Section provides for various methods of service such as by tendering or sending it by registered post with acknowledgment due or as a fallback, by affixing a copy thereof to some conspicuous part of the factory or warehouse or other place of business or usual place of residence of the person or as a further fallback, by affixing on the notice board of the officer. For further details, the Section may be referred. 24. De novo or Adjudication remanded by appellate authority: In cases of de novo adjudication in pursuance of the order of Appellate Authority, such cases should be decided by the adjudicating authority of the same rank who had passed the order which was in appeal before the Appellate authority, notwithstanding the enha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication of cases by the Central Excise officers and transferred to the call-book. (iv) In the event of a remand, refund of the pre-deposit shall be payable along with interest. ANNEXURE-I List of Circulars/Instructions which stand rescinded S.No. Circulars/Instructions 1 32/80-CX.6 dated 26.7.80 2 5/83-CX.6 dated10.3.1983 3 207/47/85-CX.6, dated 12.8.1986 4 17/87, dated 18.3.1987 5 267/104/87, dated 15.12.1987 6 27/88-CX.6, dated 7.4.1988 7 42/88-CX.6, dated 24.5.1988 8 48/88-CX.6, dated 10.6.1988 9 50/88-CX.6, dated 17.6.1988, 10 67/17/88-CX.2,dated 18.8.1988 11 76/88-CX.6, dated 2.11.1988 12 79/88-CX.6, dated 15.11.1988 13 66/88,dated 20.12.1988 14 2/89, dated 9.1.1989 15 29/89,dated 2.5.1989 16 50/89, dated 29.8.1989 17 53/90-CX.3, dated 6.9.90 18 1/90-AU dated19.3.90 19 18/90-CX.8, dated 28.3.1990 20 53/90, dated 26.9.1990 21 21/90, dated 6.12.1990 22 289/10/91-CX.9 dated 18.03.1991 23 3/92-CX.6 24 167/39/92-CX.4, dated 13.10.1992 25 5/92, dated 13.10.1992 26 20/92-CX.6, dated 21.12.1992 27 13/93-CX.6 dated15.10.93 28 9/93-CX.6, dated 8.7.1993 29 19/93-CX.6, dated 29.12.1993 30 20/20/94-CX, dated 10.2.1 ..... 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