Order traversing beyond SCN – a detailed note under Central Excise and Service Tax

Central Excise

Central Excise duty is an indirect tax that is levied on the manufacturers of goods in India. Though there is no express definition of goods when it comes to levying the Central Excise duty, thus the definition of the same has been borrowed from the Sales of goods act 1930, which includes all the movable goods and thus central excise is levied on all such goods.
Further when it comes to excisable goods they have been defined as those goods which are specified in the Central Excise Tariff Act. All such manufacturers are required under Central Excise law to register themselves but they can be exempted from such registration if the excise duty payable by them is 0.

Service Tax

Whereby service tax Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994. Every service provider who attain the sum total of 9 lakh in taxable services is required to get himself registered under service tax laws, but service tax is only payable after the gross value of the services provided crosses the bar of Rs 10 Lakh. The service tax payable till date is 15%, out of which the rate of 14% is the standard rate which include the educational chess, 0.5% is the KrishiKalyan Chess and 0.5% is the Swachh Bharat Cess.

Show Cause Notice

Now moving toward the core topic, before one reach the crux of the matter, it is evident to understand what is the literal meaning of the term SCN, it refers to show cause notice. A show cause notice is a notice that is made by an authority when they seek reply over a particular subject matter in various case the apex court have laid down various guideline with respect of the show cause notice. In the show cause notice the person should be told about the charges against him and should put up a worth question in the show cause notice and the notice should not include the conclusion with regard to the findings of the case. In case this is not done than the entire proceeding initiated by the show cause notice stands vitiated[1].The proceeding in which show cause notice is the founding step of the process, the said proceeding is known as show cause proceeding.

A show cause proceeding is meant to give the person proceeded against a reasonable opportunity of making his objection against the proposed charges indicated in the notice[2]. The expressions like  “a reasonable opportunity of making objection” or “a reasonable opportunity of defence”, which literally means giving the person against whom the allegation have been made a chance to justify his act ; have came for consideration in many cases and a constitutional bench In the case of Khem Chand v. Union of India[3], Chief justice speaking for unanimousbench in the said case held that the concept of reasonable opportunity includes various safeguards and one of them is “An opportunity to deny his guilt and establish his innocence, which he can only do if he is told what the charge levelled against him are and the allegations on which such charges are based”.

Central Excise officers discharge functions which are of quasi-judicial nature[4], these quasi-judicial functions requires that the principle of natural justice should be followed, and the rule which falls under the ambit said principle is that “no party is condemned unheard”. Thus the said right also include that the party must know about the case he has to meet. The requirement with regard to furnishing the show cause notice with regard to the recovery of duties has been enshrined in section 11 A (1) of Central Excise Act[5].  The show case notice must be a detailed document and the same should contain the facts, liability to penalty[6], liability to interest[7] along with the copy of the document that are relied upon[8]. As far as the Service of show cause notice is concerned, they are made under the Central Excise Act in term of section 37C[9] of the act.

In the case of Shri MohamadNaseer, Shri Praviz v. Commissioner of Custom (P)[10] while deciding on the matter travelling beyond the scope of show cause notice. The adjudicating authority held that the commissioner invoked Section 111(m) and 111(o) of the Customs Act for confiscation of good, cannot be sustained as they were not invoked in the show cause notice. Therefore by invoking two sub-section the commissioner have travelled beyond the scope of the show cause notice. Further emphasis were made in the said case that, it is well settled law that the adjudicating authority has to pass his order within the parameter of the allegations leveled in the show cause notice. The same view was upheld in the case of C. Ravichandran v. Tamil Nadu Newsprint and Papers, where by it was held that the charge of the enquiry officer of negligence was not binding as they were beyond the scope of the show cause notice and in the sad notice there was no such allegation and thus the same allegation will not be entertained.

In the case of Lady AmpthilInstn. V. CC and Ors.[11], with respect of Customs Act 1962, under section 28 of the said act, The show cause notice also subjected to the limitation period of 5 year and if the notice is served beyond that period than the time bar would apply. The scenario is quite similar when it comes to Central excise as well, under section 11A(1)(a) it has been clearly mentioned that the Central Excise officer shall serve the notice within one year and it can be extended to 5 years in case there is  fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of the Act or of the rules made there under with intent to evade payment of Duty.

In the case of Commissioner of Customs, Mumbai v. Toyo Engineering India Ltd.[12], the apex court while delivering judgment under para 16 held that, the department cannot travel beyond the scope of the show cause notice. Further in the case of CCE v. Ballarpur Industries Ltd.[13]the apex court held that it is trite that the foundation of Revenue’s case is laid in the show cause notice and the same must be confined to the allegations therein. A similar view was adopted in the case of M/s Jetlite (India) Ltd. v. CCE New Delhi[14], where it was held that the adjudicating body did travelled beyond the scope of the show cause notice was not legal and thus the previous judgment with regard to payment of service tax was dismissed.

In the case of Dayanand Medical College & Hospital v. C.C.E New Delhi[15], it was held that law is well settled that adjudication should base only on the allegation made in the show cause notice but not beyond that and denovo adjudication[16] should not travel beyond the scope of the remand. The show cause notice being the foundation of adjudication that is required to expose the allegation in clear terms to enable an assessee to lead defence.  Failure to do so, makes the adjudication fatal. Liability being intended to be determined, Show cause notice is the first course of natural justice.  That should clearly bring out the allegation. Similar proposition of law has been laid down in many cases such asCCE Nagpur v. Ballarpur Industries Ltd[17]and the CCE Mumbai v. Toyo Engg.  India Ltd.[18]. The proposition of law inBrindawan Beverages Pvt. Ltd. v. Commissioner[19] and Metal Forging v. Union of India[20] is also to the said effect.

The point was further reiterated in the case of Extrusion Process Pvt. Ltd. v. CCE[21] where the tribunal expressed its view that the revisionary authority cannot travel beyond the show- cause notice. The point was again explained in the case of Markfed Oil & Allied Industries v. CCE[22]where the tribunal held that as the notice to the appellants was issuedonly under section 77 of the Finance Act 1994 for imposing penalty on the account of failure to file returns, the commissioner exercising revisionary power could not pass an order for making payment of service tax with interest.

This doesn’t take away the right of the authority to issue another show cause notice with regard to a certain revenue matter.

For an instance in an excise duty recovery case the officer after sealing of all the books of accounts and other relevant document, issue a show cause notice asking as to why excise duty on a particular import was not paid. Due to some error the officer failed to include the penalty with regard to evading the excise duty. If the adjudicating authority comes to a conclusion that the excise duty is to be paid and they are silent on the fact that whether the penalty is to paid or not. Than the concerned department have the right to issue another show cause notice in that regard, when such an act is done, the said authority won’t be travelling beyond the scope of the show cause notice, but if in the initial case only the adjudicating authority, suomoto add the penalty amount than they would be surely travelling beyond the scope of the show cause notice.

Conclusion

Thus this led to one conclusion that where the matters are related service tax or excise duty recovery or any other revenue case. It is evident that the adjudicating authority should serve a show cause notice including all the allegations and the adjudicating authority have to follow a binding principle as per which they cannot adjudicate upon any topic or issue which is not present in the show cause notice and if they do such an act they would be travelling beyond the scope of the show cause of notice and thus the decision on the said issue would not be held binding.

[1] Ibid, pt.2.

[2] Oryx Fisheries Provate Limited v. Union of India and Others (2010) 13 SCC 427.

[3] AIR 1958 SC 300.

[4] Quasi-Judicial Nature means an act which is not purely legal.

[5]Section 11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.-

(1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,-

(a) the Central Excise Officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;

[6] Section 11AC, Rule 25 and Rule 26 of Central Excise Rules 2002.

[7] Section 11AA and Section 11AB.

[8]Sahi Ram v. Avtar Singh 1999 (4) SCC 511.

[9]Section 37C. Service of decisions, orders, summons, etc. –

(1) Any decision or order passed or any summons or notices issued under this Act or the rules made thereunder, shall be served, –

  1. a) by tendering the decision, order, summons or notice, or sending it by registered post with acknowledgment due, to the person for whom it is intended or his authorised agent, if any;
  2. b) if the decision, order, summons or notice cannot be served in the manner provided in clause (a), 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 for whom such decision, order, summons or notice, as the case may be, is intended;
  3. c) if the decision, order, summons or notice cannot be served in the manner provided in clauses (a) and (b), by affixing a copy thereof on the notice board of the officer or authority who or which passed such decision or order or issued such summons or notice.

(2) Every decision or order passed or any summons or notice issued under this Act or the rules made thereunder, shall be deemed to have been served on the date on which the decision, order, summons or notice is tendered or delivered by post or a copy thereof is affixed in the manner provided in sub-Section(1).

[10] 2003 (162) ELT 560 Tri Mumbai.

[11] 2001 (76) ECC 246.

[12] (2006) 7 SCC 592

[13] (2007) 8 SCC 89

[14] 2010 TIOL 1715 CESTAT Del.

[15] Appeal No. C/366/2007-CU[DB].

[16]As per Black Laws Dictionary Denovo adjudication means “Generally, a new hearing or a hearing for the second time, contemplating an entire trial in same manner in which matter was originally heard and a review of previous hearing. Trying matter a new the same as if had not been heard before and as if no decision had been previously rendered”

[17] Supra Note 7.

[18] Supra Note 6.

[19]2007 (213) ELT 287 (SC)

[20]2002 (146) ELT 241 (SC)

[21] (1994) 69 ELT 144 (Trib.).

[22] (2002) 146 ELT 466 (Trib.-Del).


AUTHOR

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Devashish Jain is  law student currently pursuing Int. B.com LLB (Splz.in Taxation law) from UPES, who loves to research and want to know as much as he can.He had been actively participating in various National and international conferences, consultations and debates.His area of interest lies in Taxation laws.


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Disclaimer:  The views and opinions expressed in this article are those of the authors. All data and information provided on this site is for informational purposes only. sapaa.in makes no representations as to accuracy, completeness, correctness or validity of any information on this site and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use.