Sagar Shah ADJUDICATION & APPEALS IN SERVICE TAX & CENTRAL EXCISE

Adjudication in Indirect Taxes CONTENT: Sr NoContent 1Assessment of Taxes 2EA-2000 Audit of The Records of Assessee 2CERA Audit 3Investigation by Preventive Wing 4DGCEI Investigation and DRI Investigation 5After Completion of Investigation 6Issue of SCN 7Issue of SCN- What Next 8New Penalty Provisions 9Filing of Reply to SCN 10Process of Adjudication

Adjudication in Indirect Taxes CONTENT: Sr NoContent 11Powers of Adjudicating Authority5 12Order without SCN 13Passing of order-what next? 14Appeal and consequences of non filing of appeal 15Appeal to CCE(A) and Appeal to CESTAT and Procedure 16Powers of Commissioner (Appeals) and Powers of CESTAT 17Department Appeal 18Miscellaneous Application and other procedure at CESTAT 19Appeal to KC and SC 20Settlement Commission 21Advance Ruling

Adjudication in Indirect Taxes ASSESSMENT OF TAXES  Self Assessment Era.  Checks and controls measures to check evasion and ensure compliance: Department audits (EA-2000) on regular interval where the records of the assessee are audited on sample basis CERA Audit Investigation based on intelligence by department officers Investigation by the DGCEI (Directorate General of Central Excise Intelligence) Investigation by the DRI (Directorate of Revenue Intelligence)

Adjudication in Indirect Taxes EA-2000 AUDIT OF THE RECORDS OF ASSESSEE BY DEPT  Regular audit by the department officers (EA-2000 audit)  Separate Audit Commissionerate  Selection of assessee’s: Based on certain criteria and risk involved based on risk evolution method prescribed by Director General of Audit(Ref. Circular No. 995/2/2015-CX)  Conducted at Commissionerate level of the assessee’s registered within the Commissionerate  General Constitution of the audit team Superintendent/Assistant Commissioner, Inspector

Adjudication in Indirect Taxes EA-2000 AUDIT OF THE RECORDS OF ASSESSEE BY DEPT contd.  Allotment of audit to the various audit teams At Commissionerate level Based on certain criteria's like industry, territorial jurisdiction etc.  Powers and limitations To call for the records and documents To visit the premises and verify the records Cannot go beyond the information available in the records Cannot verify the records of the assessee who is not supposed to be audited

Adjudication in Indirect Taxes EA-2000 AUDIT OF THE RECORDS OF ASSESSEE BY DEPT contd.  Process of conducting the audit Desk review (review of the available records based on the documents available with the department and public domain, however practically the information is sought from the assessee’s in the prescribed format Primary understanding of the business and risk areas Visit of the premises of the manufacturer or service provider Discussion with the assessee and understanding the processes Primary finding of the issues and seeking clarification from the officials of the assessee on the issues pointed out during the audit If not convinced with the clarification given by the assessee then issue the draft audit report wherein the issue with respect to the non-compliance, duty evasion may be highlighted

Adjudication in Indirect Taxes EA-2000 AUDIT OF THE RECORDS OF ASSESSEE BY DEPT contd.  Process of conducting the audit contd. The discussion of the draft audit report in the internal committee of the department headed by the Commissioner/Principal Commissioner Acceptance of the audit paragraph or closing of the audit paragraph Issue of final audit report with directions to close the issue or issue the show cause notice for recovery of tax, interest or penalty as the case may be.

Adjudication in Indirect Taxes AUDIT OF THE RECORDS OF ASSESSEE BY CENTRAL EXCISE REVENUE AUDIT (CERA Audit)  What? Audit of the government functioning by the Comptroller and Auditor General To check whether there are proper checks to control the evasion of the tax  Power to call for the records of the assessee and ask for the records  The observations are issued to the jurisdictional Commissionerate for taking necessary action  Generally SCN is issued on the points raised by CERA

Adjudication in Indirect Taxes Is Audit by department a legal action Recently the Delhi High Court in the case of Mega cabs (2016 TIOL 1061 )held that Rule 5A (2) of the STR is ultra vires the FA, 1994 and accordingly neither the department nor the CAG has power to conduct any departmental audit. It held that the term “verify” cannot be construed as “audit” and accordingly quashed all circulars and letters in relation to conduct of audit. Earlier this rule was amended in 2007 after the Delhi High Courts judgement in the case of Travellite. This case is pending in the SC. What would be the situation of current audits going on and those which are to be started? Would the ratio be applicable to Maharastra as well and can this also be made applicable to Excise?

Adjudication in Indirect Taxes Investigation by Preventive wing/anti evasion wing of CBEC  What? Anti-evasion wing of the CBEC  Jurisdiction? At Commissionerate level  Powers Summon for the documents and information and additional documents if required Search the premises of the assessee and seize the documents relevant for the investigation if required All the seized documents are required to be returned to the assessee after completion of investigation Seize the goods which are liable for duty but no duty has been paid

Adjudication in Indirect Taxes Investigation by Preventive wing/anti evasion wing of CBEC  Powers Summon the relevant officers/person to render the statement with respect to the relevant issues Power to release the seized goods on provisional basis under bond along with 25% surety by officer who is normally competent to adjudicate the matter To issue the SCN/direct the jurisdictional officer to issue the SCN

Adjudication in Indirect Taxes DGCEI Investigation  What? Anti-evasion wing of the CBEC  Jurisdiction? All over India  Powers To call for the records of the assessee To search the premises To seize the records and goods liable for confiscation To record the statement of the concerned officers To issue the SCN

Adjudication in Indirect Taxes DRI Investigation  What? Anti-evasion wing of the CBEC to investigate the customs matters (particularly smuggling, import and export of prohibited items etc.)  Jurisdiction? All over India  Powers To call for the records of the assessee To search the premises To seize the records and goods liable for confiscation To record the statement of the concerned officers To issue the SCN

Adjudication in Indirect Taxes AFTER COMPLETION OF INVESTIGATION If tax is found to be short paid or not paid Assessee may agree and pay the dues along with interest Issue is closed if lapse is for the reason other than fraud etc. Issue of SCN for recovery of penalty in other cases Assessee may not agree Issue of SCN before taking any action prejudicial to assessee

Adjudication in Indirect Taxes ISSUANCE OF SCN  Who can issue and adjudicate the SCN? SCN should be issued by the office who has power to adjudicate (circular dated 01 Oct 2003) Power to adjudicate is divided among officers considering the amount of duty involved as follows: OfficerDuty amount involved Superintendentupto 1 Lakh and not involving fraud etc. as well as involving question of determination of rate of tax etc AC/DCupto 5 lakhs Joint Commissioner5 Lakhs to 20 Lakhs Additional Commissioner20 Lakhs to 50 Lakhs Commissioner/Principal Commissioner without limit

Adjudication in Indirect Taxes ISSUANCE OF SCN contd.  General purposes for which the SCN can be issued? For recovery of tax not paid or short paid along with interest and penalty For demand of penalty when tax is already paid For recovery of the refund amount erroneously sanctioned When the department intends to reject the refund claim found to be incomplete in particulars or not supported by required documents (circular dated 04 April 1990)  Content of SCN: Detailed provision of law allegedly violated Asking why action should not be initiated under relevant provision? The documents relied upon in the SCN are required to be supplied with SCN  Corrigendum/addendum to SCN

Adjudication in Indirect Taxes ISSUANCE OF SCN contd.  Time limit to serve the SCN To be computed from relevant date as defined in the respective act One year in case of excise and customs and 18 months in case of service tax 5 years in cases involving fraud or collusion, or willful mis-statement or suppression of facts or contravention of any of any of the provisions with intent to evade payment of tax Time limit in case security bond is executed - dispute continues For subsequent period, the service of statement of demand should be construed as the service of SCN

Adjudication in Indirect Taxes ISSUE OF SCN: WHAT NEXT? Options available with the assessee Payment of tax, interest and penalty Adjudication Application before settlement commission “Time to hurry and take decision”

Adjudication in Indirect Taxes NEW PENALTY PROVISIONS – LITIGATION CAN BE AVOIDED * The benefit of the reduced penalty is available only if the amount of reduced penalty is also paid with the 30 days from the date of receipt of SCN * Assessee also has option to get the waiver of the SCN in case the amounts as mentioned above are paid and intimated in writing with request to close the proceedings (Dept Instruction F. No. 137/46/2015-S.T., dated ) Scenario If no fraud etc. then amount of penalty imposable If element of fraud etc. then amount of penalty imposable Payment of tax, interest within 30 days from the date of the service of SCN Nil15% of the tax demanded Maximum amount of penalty imposable 10% of the tax not paid, short paid 100% of the tax amount confirmed [no discretion]

Adjudication in Indirect Taxes FILING OF REPLY TO SCN AND ADJUDICATION  Flow and content of reply Allegations, Facts, Grounds, Prayer The style of drafting varies from person to person All the documents in support of the defence points raised are to be enclosed If the statement recorded are relied upon in SCN which are contradictory then these are required to be retracted by way of filing of affidavit to else the statement may be considered as the evidence When to file reply? – strategic decision  Adjudication of SCN Giving the decision on the particular issue raised vide SCN based on the legal provisions and the defence points put forth in the reply by the assessee

Adjudication in Indirect Taxes PROCESS OF ADJUDICATION OF SCN  Principle of natural justice to be followed The personal hearing before passing the order is necessary Adjournments: grounds and maximum number of adjournments  Who can appear? Relative or regular employee of the Noticee Legal practitioner who is entitled to practice in civil courts of law Practicing CA, CWA, CS  Letter of authority and Vakaltnama Letter of authority in case of CA, CWA, CS which should be on non judicial stamp paper of Rs. 500 or Rs. 100 (Decision awaited) Vakalatnama in case of legal practitioner should be affixed with court fee stamp of Rs. 10

Adjudication in Indirect Taxes  Power of Adjudicating Authority To grant adjournment To allow cross examination of the witness whose statements are relied upon To ask for the additional documents and information required to decide the issue To transfer the matter to call book where on the same issue the decision of the higher authority is awaited To pass the order which should be: ‐ Speaking order, discussing the defense points raised and the reason for not agreeing with the grounds of reply should be passed ‐ Deciding the issue in dispute based on the allegations of the SCN only ‐ Order outside the scope of the SCN are void ‐ Signed, dated Material changes in the order cannot be made by way of corrigendum/addendum (circular dated 16 December 1999) POWERS OF ADJUDICATING AUTHORITY

Adjudication in Indirect Taxes  SCN pre-requisite in all cases where duty, interest or penalty is demanded and any order prejudicial to the assessee is intended  In other cases SCN may not be issued and direct order can be passed such as: Denial of registration of Central Excise Permission to clear the goods which cannot be used for manufacture finished goods from private bonded warehouse Permission to store the finished goods outside the premises of factory without payment of duty SVB Order etc. ORDER WITHOUT ISSUE OF SCN

Adjudication in Indirect Taxes Study of the order Take the commercials into consideration and decide whether the order has to be appealed? Taking the benefit of the 25% of penalty Taking benefit of 25% penalty option as insurance and filing of appeal ORDER: WHAT NEXT?

Adjudication in Indirect Taxes An appeal is a process for requesting a formal change to an official decision. Any Person aggrieved whether the assessee or department can file the appeal Appeal lies with the higher authority than the authority who passed the order. Consequences of non filing of the appeal – Order attains finality – Recovery proceedings would be initiated – The order is considered to be accepted and subsequently the contradictory stand may not be possible APPEAL AND CONSEQUENCES OF NON FILING OF APPEAL

Adjudication in Indirect Taxes Appeal will lie with the Commissioner (Appeals) To be filed within 60 days from the date of receipt of the order in case of appeal by assessee In prescribed format Different format for the department and different for the assessee’s No appeal filing fees Mandatory pre-deposit (7.5% of the duty demanded or penalty confirmed) Mode of payment of the mandatory pre-deposit Subsequent refund of the amount already paid as pre-deposit along with interest Appeal drafting: Form filing, facts, grounds, prayer APPEAL: IF THE ORDER IS PASSED BY THE OFFICER BELOW THE RANK OF THE COMMISSIONER

Adjudication in Indirect Taxes Appeal will lie before CESTAT To be filed within 3 months from the date of receipt of the order. In prescribed format, different formats for the assessee’s and department Appeal filing fees: Rs. 1,000/5,000/10,000 Mandatory pre-deposit. Mode of payment of the mandatory pre-deposit Subsequent refund of the amount already paid as pre-deposit Discretion to reject the appeal below prescribed limit i.e. Rs. 2 Lakhs if the issue involved is not in relation to classification of goods and valuation Exception: In certain cases of the appeal will not lie to CESTAT but the revision application has to be filed with Joint Secretary, Ministry of Finance e.g. loss of goods in transit, rebate of duty of excise on goods exported, export of goods without payment of duty, drawback APPEAL: IF ORDER PASSED BY THE COMMISSIONER OR COMMISSIONER (APPEALS)

Adjudication in Indirect Taxes  Who can sign the appeal papers in case of appeal preferred by an assessee: In case individual: individual himself or the person authorized by him In case of HUF, Karta and in his absence any other adult member of the family In case of company, the principal authority thereof In case of other associations, the member or principal officer In case of fir, any of its partners In case of any other person, that person or the person authorized to act in his behalf WHO CAN SIGN THE APPEAL PAPERS

Adjudication in Indirect Taxes  Natural justice i.e. opportunity of hearing and intimation to the other party  Submission of the case laws, additional documents, additional submissions  Production of additional evidences is allowed only in following cases: Where the original authority refused to consider the same The appellant was prevented from producing these evidences Ex parte order was passed No additional evidence should be admitted unless the reasons for admission are given by the Appellant and recorded in the order  No recovery during pendency of appeal PROCEDURE TO BE BY THE APPELLATE AUTHORITIES:

Adjudication in Indirect Taxes To grant adjournments To allow the production of additional evidence To condone the delay in filing of the appeal upto 30 days To remand the matter back to the original adjudicating authority-Dispute continues No Monitory limit to file the appeal (Recently the issue was discussed and by CBEC, but no change recommended) Power to rectify own orders only in case of Service Tax Power of Commissioner (Appeals)

Adjudication in Indirect Taxes To grant adjournments To condone the delay in filing of the appeal To remand back the matter To rectify its own order To grant early hearing To refuse to admit the appeal involving stake below Rs. 2 Lacks in case appeal filed by the assessee POWER OF CESTAT

Adjudication in Indirect Taxes Internal mechanism to review the order and then the decision with respect to file the appeal is taken Based on the decision of the committee of reviewing the order, department shall file the appeal Cross Objection in the matter of appeal filed by the department to be filed within 45 days from the date receipt of the notice that the appeal has been preferred No fee payable at the time of filing of cross objection Delay in filing of cross objection Same order may be challenged by the assessee and department simultaneously DEPARTMENT APPEAL

Adjudication in Indirect Taxes Miscellaneous application for condonation of delay Miscellaneous application for early hearing of matter Miscellaneous application for rectification of mistake within six months from date of order Miscellaneous application for restoration of appeal Miscellaneous application for withdrawal of appeal Miscellaneous application for production of additional evidence VARIOUS MISCELLANEOUS APPLICATIONS TO BE FILED BEFORE CESTAT

Adjudication in Indirect Taxes Dress code for representing the matter Constitution of bench Submission of paper book Additional submission Open court hearing Mention of the appeal: requirement and process OTHER PROCEDURE AT CESTAT

Adjudication in Indirect Taxes Appeal against order of CESTAT To supreme court in cases involving classification and valuation dispute) To High Court in all other cases and from the High Court the appeal will lie to Supreme Court. High Court may refer the matter to HC/SC involving substantial question of law Appeal against order of High Court To Supreme court

Adjudication in Indirect Taxes  Who can apply? Who has filed the returns showing production, clearance and paid the tax, If the commission is satisfied that the circumstances existed for non filing of appeal existed then is may allow the application SCN issued Amount of additional tax accepted paid along with interest Amount of additional liability exceeds Rs. 3 Lakhs  Which cases can be applied to settlement? Any proceeding for levy, assessment and collection of tax pending before an adjudicating authority on the date on which the application was made Not allowed in cases where the matter is pending before the adjudicating authority because of the remand back proceedings APPLICATION TO SETTLEMENT COMMISSION

Adjudication in Indirect Taxes Bindingness of the decision Whether the decision can be appealed? - No Whether the Settlement Commission can remand the matter back? The rejection of the application by the settlement commission APPLICATION TO SETTLEMENT COMMISSION contd.

Adjudication in Indirect Taxes  Advance Ruling: Determination of question of law or fats regarding the taxability of the activity proposed to be undertaken  Who can apply? A non resident setting up joint venture in India A resident setting up joint venture in India with non resident Wholly owned subsidiary of company of which holding company is foreign company Joint venture in India Resident company, resident firm as notified Time to time notification in this regard issued and currently any person can sought the advance ruling ADVANCE RULING contd.

Adjudication in Indirect Taxes  For what application can be made? Classification of goods proposed to be manufactured or imported, taxability of activity proposed to be carried, availability of the exemption notification, admissibility of the CENVAT Credit etc.  Bindingness of the decision Binding on the applicant and the jurisdictional central excise authorities Not bending on the other parties and even to department in case of other assessee’s Binding till the time the law is not changed  Whether the decision can be appealed?  Time limit to pronounce advance ruling: 90 days from the date of application ADVANCE RULING

Thank You!!!