Refresher Course on "Indirect Taxation and gearing for GST“ Show Cause/ Reply to Show Cause/ Adjudication Presented by B.Ganesh Prabhu 1

Self Assessment of Service Tax Section 68 of FA, 1994 Services Provider or Services Receiver of taxable services to any person shall pay service tax at the rate specified in section 66B in the manner prescribed. Section 70 of FA, 1994 Service tax to be paid on Self Assessment basis and return is to be filed on half yearly basis. 2B.Ganesh Prabhu, Chennai

Situations of Initiation of Recovery  Section 73 (1) of FA, 1994  Service Tax has not been levied;  Service Tax has not been paid by the service provider;  Service Tax has been short levied;  Service Tax has been short paid by the service provider;  Erroneous Refund of Service Tax. 3B.Ganesh Prabhu, Chennai

Show Cause Notice (SCN) – Meaning  Means of communication to an assessee to Show Cause, why the actions proposed therein under should not be taken against him.  Requires the assessee to justify or prove his defense, to comply with principles of natural justice.  Word “Show Cause Notice” – Not Defined in Act  No Prescribed Format for issue of SCN. 4B.Ganesh Prabhu, Chennai

Who can issue SCN?  A Central Excise Officer Can issue SCN.  A Central Excise Officer means  Principal Chief Commissioner of Central Excise;  Chief Commissioner of Central Excise;  Principal Commissioner of Central Excise;  Commissioner of Central Excise;  Additional Commissioner of Central Excise;  Joint Commissioner of Central Excise;  Deputy Commissioner of Central Excise;  Assistant Commissioner of Central Excise;  Any Person including an officer of the State Government entrusted by CBEC; 5B.Ganesh Prabhu, Chennai

Vital Points on SCN  SCN should be in writing and not by oral;  SCN has be signed by a person with proper authority;  SCN should contain specific allegations;  SCN should specify relevant Sections should be quoted;  SCN should specify the proposal about imposing penalty under relevant section should be mentioned;  SCN should be issued for a particular period; 6B.Ganesh Prabhu, Chennai

Monetary Limits – issuance of SCN? S.No Central Excise Officer Amount of Service Tax or Cenvat Credit specified in a notice for the purpose of Adjudication 1Sup. of CE Not exceeding Rs. 1 Lakhs excluding the cases relating to taxability of Classifications or Valuation of services and cases where no extended period of limitation invoked. 2AC or DC Not > Rs.5.00 Lakhs (Except where Sup. is empowered to Adjudicate) 3 Joint Commissioner > Rs.5.00 Lakhs but < Rs.50 Lakhs 4 Additional Commissioner > Rs. 20 lakhs but < Rs. 50 lakhs 5 Principal Commissioner/ Commissioner Without Limit 7B.Ganesh Prabhu, Chennai

Time Limit – Issue of SCN Sec 73(1) If ST is not levied / short levied / not paid / short paid / erroneously refunded not for reasons stated below ST can be demanded within a period of 18 months from the Relevant Date (Section 73(1) of FA, 1994) Non-levy/short levy/Nonpayment/ Short-payment by a. Fraud or b. Collusion or c. Wilful mis-statement or d. Suppression of facts e. Contravention of provisions with an intent to evade payment of ST. ST can be demanded for a period of 5 years from the Relevant Date. (Proviso to Section 73(1) of FA, 1994) 8B.Ganesh Prabhu, Chennai

What is Relevant Date?  RD for calculating limit of 18 months / 5 years for issue of SCN is as follows; (Section 73(6) of FA, 1994) Where periodical return is to be filed – Date on which such return was filed. Where no return was filed – the last date on which the return should have been filed under ST Rules In case of provisional assessment – Date on which assessment is finalized. In any other case – Date on which service tax is to be paid. Refund of Service Tax – Date of such refund. 9B.Ganesh Prabhu, Chennai

Contents of SCN - General Details of Assessee such as – STC – Name – Address of SP/SR/ISD Facts of the case – (Incomplete Facts or Colored Facts) Hidden Facts – having impact on ST liability Evidences based on which facts are taken. Date of Service of SCN Period of Demand Normal Period – 18 Months from the Relevant Date Extended Period – 5 Years from the Relevant Date Value of Taxable services computed by department. 10B.Ganesh Prabhu, Chennai

Conclusions drawn from the given facts by the department. Extract of relevant provision to see whether any amendment incorporated or not. Reference to Service Tax Return - Compare the figures in SCN Vs ST-3 Return filed by SP. Deviation by assessee to invoke extended period of limitation. Tax liability arrived by Central Excise Officer. Interest under Section 75 of FA, 1994 Penalty under Section 76/77/78 of FA, 1994 Contents of SCN – General (Contd…) 11B.Ganesh Prabhu, Chennai

Serving of Statement of Demand – Deemed SCN CEO may serve subsequent to any notice served U/s 73(1) of FA, 1994 a statement only containing details of service tax not levied or paid or short levied or short paid for the subsequent periods without issuing a detailed notice setting out all the points noted in earlier notice. Statement issued as per Section 73(1A) of FA, 1994 – Shall be Deemed SCN 12B.Ganesh Prabhu, Chennai

Issues raised in SCN - Generally A SCN is issued by the Adjudicating Authority as to calling the assessee to show cause why; Proposed Service Tax, Interest & Penalty should not be demanded on Reimbursement? Service in question is not taxable? Classification by the assessee is not according to provisions of law? Valuation method adopted by the assessee is not according to provisions of law? Cenvat Credit is ineligible as per provisions of law or time bared ? Abatement is not available? 13B.Ganesh Prabhu, Chennai

NO SCN by Department? Voluntary Payment – Before SCN (Sec. 73(3) of FA, 1994) Service Tax U/s 66B of FA, Interest U/s 75 of FA,1994 is paid Intimation to department in writing regarding such payment. Applicable for cases not involving fraud, suppression, etc., As per Exp 2 to Section 73(3) of FA, 1994 – No Penalty under any provisions of the Act. Section 73(3) of FA, 1994 is NOT applicable to Fraud, suppression, etc., 14B.Ganesh Prabhu, Chennai

Adjudication Procedure Issue of Show Cause Notice Reply to Show Cause Notice Personal Hearing (If Opted) Passing of Order (Optional Time limit specified as per Section 73(4B) of FA,1994) 15B.Ganesh Prabhu, Chennai

Prerequisite for Reply to SCN ? Letter head of Assessee or Legal Counsel or AR Properly Addressed Reference to SCN No and date of SCN Assessee Details – Name & Address – STC – Nature of services provided & Business Model Reference to PoA / Vakalat Request for Personal Hearing 16B.Ganesh Prabhu, Chennai

Brief summary of allegations put forth in SCN. Defensive points on the issue Fundamental items Merits of the case Limitation of Extended period (If Invoked) Interest Penalty Prayer Prerequisite for Reply to SCN ? 17B.Ganesh Prabhu, Chennai

Validity of SCN on Fundamental? Simple Letter to pay tax is not a notice Violation of principal of Natural Justice. SCN to be under specific provision of law. Notice must indicate the amount demanded and call upon the assessee to show cause. Any demand without SCN is violation of statutory provision. Metal Forgings V UOI ELT 241 (SC) JK Synthetics Vs UOI ELT 417 DEL 18B.Ganesh Prabhu, Chennai

Vague SCN shall not sustain - If SCN is not specific to particular issue and vague, lack details and unintelligible – notice is not given reasonable opportunity to meet allegations in the SCN. CCE Vs Brindavan Beverages (2007) 213 ELT 487 (SC) Invoking provision not specified in SCN is not valid - If there is no invocation of a rule (Valuation rule) in this case it would not be open to adjudicating authority to invoke that rule. CCE Vs Ballarpur Industries Ltd ELT 489 SC Adjudicating authority can not go beyond what is canvassed in SCN. Saci Allied Products Vs CCE (2005) 216 ELT 662 (SC) 19B.Ganesh Prabhu, Chennai

Proper Serving of SCN? Proper Serving of SCN (Sec 37C(1) of CEA, 1944 Service by Tendering the same Send by RPAD If not possible by above two modes then, affix a copy at noticeable space in a factory or warehouse If point 3 is also not possible affix at the notice board of authority who issued the notice. Notice posted one day prior to last date received by assessee after last date is not validly served on time. Sewing Systems P Ltd Vs CC – 1992 (62) ELT 725 CEGAT – (Affirmed by SC) 20B.Ganesh Prabhu, Chennai

Understand the change given – Read and Read again till nature of charge is clearly understood. If still not understood – ask for explanations – call for evidence relied by issuer for issue of SCN. Explain the facts clearly – Examine whether fact is twisted in SCN Produce evidence in support of facts explained in reply invoices raised on clients, agreements entered with the clients. Application of law to the facts stated. Fact FIRST Law Next Flow of Reply to SCN on Merits!!! 21B.Ganesh Prabhu, Chennai

Definition of service Negative List Mega Exemption Notification POPS Rules, 2012 POT Rules, 2011 NO Clarity on correct Interpretation of Law? Application of Law to the facts!!! 22B.Ganesh Prabhu, Chennai

Points Interest & Penalty!!! When extended period is not invokable and Service Tax is not payable. When Tax is not payable Interest & Penalty is also not payable. 23B.Ganesh Prabhu, Chennai

Conclusion Time limit for further written submission if not added in the present reply. Request for copy of evidences based on which charge is made in SCN. Request for Personal Hearing before Adjudication. Permission of further submissions at the time of PH Prayer for dropping the proceedings considering the submissions made in the reply. 24B.Ganesh Prabhu, Chennai

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