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Handling of Adjudication & Appellate Proceedings in Service Tax

Handling of Adjudication & Appellate Proceedings in Service Tax. By: A.Saiprasad B.Com, LL.B, ACA, (Grad CISA), DISA, AMIMA Advocate. Session Outline - I. Visits by Departmental Officers Service Tax Audit Search Seizure & Summons Adjudication Proceedings Issue of Show Cause Notice

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Handling of Adjudication & Appellate Proceedings in Service Tax

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  1. Handling of Adjudication & Appellate Proceedings in Service Tax By: A.Saiprasad B.Com, LL.B, ACA, (Grad CISA), DISA, AMIMA Advocate

  2. Session Outline - I • Visits by Departmental Officers • Service Tax Audit • Search Seizure & Summons • Adjudication Proceedings • Issue of Show Cause Notice • Reply to Show Cause Notice • Personal Hearing • Issue of Order in Original

  3. Session Outline - II • Recovery Proceedings • Reply to Coercive Letters • Appeals to Commissioner (Appeals) • Time Limit, SOF, GOA, Cross Objections • Appeals to CESTAT • Time Limit, SOF, GOA, Cross Objections • Practical Demonstration

  4. Visit by Departmental Officers • One Fine Day…. • Access to Regd. Premises – R.5A of STR, 94 • Officer authorised by Commissioner • Registered Premises • Scrutiny Verification & Checks • Madurai Trade Notice No.103/99 dt.1.10.99 • Routine Checks Barred • Prior Notice – 15 clear days + Doc. Reqd.

  5. Visit by Departmental Officers • Any Restriction for Evasion Cases ? • Specific Information, Intelligence • Reason to believe • No Restriction for Writing Letters • Records to be produced on demand • Immediate Reply • Board Circulars • No.137/26/2007-CX 4 dt.1.1.08 • 224/37/2005-CX 6 dt.24.12.08

  6. Audit Party • Authorised CEO/ C & AG deputed • Excise Audit 2000 norms followed • Gathering Information - Letters • Audit Frequency • Tax > 3 Crs – Every Yr • Tax 1 Cr – 3 Crs – Once in 2 Yrs • Tax 25 L – 1 Cr – Once in 5 Yrs • Tax < 25 L – 2% of tax payers

  7. Reply to Audit Note • Records to be provided & Time Limit • Audit Reply to Audit Paras • Example: Mgmt Con Services for EDP classes • Letter head of Auditee • Date of Reply • Concise extract of Audit para • General/ Background Info about Auditee • Facts of the case

  8. Reply to Audit Note • Audit Reply Contd… • Evidences to support facts of the case • Extract of Relevant Provision • Reliance on Case Laws if any • Furnishing of further info • Copies of docs supporting as evidences

  9. Search & Seizure • S. 82 of FA, 94 – SEARCH & SEIZURE • Document, Book or Thing • Useful or Relevant to any proceeding • Secreted • JC – Authorise – SI • SEARCH & SEIZE • Cr.P.C Code Applicable

  10. Summons • S. 83 of FA, 94 r/w S.14 of CEA, 44 • Summons – Person or Document • Board Circular No.137/39/2007-CX dt.26.2.07 • Usual Mode of Communication ineffective • Jeopardize interest of Revenue • To tender evidence, • To record statement • Prior written permission - DC

  11. Meaning of SCN • Formal Communication to • Show Cause why • Actions proposed therein • Must not be taken against the assessee • Opportunity to explain defence • Provides information about: • Computation of tax by department • Arrival at taxable value by the department • Department’s view of the provisions

  12. When SCN not issued • Service Tax + interest paid • On own accord • Before Department’s awareness – No fraud etc • Informs in writing to the department • ST + Int + Penalty paid • At the time of audit – Though fraud etc. • True & Correct information + Specified Records • Penalty 1% p.m. of default – max 25% • Informs in writing to the department

  13. Show Cause Notice • Date of Service of SCN • Back Dating Receipt • Body of SCN • Example: CTCC issued to Edn Orgn. • Details of Assessee • Registration Details • Facts of the case – whether twisted ? • Incidental & Ancillary Information

  14. Show Cause Notice • Body of SCN • Period of Demand • Ordinary Period – 18 M from RD • Extended Period – 5 Yrs from RD • Computation of Value of Taxable Service • P&L – All items on the Credit Side • B/S – Debtors Incremental Value • Computation of Tax

  15. Show Cause Notice • Body of SCN • Inferences drawn from facts • Extract of Relevant Provision • Whether any amendment/ additions/ deletions • Reference to Service Tax Return • Not filed • Value not included • Listing of Omission or Commission • For Extended period of limitation

  16. Show Cause Notice • Body of SCN • Interest Provisions • Penalty Provisions • Operative Part of SCN – Calling upon to show cause why: • ST, Int, Penalty must not be demanded • Service not a taxable service • Classification under a particular service • Valuation method to be adopted/ not adopted • Abatement available/ not available

  17. Reply to SCN • Letterhead of Counsel/ Assessee • Reply Addressed to whom • Details of SCN No. & Date • Name of the Assessee • Address of the Assessee • Reference to POA, Vakalat • Desire for Personal Hearing

  18. Reply to SCN • Summary of Allegations in SCN • Succinct, Brief, Most important points • Defence Contentions • On Limitation • On Merits • On Interest • On Penalty • On Refund & • On Such other specific issues

  19. Reply to SCN • Preliminary Contentions…. • SCN issued merely based on audit objection • No independent investigation by Department • Swastik Tin Works v. CCE, 1986 (25) ELT 798 (Special Bench-Tribunal), • Indian Plastics Ltd. v. CCE, 1988 (35) ELT 434 (T), • CIT v. Lucas TVS Ltd., 2001 (249) ITR 306 (SC), • Indian and Eastern Newspaper Society v. CIT, 1979 (119) ITR 996 (SC)

  20. Reply to SCN • Preliminary Contentions…. • SCN – made up mind/ pre-deciding issues • Evidences from the SCN – Reference • Madurai Metal Industries Vs UOI, 1991 (52) ELT 495 (Mad.)., • Siemens Ltd Vs.State of Maharashtra 2007 (207) ELT 168 (SC),

  21. Reply to SCN • On Limitation – S. 73 • Ordinary Period – S. 73(1) • Extended Period – Proviso to S.73(1) • Relevant Date – S. 73(6) • Filed Returns • Not Filed Returns • Date of payment/ refund of service tax

  22. Reply to SCN • On Limitation – Extended Period • Fraud • Collusion • Wilful Mis-statement • Suppression of facts • Contravention of provision of act • With an intention to evade payment of tax

  23. Reply to SCN - On Limitation • Correspondence with Department • Attach as evidences to reply • Proves department aware • Inter-departmental correspondence • No clarity on levy • Case Laws • Ugam Chand Bhandari Vs. CCE, 2004 (167) ELT 491 (SC); • Anand Nishikawa Co. Ltd V. CCE, 2005 (188) ELT 149 (SC).

  24. Reply to SCN - On Limitation • Prove Dept aware of primary facts • No Duty to bring in legal inferences • Calcutta Discount Co. Vs. ITO, (1961) 41 ITR 191 (SC), • Parashuram Pottery Works Co. Ltd. v. ITO, (1977) 106 ITR 1 (SC),

  25. Reply to SCN - On Limitation • Undue delay in issuance of SCN • Delay > 18 M from Date of Knowledge(DOK) • DOK = Audit Report, Mahazar, Summons • DOK = Stmt of A’ee/ Dept, Letter/ Return filed with dept. • Rivaa Textile Industries Ltd. Vs. CCE & C, 2006 (197) ELT 555 (T) • Dolphin Detective Agency Vs. CCE, 2006 (4) STR 217 (T), • Bajaj Auto Ltd. Vs. CCE, 2006 (195) ELT 277 (T),

  26. Reply to SCN - On Limitation • Bonafide Belief/ Doubt • Clarification provided by Board • SC/ HC/ Tribunal Decisions • SNS (Minerals) Ltd. v. UOI, 2007 (210) ELT 3 (SC) • Periodical SCNs – cannot allege suppression • Reference to previous SCNs with No, Dt & Period • Nizam Sugar Factory Vs. UOI, 2006 (197) ELT 465 (SC), • ECE Industries Limited v. CCE, 2004(164) ELT 236 (SC),

  27. Reply to SCN - On Limitation • Burden of proof – Not Discharged • Something positive • Other than mere inaction • Deliberate with holding of information • Department’s knowledge of: • Facts • Manufacturer’s action/ inaction • CCE v. Chemphar Drug and Liniments, 1989 (40) ELT 276 (SC) & • CCE v. Pioneer Scientific Glass Works, 2006 (197) ELT 308 (SC).

  28. Reply to SCN - On Limitation • Shorn of proof • No Reason to believe • Absence of records/ materials • To prove omission & commissions • TN Dadha Pharmaceuticals v. CCE, 2003 (152) ELT 251 (SC) and • New Decent Footware Industries v. UOI, 2002 (150) ELT 71 (Del.)

  29. Reply to SCN - On Limitation • Meaning - Suppression • Not merely omission to give information • Deliberate non payment of duty • Continental Foundation Joint Venture v. CCE, 2007 (216) ELT 177 (SC), • Meaning – Intent to evade tax • Not merely failure to pay tax • Aware that duty payable – Deliberately avoid payment • Tamil Nadu Housing Board V. CCE, 1994 (74) ELT 9 (SC)

  30. Reply to SCN – On Merits • Extract Relevant Provision • Definition of the said service/ negative list • Definition of declared service • Amendment/ additions/ deletions/ substitutions • Net effect not covered by definition • Interpretational issue • Benefit of doubt to tax payer • Beyond scope and ambit of definition/ taxable service

  31. Reply to SCN – On Merits • Rely on Board Circulars/ Trade Notices • Dept bound by circulars • K. P. Varghese Vs. ITO, 1981 (131) ITR 597 (SC). • Ranadey Micronutrients Vs. CCE, 1997 (87) ELT 19 (SC). • Paper Products Limited Vs. CCE, 1999 (112) ELT 765 (SC).

  32. Reply to SCN – On Merits • Reliance on: • Interpretation of Statues • Construction of a term • Law Lexicons • To prove the legal understanding of a term • Agnate & Cognate Statues • Central Excise Act, 1944 • Customs Act, 1962

  33. Reply to SCN – On Merits • Reliance on • Certificates given to A’ee by Govt • Recognition granted by Govt Institutions • Documents founding the institution • Trust Deed, Partnership Deed • MOA & AOA of Society Regn Deed • Agreements entered into with customers

  34. Reply to SCN – On Merits • Reliance on • Constitution – legislative entries • Lack of power to tax certain area • Evidences on hand • To prove - Not a service – Client Agreements • To prove – Value of service – Invoices • To prove – Mistake in computation • To prove – Eligibility to exemption • To prove – Eligibility to abatement

  35. Reply to SCN – On Merits • Reliance on • Documents provided by clients • Product Details like brochures • Technical details of services provided/ not provided • Different products provided by client • Some of which taxable on which tax already remitted • Correspondences with chamber of commerce • Correspondences with Government/ Board

  36. Reply to SCN – On Merits • Reliance on • Case laws – Covered issues • Contradictory statements by SCN • Vague statements by SCN • Omission/ Commission not alleged by SCN • Fundamentally incorrect provisions in SCN • SCN not being signed

  37. Reply to SCN – On Interest • Not liable to tax • For reasons stated under limitation • For reasons stated under merits • Since not liable to tax • Not liable to interest • Since interest accessory to demand • Case Laws: • Pratibha Processors v. Union of India, 1996 (86) ELT 12 (SC) and • CC v. Jayathi Krishna & Co., 2000 (119) ELT 4 (SC)

  38. Reply to SCN – On Penalty • Penalty – 3 Sections • S. 76 – Mere non payment of ST • Rs.100/ day or 1% of Tax O/s for every month • Max Penalty – 50% of Tax • S. 77 – For about 7 types of default • For defaults not covered elsewhere • Eg: Not getting regd, Not filing returns etc.

  39. Reply to SCN – On Penalty • U/s 78 – Extended Period • Levied when omission/ commission commited • Max Penalty 100% of ST • True & Complete (T & C) – 50% of ST • T & C + 30/ 60 days of OIO– 25% • Transaction not recorded – No mitigation of 50% or 25%, though paid within time period

  40. Reply to SCN – On Penalty • When S.78 penalty can be imposed ? • Punishment • Act of Deliberate Deception • Intention to evade Duty – Proved • UOI v. Rajasthan Spinning & Weaving Mills, 2009 (238) ELT 3 (SC)

  41. Reply to SCN – On Penalty • No extended period – No 78 penalty • CCE V. Damnet Chemicals Pvt Ltd., 2007 (216) ELT 3 (SC) • Devans Modern Breweries Ltd. V. CCE, 2006 (202) ELT 744 (SC) • Strict Construction of Penal Provisions • CIT v. Sunderam Iyengar, AIR 1976 SC 255

  42. Penalty – Summary I

  43. Penalty – Summary II

  44. Penalty – Summary III

  45. Reply to SCN – On Penalty • Interpretation of Statue – No penalty • Since no intention to default • Differences in understanding the statues • UG Sugars & Industries Ltd. v. CCE, 2004 (167) ELT 465 (T). • Standard Industries Ltd. v. CCE, 2007 (207) ELT 676 (T). • Fibre Foils Ltd. v. CCE, 2005 (190) ELT 352 (T).

  46. Reply to SCN – On Penalty • S. 80 – Reasonable Cause • Non Obstante Clause • Over Rides S. 76, 77 & 78 • Cause for non payment must be genuine • Bonafide Belief/ Doubt • Based on Court Decisions • Ignorance of law – no excuse • Case Laws • CWT Vs. Sri Jagadish Prasad Choudhury, [1995] 211 ITR 472 (Pat.) • In Motilal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar Pradesh, [1978] 118 ITR 326 (SC) , • Vedabai v. Shantaram, [2002] 253 ITR 798 (SC)

  47. Reply to SCN - Conclusion • Summary & Conclusion • Action sought for by the reply • Similar to prayer in appeals • Permission for further written submissions • Request for PH before adjudication • Permission for submission at PH • Request for drop of proceedings

  48. Adjudication Order • Called as Order in Original • Order based on SCN & Reply thereto • Order passed by: • AC, DC, JC, ADC • Appealable to Commissioner (Appeals) • Commissioner • Appealable to CESTAT

  49. Persons passing Orders • Tax < Rs. 1 Lakh – Superintendent • Tax Rs. 1 Lakh to 5 Lakhs – AC/DC • Tax Rs.5 Lakhs to 50 Lakhs – JC • Tax Rs. 20 Lakhs to 50 Lakhs – ADC • Tax without limit – Commissioner • Board Circular No.97/8/2007 ST dt.23.8.07

  50. Contents of OIO • Name of Assessee • Date of Order • Number of the Order • To whom the appeal must be filed • Where the appeal must be filed • The Commissionerate under which OIO passed

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