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Assessment Assessment means determining the tax liability. Duty is paid by the manufacturer on his own while clearing goods from the factory/warehouse, on ‘self assessment’. The assessee himself has to determine classification and valuation of goods and pay duty accordingly. Rule 2(b) of Central Excise Rules states that ‘assessment’ includes self-assessment of duty made by the assessee and provisional assessment made under rule 7. Who is ‘assessee’ - Rule 2(c) of Central Excise Rules states that ‘assessee’ means any person who is liable for payment of duty assessed or a producer or manufacturer of excisable goods or a registered person of a private warehouse in which excisable goods are stored, and includes an authorized agent of such person. The word ‘includes an authorised agent of such person’ have been added in the revised definition. The significance of this definition is that an authorised agent incurs same liability as the assessee. There is distinction between authorised representative and authorised agent. An employee will be ‘authorised representative’ and not ‘authorised agent’ and cannot be held liable as ‘assessee’. Self-assessment - The assessment under Central Excise is basically an invoice based self-assessment, except in case of cigarettes. Rule 6 of Central Excise Rules [earlier rule 173F] states that ‘The assessee shall himself assess the duty payable on excisable goods, provided that in case of cigarettes, the Superintendent or Inspector of Central Excise shall assess the duty payable before removal of goods. The assessee has to submit monthly return in ER-1 form (earlier RT-12 form). The return has to be along with 'Self Assessment Memorandum', where Assessee declares that (a) the particulars in ER-1 return are correctly stated (b) Duty has been assessed as per provisions of section 4 or 4A of CEA (c) TR-6 challans by which duty has been paid are genuine. Scrutiny of return - The departmental officers will scrutinize the return. ‘Scrutiny’ means close examination or examination of details. They will check the returns and figures etc. for discrepancy if any. They may carry out surprise checks, apart from critical audit of private and statutory records of assessees by spot visit. However, the officers will not ‘assess’ the duty i.e. they will not determine duty payable on the basis of return submitted by assessee. Assessment order is not issued. However, if the officers are of opinion that there is short payment, show cause notice cum demand can be issued. Provisional assessment - Rule 7 of Central Excise Rules make provisions in respect of provisional assessment. Provisional assessment can be requested by the assessee. Department cannot order provisional assessment. Final assessment will be made later by Assistant / Deputy Commissioner after getting the required details. In case of such provisional assessment, demand can be raised within one year after the provisional assessment is finalised. Department cannot order provisional assessment. If Central Excise Officer finds that self assessment is not in order, he can ask assessee to produce additional documents, records and other information and then issue a demand notice. Where assessee fails to provide records or information and department is unable to issue demand, ‘best judgment’ method may be used to raise demand on collateral evidence. Burden to provide information for re-determination of duty is on assessee. – Chapter 3 Part IV Para 3.1 of CBE&C’s CE Manual, 2001. An assessee can request for provisional assessment in following circumstances (a) Assessee is unable to determine the value of excisable goods in terms of section 4 of CEA on account of non-availability of any document or information or (b) Assessee is unable to determine rate of duty applicable. In aforesaid cases, assessee may request Assistant / Deputy Commissioner in writing giving reasons for provisional assessment of duty. [Assessee should give reason why he wishes to have provisional assessment.]. After such request, the Assistant / Deputy Commissioner may by order allow payment of duty on provisional basis. The Assistant / Deputy Commissioner shall also specify the rate or value at which the duty will be paid on provisional basis. Bond equal to difference between the duty payable on provisional assessment basis and the probable duty payable applying the highest rate / value applicable to such goods for a period of 3 months. If assessment cannot be completed in 3 months and longer time is required, say a period of one year, in appropriate cases, differential duty likely to arise shall be the basis. It should be backed by 25% security or bank guarantee. In special cases, higher security may be asked. The bond for provisional assessment shall be in form B-2. - Chapter 14 Para 4.1 of CBE&C’s CE Manual, 2001. The monthly / quarterly return and Invoices should be marked as ‘PROVISIONALLY ASSESSED Vide Order No. - - dated - -‘. There is a declaration in ER-1 where assessee has to mention the goods under ‘provisional assessment’. Finalisation of provisional assessment - AC / DC is required to pass order of final assessment after getting relevant information, within six months of date of communication of his order allowing provisional assessment. The period of 6 months can be extended by Commissioner of CE, on making a specific request, for reasons to be recorded in writing. Extension beyond one year for further period can be granted only by Chief Commissioner. [Rule 7(3) of Central Excise Rules]. Difference to be paid/refunded - In cases of provisional assessment, final assessment will be done by Assistant / Deputy Commissioner. After final assessment, the amount payable will be communicated to assessee. If the duty payable is more, the difference will be paid by assessee. If the duty finally assessed is less, difference will be refunded. [Rules 7(4) and 7(5) of Central Excise Rules] If assessee does not pay duty within 15 days after final assessment is made, bond should be enforced or bank guarantee should be enforced after due notice to assessee. - Chapter 14 Para 4.1 of CBE&C’s CE Manual, 2001. Interest payable / receivable - If differential duty is found to be payable, interest @ 15% will be payable by assessee from first day of the month for which amount is determined till date of payment thereof. Thus, interest is payable only after assessment is finalised by Assistant/Deputy Commissioner. If differential amount is found to be refundable to assessee, it shall be refunded with interest @ 8% from first day of the month during the month in which refund is determined till the date of refund. Refund subject to provision of unjust enrichment –Rule 7(6) of Central Excise Rules clarifies that refund is subject to provisions of ‘Unjust Enrichment’, i.e. refund will be granted to manufacturer if he has not passed on incidence of duty to another person. [Tribunal had held in many decisions that that provision of unjust enrichment does not apply in case of provisional assessment. However, in view of specific provision in the rule, now these decisions are not valid]. Provisional assessment only from express order of AC - Assessment is not treatable as provisional in absence of express order of provisional assessment. The earlier case law is probably still valid. Provisional assessment is provisional for all purposes - An assessment may be provisional for a particular purpose. However, it has been held that once an assessment is provisional, it is provisional for all purposes, i.e. both for demand and refund. These views should be valid under new rules also. As per section 11A(3)(ii)(b), demand for payment of duty can be raised within one year after the duty provisionally assessed is finally adjusted against final assessment. This section does not state that this demand can be only in respect of issue under dispute. In Art Plywood Industries Ltd. v. CCE - 1991 (56) ELT 496 (CEGAT), it was held that if assessment is provisional on any ground, the whole assessment is provisional and time limit for demand/refund will start only when the assessment is finalised. Hence it may not be in the interest of assessee to accept the assessment provisionally as the protection of section 11A that demand can be raised only within one year will not be available to him. It may be advisable to pay duty under protest taking care that provisions of section 11D regarding refusal of refund in cases of unjust enrichment are not attracted. Monthly return should specify details of invoices provisionally assessed – As per ER1 form of monthly return [earlier RT-12], details of numbers of invoices provisionally assessed are required to be given. Best judgment assessment - Earlier Central Excise Rules provided for ‘best judgment assessment’. New rules make no provision of ‘Best Judgment Assessment’. However, CBE&C Manual envisages Best Judgment Assessment. Where assessee fails to provide records or information and department is unable to issue demand, ‘best judgment’ method may be used to raise demand on collateral evidence. Burden to provide information for re-determination of duty is on assessee. – Chapter 3 Part IV Para 3.1 of CBE&C’s CE Manual, 2001. Demands of Central Excise Duty Though the excise duty has to be assessed at the time of clearance of goods from the factory or warehouse, it is possible that the duty paid may be lower than the duty actually payable, or duty may be erroneously refunded. This may happen for various reasons as follows :
In any case when duty is not levied or paid or has been short levied or short paid or erroneously refunded, a notice can be issued by Central Excise Officer, asking the person why he should not pay the amount specified in the notice. [section 11A(1)]. The show cause notice asking to show reason why duty should not be paid must be raised within one year from 'relevant date'. In case of fraud, collusion, wilful mis-statement and suppression of facts, demand can be raised within 5 years. No penalty if demand itself is time barred – If demand itself is time barred, penalty cannot be imposed. – Eveready Industries v. CCE (2001) 138 ELT 1287 (CEGAT). Show Cause Notice - Under section 11A [parallel section 28 of Customs Act], Excise Officer can ask the manufacturer to pay the difference of duty. The Central Excise Officer has to issue a show-cause notice. After considering the representation from the person concerned, the Central Excise Officer can determine the amount of duty payable and then the person chargeable to duty has to pay the amount. Show cause notice is necessary but not issuing it is only irregularity, further, assessee can waive his right - In CC v. Virgo Steels 2002 AIR SCW 1698 = 49 RLT 634 = 2002(3) SCALE 341 = 141 ELT 598 (SC 3 member bench), law provided for issue of show cause notice before confirming any demand of duty. It was held that though issue of show cause notice is a mandatory requirement, it can be waived by assessee as the provision deals with individual’s right. It is a notice to the person concerned and not a public notice and right to receive show cause notice can be waived. No notice if assessee voluntarily pays the amount – It is possible that a person who is liable to pay the duty due, may like to pay the duty voluntarily on his own, if he is convinced that duty is legally payable. In such case, he can pay the duty on his own and inform the proper officer in writing. The assessee will also have to pay interest for delayed payment as may be due u/s 11AB of CEA [corresponding section 28AB of Customs Act]. If assessee pays duty due on his own, the officer shall not issue any show cause notice. However, if the officer is of the opinion that there is short payment in respect of the amount, he can issue notice for payment of balance amount. In such case, the time limit for issue of show cause notice will be counted from the receipt of information of payment. Further, the provision does not apply if the short payment or non-payment or erroneous refund was due to collusion, wilful mis-statement or suppression of facts. [In such cases, penalty proceedings can be initiated even if assessee had paid the amount and interest due]. – Section 11A(2B) of CEA inserted w.e.f. 11-5-2001. In corresponding provision in Customs Act section 28(2B), provision has been made for voluntary payment of both duty and interest. The interest mentioned is the interest u/s 47(2) of Customs Act, which is payable if the duty is not paid within five working days after Bill of Entry is returned duly assessed, for payment of duty. Time Limit for issue of Notice - The Show Cause Notice has to be served on the person chargeable to duty within one year from ‘relevant date’. However, this period will extend upto five years if the non-payment or short payment of duty (or refund of duty) is by reason of fraud, collusion, wilful mis-statement or suppression of facts, or contravention of any provision of Excise Act or rules is made with intention to evade payment of duty. Time limit applicable even if Act amended retrospectively - The time limit of section 11A [parallel section 28 of Customs Act] is mandatory and applies even in cases where Act is amended with retrospective effect - J K Cotton Spinning Mills v. UOI (1988) 68 STC 421 (SC) = 32 ELT 234 = AIR 1987 SC 191 = (1987) Supp 1 SCC 350 (SC 3 member bench) - followed in CCE v. Vapi Paper Mills Ltd. 1998(104) ELT 780 (CEGAT) * Bajaj Auto Ltd. v. UOI 2003(151) ELT 23 (Bom HC DB).. Oral show cause notice under Customs Law- Show cause notice is required to be given before confiscating goods and imposing any penalty. However, the person concerned can waive the requirement of show cause notice. He can request issue of verbal notice. - proviso to section 124 of Customs Act. [Rule 25(2) of Central Excise Rules specifically provides that Central Excise Officer will follow principles of natural justice while issuing order of penalty or confiscation. Thus, show cause notice will be required, unless the department is able to justify that issue of oral notice did not violate principles of natural justice]. It has been held by Supreme Court that receipt of show cause notice is a personal right and can be waived by the assessee. The provision of oral show cause notice in section 124 of Customs Act is only in respect of confiscation of goods and imposition of penalty. However, in CC v. Jagdish Cancer & Research Centre 2001(5) SCALE 11 = 132 ELT 257 (SC 3 member bench), it was held that the show cause notice u/s 124 for confiscation of goods is independent of notice of demand of customs duty to be issued u/s 28(1). As per section 125(2), customs duty and charges payable in respect of goods are also payable in addition to confiscation of goods. Hence, notice u/s 124 can include demand of customs duty also. Thus, oral show cause notice for demand of customs duty will be valid, if it involves confiscation of goods and imposition of penalty. [Notice of demand of duty and interest u/s 28(1) has to be ‘served’. An oral notice cannot be really ‘served’]. Relevant date for issue of Show cause Notice - The prescribed period is one year or 5 years from “relevant date”. Who can issue show cause notice - Section 11A specifies that show cause notice should be issued by ‘Central Excise Officer’. Section 28 of Customs Act states that notice should be issued by 'proper officer'. As per section 2(34) of Customs Act, 'proper officer' in relation to any function under Customs Act, means the officer of customs who is assigned those functions by CBE&C or Commissioner. Requirements of Show Cause Notice - Show Cause Notice (SCN) is the foundation on which the demand is based and it is a prerequisite for any demand under section 11A. Any demand without issue of show cause notice is violation of a statutory provision - Gokak Patel v. Volkart Ltd. - AIR 1987 SC 1161 = (1987) 2 SCC 93 = 1987 (28) ELT 53 (SC). Principles of natural justice fully apply to SCN e.g. all evidence on which department wants to reply should be disclosed. Following are the requirements of SCN and if these are not followed, the SCN is vitiated and may not stand scrutiny of law. Wrong mention of rule and notification will not vitiate Notice or order - Non- mentioning or wrong mentioning of rule or section will not vitiate the SCN if all essential ingredients of statute are mentioned and substance of notice is clear, and no prejudice is caused, and when the power is available - State of Karnataka v. Muniyalla AIR 1985 SC 470 * N B Sanjana v. Elphinstone Spinning and Wvg Mills Co. Ltd. - AIR 1971 SC 2039 = 1978 (2) ELT J399 (SC). Effect of notice for period beyond one year/five years - Supreme Court has held that if a show cause notice is issued pertaining to period beyond five years, the whole notice does not become invalid. The only effect is that the department will not be entitled to collect duty beyond a period of five years from date of show cause notice. - UOI v. Maheshwari Woollen Mills - AIR 1993 SCW 483 = AIR 1993 SC 1251 (3 member bench). Same principle applies if show cause notice is issued for a period beyond one year (i.e. when fraud etc. is not alleged). In such case, notice will be considered valid and enforceable for a period of one year. Serving of Show Cause Notice - Section 37C(1) of CEA provides that the any decision or order passed or any summons or notice under the Act shall be served (a) by tendering the same or by sending it with registered post with acknowledgement due to the person for whom it is intended or his authorised agent (b) If it cannot be served as aforesaid, then by affixing a copy at a conspicuous space in factory or warehouse. (c) If this is also not possible, then affixing a copy on the notice board of the office or authority which issued the SCN. (These provisions are applicable to issue of notices, order, summons or decisions issued under Central Excise Act or rules). As per section 37C(2), the notice / order / summons / decision shall be deemed to have been served on the date on which it is served or tendered or delivered by post or copy is affixed on notice board. Suppression of facts/fraud/collusion - Notice can be served for a period of five years in case of fraud, collusion, suppression of facts, wilful misstatement etc. This indeed is a ‘terror’ as an unexpected demand for past five years can financially cripple the assessee. However, it has to be noted that such suppression of facts, misstatement must be ‘with intention to evade duty’ to attract larger period of five years. Supreme Court in Rainbow Industries v. CCE - 1994 (74) ELT 3 (SC) = 1994 (6) SCC 563 = AIR 1994 SC 2783 = 1994 AIR SCW 4465 have held that in order for the extended period to apply, two ingredients must be present - wilful suppression, mis-declaration etc., and the intention to evade duty - followed in ONGC v. CCE - 1995 (79) ELT 117 (CEGAT). Same view in Tamil Nadu Housing Board v. CCE - 1994 (4) SCALE 388 (SC) = 1995 Supp(1) SCC 50 = 1994 (74) ELT 9 (SC) =1994 (55) ECR 7 (SC). In this case, it was held that the powers to extend period from one year to 5 years are exceptional powers and hence have to be construed strictly. It was held that both fraud, collusion etc. and intention to evade duty must concur. In J K Cotton Spg & Wvg Mills Co. Ltd. v. CCE 1998(99) ELT 8 = JT 1998(2) SC 293 = 1998(3) SCC 540 = 1998 AIR SCW 1123 = AIR 1998 SC 1270 = (1998) 13 CC (Reports) 108 (SC 3 member bench) also, it was held that eventuality envisaged in section 11A (parallel section 28 of Customs Act) for further lengthening of the limitation period must be strictly construed. Intention to evade duty - Intention to evade payment of duty is not mere failure to pay duty. It must be something more, i.e. that assessee must be aware that duty was leviable and he must deliberately avoid payment of duty. ‘Evade’ means defeating the provision of law of paying duty. It is made more stringent by the use of word ‘intent’. In other words, the assessee must deliberately avoid payment of duty payable under the law. Where there was scope of doubt whether duty was payable or not, it is not ‘intention to evade duty’. - Tamilnadu Housing Board v. CCE - 1994 (4) SCALE 388 (SC) = 1995 Supp(1) SCC 50 = 1994 (74) ELT 9 (SC) = 1994(55) ECR 7. In this case, it was held that the powers to extend period from one year to 5 years are exceptional powers and hence have to be construed strictly. Mere inaction is not Suppression of Facts - Suppression means not providing information which the person is legally required to state, but is intentionally or deliberately not stated. Hon. Supreme Court, in Collector v. Chemphar Drugs 1989 (40) ELT 276 (SC) = 1989 (2) SCC 127 = 1989 (21) ECR 182 (SC) = AIR 1989 SC 832, has held that mere inaction or failure on part of manufacturer will not amount to suppression of facts. Conscious or deliberate withholding of information when the manufacturer knew otherwise, is required to be established, before saddling the manufacturer with liability for a period beyond one year (that time 6 months) [reiterated in Lubri-Chem Industries Ltd. v. Collector - 1994 (73) ELT 257 (SC) = 1994(2) Supp SCC III 258 = 1994 AIR SCW 3672 = AIR 1994 SC 2604 = 1994(4) RLT 239 (SC)]. Fraud/Misstatement/Collusion - Demand can be raised for past 5 years in case of fraud/misstatement or collusion. Fraud - This word is not defined in CEA. Basic element of fraud is deceit. Section 17 of Contract Act states that fraud means making a suggestion, as a fact, which the person does not believe it to be true. Fraud also means active concealment of fact. Generally, ‘fraud’ means deceit, trickery or misrepresentation. Intention to evade duty is built into the words ‘fraud’ and ‘collusion’ -Cosmic Dye Chemical v. CCE - (1994) 95 STC 604 (SC) = (1995) 6 SCC 117 [(1) 502 ?] = 75 ELT 721 (3 member bench). In Dr. Vimla AIR 1963 SC 1572, it was observed that 'defraud' includes an element of deceit. However, mere silence is not fraud, unless it is the duty of the person to speak or silence itself is equivalent to speech. Misstatement - A false statement becomes ‘wilful’ if it is deliberate or intentional. It is not wilful if the statement is accidental or inadvertent. A statement will not be misstatement only because full facts were not disclosed. ‘Wilful’ means ‘with intent to evade duty’ - Cosmic Dye Chemical v. CCE - (1994) 95 STC 604 (SC) = 75 ELT 721 = (1995) 6 SCC 117 [(1) 502 ?] (3 member bench) Mere visits of offices does not mean there was no suppression of facts – ‘No suppression’ cannot be pleaded on the ground that excise officers visited their factory number of times, unless there is something on record to show that they pointed out some fact to Revenue and even after the discovery of that fact, Revenue has not taken any action. – Agrico Engineering Works v. CCE 2000(122) ELT 891 (CEGAT). Demand based on estimated production – In cases of clandestine removal, demand can be issued on basis of estimated production. Earlier rule 173E provided that CE Officer can fix normal production based on installed capacity, raw material utilisation, labour employed, power consumed and such other relevant factors as the officer may consider appropriate. If sufficient cause is not shown for shortfall compared to norms, the duty could be assessed on best judgment. Now, there is no parallel provision in new rules, but it does not mean that demand cannot be raised on estimate basis, as in case of clandestine removal, getting actual production figures is practically impossible. No demand from purchaser in open market - Goods purchased from open market are presumed to be duty paid. Purchaser does not have to prove duty paid character of such goods. It is not possible for the purchaser to prove the same - Calcutta Paper Mills Mfg Co. v. CEGAT - 1986 (25) ELT 939 (Cal HC) * Vapson Products v. UOI - 1987 (27) ELT 608 (Bom HC). Reply, Hearing and Order – CBE&C (Board) has prescribed a time limit of one month for giving reply to show cause notice. Allowing shorter period for giving reply is incorrect. The assessee should be allowed to produce supportive evidence and should be allowed examination and cross-examination of witnesses. Personal hearing - A personal hearing should be given and then appealable speaking order should be passed by adjudicating authority (speaking order means an order giving reasons). Provision of personal hearing is not specified in section 11A of CEA (parallel section 28 of Customs Act), but it is an essential requirement of ‘principles of natural justice’. The order should give decisions on the points and objections raised by assessee in reply to SCN or at personal hearing. Cross-examination of persons whose statements relied upon - If a statement of a person is relied upon, opportunity of cross-examining the person must be given if demanded, if such opportunity is not given, the statement cannot be relied upon. - Kalra Glue Factory v. Sales Tax Tribunal - 1987 (66) STC 292, followed in Indo Plast v. CC 1994 (69) ELT 39 (CEGAT). Order cannot go beyond show cause notice - Order must be based on points alleged in show cause notice. An order based on point not alleged in show cause notice is not sustainable [for case law, see under show cause notice]. Order must be with reasons - It is a principle of natural justice that an order confirming demand mentioned in show cause notice must be with reasons. Interest for late payment of duty – If duty is not paid when it ought to have been paid, interest is payable at the rates specified by Central Government by notification in official gazette. Such rate cannot be less than 10% and not more than 36%. The interest is payable from the first day of the month following the month in which the duty ought to have been paid. The provision applies if the amount had become payable or ought to have been paid after Finance Act, 2001 received assent of the President, i.e. on or after 11-5-2001. [section 11AB(1) of CEA - similar section 28AB(1) of Customs Act] The actual rate of interest is 15% w.e.f. 13-5-2002 [Notifications 19/2002-CE(NT) and 27/2002-Cus(NT) – both dated 13-5-2002]. [Earlier, the interest rate was 24%]. Interest payable during period of stay - It may be noted that interest is payable if finally assessee loses in appeal, even if demand was stayed by Court/Tribunal pending hearing of appeal. The interest will be payable right from the original demand, and not from the date when appeal is decided. Supreme Court in Haji Lal Mohd v. State of UP (1973) 32 STC 496 (SC), had, in a sales tax case, held that running of interest is not prevented because of operation of any stay order. However, penalty cannot be levied during period of stay, as assessee is not in default during that period. A late payment surcharge / interest is necessarily compensatory in character. A penalty is punishment. – Consolidated Coffee Ltd. v. Agricultural ITO 2000 AIR SCW 4173 = 248 ITR 417 = (2001) 1 SCC 278 = 113 Taxman 697 (SC) * Chitra Viranave v. CCE 2002(145) ELT 622 (CEGAT). Settlement Commission Central Excise and Customs law have made provision of 'Customs and Central Excise Settlement Commission' on the lines of a similar Commission under the Income-Tax Act, 1961. The provisions are incorporated in sections 31, 32 & 32A to 32P of Central Excise Act and sections 127A to 127N of Customs Act. Provisions of settlement under customs and Central Excise are pari-materia to that of provisions in direct taxes. - Santogen Textile Mills Ltd. In re 2002(141) ELT 580 (Sett Comm). Settlement Commission is based on Wanchoo Committee Report. The report said, ‘There is delirious effect of frequent disclosure schemes on the level of compliance among the tax paying public and the morale of administration. However, this does not mean that the door for compromise with an errant tax payer should remain forever closed. In the administration of fiscal laws, whose primary object is to raise revenue, there has to be some room for compromise and settlement. A rigid attitude would not only inhibit a one time tax-evader or an un-intending defaulter from making a clean breast of his affairs, but would also unnecessarily strain the investigation resources of the department in case of doubtful benefit to revenue while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in law for a settlement with a tax payer at any stage of the proceedings’. – quoted in Rajshri Plastiwood Ltd. In re 2001(130) ELT 295 (Sett Comm). Settlement Commission is constituted for settling complicated cases of chronic tax evaders as an extraordinary measure, for giving an opportunity to such persons to make a true confession and to have matters settled once for all, and earn peace of mind. It is a forum of self surrender and not a forum of challenging the legality of assessment order. – N Krishnan v. Settlement Commission (1989) 180 ITR 585 = 47 Taxman 294 (Kar HC DB). – similar view in Sheikh Mohd. Rawoothat v. Settlement Commission (1999) 236 ITR 581 (Mad HC). Settlement Commission has been constituted w.e.f. 9th June, 1999, vide notification No. 40/99-CX(NT) dated 9-6-1999. The Commission consists of Chairman, three Vice Chairmen and eight members, functioning under Department of Revenue, Ministry of Finance. It has principal bench at Delhi and additional benches at Mumbai, Chennai and Kolkata. Mr. D S Solanki is the first Chairman of the Commission. The provisions are mainly useful in major cases, where department has found some evasion of duty and has initiated action by issue of show cause notice. In such case, the assessee may like to settle the issue by payment of dues and avoid further liabilities. The Settlement Commission can grant immunity from prosecution and can also reduce or waive penalty, fine and interest. This is similar to 'out of court' settlement of dues, to avoid lengthy and costly litigation. Objective of Settlement Commission is to provide quick and easy settlement of tax dispute of high revenue stake. This will save time and energy of both litigants and department. It is expected that there will be only two hearings and issue will be resolved within an outer limit of 6 months to 1 year. - Issued by Settlement Commission - 1999(113) ELT T11. Who can approach Settlement Commission - Any assessee (in case of Central Excise) and any importer, exporter or any other person (in case of customs) can approach the Settlement Commission. Application should be accompanied by prescribed fees. Application once made cannot be withdrawn. Disclosure to be made by applicant - Applicant has to make an application in prescribed and manner stating, inter alia, a true and full disclosure of his duty liability which has not been disclosed before the Central Excise / Customs Officer having jurisdiction, the manner in which such liability has been incurred and the additional amount of excise / customs duty accepted to be payable by him. He has to also supply other information regarding dutiable goods in respect of which he admits short levy. Application should be for settlement of the case. Which issues can be taken before Settlement Commission - The case can be taken up for settlement only in following cases -
Procedure before Settlement Commission - Application giving full disclosures along with all relevant documents should be submitted in quintuplicate. It should be signed and verified and should be accompanied by a fee of Rs 1,000/-. The fees are payable by way of a TR-6 challan in authorised bank. Payment by cheques / drafts are not accepted. The account code is 00370058 in case of customs and 00380103 in case of Central Excise. [CAO Office memorandum dated 24-1-2002]. Procedure for application - Application should be in form SC(E)-1 in case of CEA and form SC(C)-1 in case of Customs Act. The application should be signed and verified by * In case of individual – the individual himself or if he is absent from India, person authorised by him * Karta in case of HUF * Principal Officer in case of company or local authority * Partner in case of firm * In case of any other person, a person competent to act on his behalf. - Rule 2 of Central Excise (Settlement of Cases) Rules, 2001. On receipt of application, Settlement Commission will call report from jurisdictional Commissioner of Excise / Customs u/s 32F(1) of CEA. Settlement Commission may send copy of the application to Commissioner while calling for his report, without its annexures, statements and other documents. - Rule 3 of Central Excise (Settlement of Cases) Rules, 2001 – (earlier rule 220(2) of CEA) - rule 4 of Customs (Settlement of Cases) Rules, 1999. If no report is received within one month from Commissioner, the Settlement Commission should fix hearing within two months by giving notice to applicant as well as jurisdictional Commissioner. On receipt of such report, Commission can accept or reject the application for settlement, having regard to nature and complexity. Commission cannot reject an application without giving opportunity of personal hearing to the applicant. If Commission decides to accept the application, the applicant must pay the amount acceptable to him within 30 days. If amount is not paid, interest @ 18% is payable. If the amount is not paid, it can be recovered as any other excise / customs due. If the application is admitted, copy of the order allowing the application, along with all annexures, statements and other documents will be sent to Jurisdictional Commissioner of Excise / Customs. Powers to grant immunity from prosecution - The Settlement Commission shall, subject to certain provisions, have power to grant immunity from prosecution penalty, fine and interest in respect of the case covered by the settlement, if the applicant has cooperated with the Commission and has made full and complete disclosure. If the payment is not made as per order, the immunity will be withdrawn. Sending back the case - If the applicant does not cooperate, the Settlement Commission can send the case back to the officer for further action as per law. Similarly, if order is obtained by misrepresentation of facts or fraud, the order is void and then matter can be sent back to the officer for decision. Such person then cannot apply for settlement in any other matter. If the application is sent back, all submissions made and all information given by applicant before Settlement Commission can be used by the Excise/Customs Officer while deciding the case. Recovery Once the demand of duty, penalty or any other dues is confirmed by excise authorities, the person liable to pay dues has to pay the amount within time prescribed. The payment may be made either by TR-6 challan or by debiting PLA. Mode of Recovery - If the assessee refuses to pay the amount, Excise Officers have been given powers u/s 11 of CEA and section 142(1)(b) of Customs Act as made applicable to Central Excise w.e.f. 2.9.1997. Powers under section 11 - Excise authorities can recover excise duty under section 11 only by following means : Adjusting against money payable - By adjusting the amount against any money payable to him e.g. a refund may be due to the assessee on some other account, which can be adjusted against the money recoverable from him. Attachment - By attachment and sale of excisable goods belonging to the assessee. As Arrears of Land Revenue by issuing a certificate - By issuing certificate to District Collector of Revenue, who is empowered to recover the amount as arrears of land revenue. Collector can attach and auction the belongings (except cooking utensils and personal clothing) and recover the amount. This is termed as 'certification proceedings' or ‘certificate action’. Powers under section 142(1) of Customs Act made applicable to CE - Section 142(1)(b) and section 142(1)(c)(ii) of Customs Act have been made applicable to Central Excise w.e.f. 2.9.1997, by amending notification No. 68/63-CE dated 4.5.1963. Under section 142(1)(b) of Customs Act as made applicable to Central Excise, Assistant / Deputy Commissioner of Central Excise can detain and sale any goods belonging to the person which are under control of Central Excise officer. Under section 142(1)(c)(ii) of Customs Act as made applicable to Central Excise, the Assistant / Deputy Commissioner, with prior permission of Commissioner, distrain any movable or immovable property belonging to or under control of such person. If the amount is not paid within 30 days, the property can be sold. These powers are discussed in following paragraphs. Provisions regarding recovery under section 11 - Provisions in respect of recovery of duty under section 11 are as follows— Recovery from surety - The powers of recovery can be used against surety or guarantor also. Goods should belong to assessee - Attachment can be only of goods belonging to person liable to make payment. Instalments can be granted - Chief Commissioner of Central Excise can grant instalments for recovery, but statutory interest will be payable. Upto 36 monthly instalments can be granted on merits - CCE, Hyderabad TN 48/97 dated 17.12.1997. Liability of partner - Since liability of partners is unlimited, recovery can be made from partner. If public notice of dissolution is given, then partner is liable only for dues upto date of dissolution. However, dues recoverable from an individual partner (in his individual capacity) cannot be recovered from the partnership firm and goods belonging to a firm cannot be attached for recovery of dues from an individual partner. In Third ITO v. Arungri Chettiar - AIR 1996 SC 2160, it was held that tax arrears of partnership firm when assessee was partner can be recovered from erstwhile partner, even after he retires. Liability of legal heir/representatives - High Courts have held that recovery can be made from legal representatives or heir from the movable or immovable property inherited by the legal heirs. Goods pledged cannot be attached - If the goods have been pledged (usually with Bank), they do not ‘belong’ to the defaulter and hence are not liable for attachment or detention. Detention and sale of any property - If the amount due is not paid, Assistant / Deputy Commissioner of Central Excise can, on authorisation by a Commissioner of Central Excise, distrain any movable or immovable property belonging to or in control of such person (from whom any sum is recoverable). The property can be detained until the amount is paid along with cost of the distress or keeping the property. If amount is not paid, the property can be sold by excise authorities. [section 142 (1)(c)(ii) of Customs Act as made applicable to Central Excise]. Provisions under section 142(1)(c)(ii) of Customs Act permit detention of any immovable and movable property. Goods not belonging to the person, but under his control can also be detained and sold, if amount is not paid within 30 days. Prior authorisation of Commissioner is necessary for detention and sale. Stay of Recovery - Orders of demand are appealable and appeal can be filed against the order for demand of duty/penalty. Under Central Excise as well as Customs law, appeal can be filed only after the amount demanded is paid. However, appellate authorities can grant stay for recovery pending final decision on appeal. The stay may be unconditional or conditional subject to conditions like part payment, bank guarantee, surety etc. If such stay is obtained, recovery proceedings will be stayed. However, mere filing of appeal does not amount to stay order. A separate application has to be made for stay order from appellate authorities. Payment of Duty Under Protest Sometimes it happens that the classification of goods done by excise authorities, Assessable Value determined by the excise authorities in adjudication proceedings, etc. are not agreeable or acceptable to the assessee. In such cases, the assessee can file an appeal and in the meanwhile he can pay duty under protest {If no stay is obtained from Appellate Authorities} Following procedure, as prescribed in Chapter 13 Part III Para 4 of CBE&C’s CE Manual, 2001 should be followed – (a) Write a letter to Assistant / Deputy Commissioner stating that he desires to pay duty under protest and give grounds for paying duty under protest (b) Obtain dated acknowledgement and it will be proof that assessee has paid duty under protest from that date (c) After submission of the aforesaid letter, he can pay duty under protest only till his appeal or revision (as the case may be) is decided, but not after the appeal/representation is decided. If he does not file appeal, he cannot pay duty under protest after period of appeal is over. (d) An endorsement ‘duty paid under protest’ should appear on all excise invoices or monthly / quarterly return. If lumpsum duty is paid in respect of past demand, fact of duty payment under protest should be mentioned in PLA, Cenvat Credit Account and Daily Stock Account (DSA) [Really, DSA is not relevant] (e) As per ER-1 form of monthly / quarterly return, numbers of invoices on which duty is paid under protest should be indicated in the return. Letter of protest is not a claim of refund – Even if letter of protest was filed, it does not constitute a claim of refund. - Chapter 13 Part III Para 4.3 of CBE&C’s CE Manual, 2001. Thus, separate refund application is required after the issue is settled. Letter of Protest is essential – Protest must be registered before or at the time of making payment. Thus, letter giving reasons of protest is essential. It is advisable to mark on TR-6 challan or on debit entry to PLA itself that duty is being paid under protest. Payment under protest cannot be an afterthought. Doctrine of unjust enrichment applicable to refund - Even if duty is paid under protest, doctrine of unjust enrichment will still apply to refund. The manufacturer should charge only the excise duty to which he is agreeable as per his interpretation and balance should be borne by him. The problem may arise that if he is required to pay duty at a later stage, he may not be able to recover the amount from the buyer. Hence, if possible, assessee may obtain deposit or bank guarantee from the buyer. Refund of Duty Just as it is possible that the assessee has paid lower duty, it is possible that the manufacturer has paid higher duty than required. Such higher payment may be due to mistake or urgency. Even if an assessee agrees to pay higher duty to clear goods urgently, he can claim refund. There is no estoppel in law against a party in taxation matters. If a party in order to clear goods from customs, has given classification according to wishes of authorities or even under some misapprehension, he can claim refund on proper appraisement - Dunlop India Ltd. v. UOI - AIR 1977 SC 597 = 1983 (13) ELT 1566 (SC). Doctrine of Unjust Enrichment - If the manufacturer had charged excise duty to his buyer, it is clear that he has passed on the burden to the buyer and has already recovered duty from his customer. In such cases, refund of excess duty paid to the manufacturer will amount to excess and un-deserved profit to him. It will not be equitable to refund the duty to him, as he will get double benefit - first from the customer and again from the Government. This is called ‘unjust enrichment’. Refund, if any, should be paid to customer who has borne the burden of duty. However, in majority of the cases, it is not practicable to identify individual consumer and pay refund to him. At the same time, the duty is illegally collected and hence cannot be retained by Government. In UOI v. Roplas Ltd. 1988(38) ELT 27 (Bom HC), it was suggested that in such cases, the refund due should be transferred to a Consumer Welfare Fund instead of paying it to the manufacturer. The fund may be used for activities of protection and benefit of consumers. With this view in mind, CEA was amended and the provisions in respect of 'unjust enrichment' were incorporated w.e.f. 20th Sept., 91. As per these provisions, refund will be paid to manufacturer only if he proves that he has borne the burden of duty. Otherwise, the amount will be paid to Consumer Welfare Fund. Prior to this amendment, there was no such provision in the Act and various Courts had held that Government has no right to retain duty which is not legally payable and it ought to be refunded even if it was recovered by assessee from buyer. Refund claim - Refund claim should be lodged within one year from ‘relevant date’ in prescribed form. It can be lodged by manufacturer, if he has not passed on the burden to buyer, or by a buyer, if he has not passed on its incidence to another person. Refund claim should be lodged with Assistant / Deputy Commissioner and not with Superintendent. - Bhubaneshwar Commissionerate Trade Notice No. 35-GL-30-93 dated 28-9-1993. Procedure for filing refund application – Refund application should be filed in form ‘R’ which was prescribed in earlier CE Rules. - Chapter 9 Para 1.1 of CBE&C’s CE Manual, 2001. Refund application in duplicate must be filed only in the office of Assistant / Deputy Commissioner, but copy should be submitted to Range Superintendent. It should be signed by claimant and pre-receipted with revenue stamp. Claim should be accompanied by all relevant documents. Refund claim of less than Rs 100 will not be entertained. Who can file a refund claim - A refund claim can be filed by assessee who has paid the duty or the buyer on whom the burden of duty has been passed. Refund to assessee/buyer - Under proviso to section 11B(2), [parallel section 27(2) of Customs Act] a refund of excise duty can be made to assessee/buyer only in following cases :
In addition, Tribunals and Courts have held that provisions of unjust enrichment do not apply in following cases – (a) When duty is paid under protest and only lower amount of duty is charged to customer (b) Pre-deposit of duty pending appeal (c) When duty is paid subsequent to clearance (d) When contract is for price inclusive of all duties (e) When debit note is raised by buyer and amount deducted from bill (f) When credit note issued to buyer (g) Refund of rebate/incentive. (h) Deposit taken from buyer against possible liability of excise duty. [Case law discussed in later part of this Chapter]. Thus, in effect, refund to a person will be made only when he has not passed on the burden to another person. These provisions are overriding provisions and are applicable irrespective of any contrary judgment of Appellate Tribunal or any Court or any other provisions of Central Excise Act and Rules. Thus, refund provision in any other rule will be always subject to the aforesaid provisions of section 11B(2). Time limit for filing refund application - A refund claim u/s 11B has to be filed within one year from the relevant date. Presumption regarding ‘Unjust Enrichment’ - There is statutory presumption that duty burden has been passed on to customer. Refund is available to manufacturer/buyer only if he has borne the incidence. Section 12B of CEA [parallel section 28D of Customs Act] provides that every person who had paid duty shall be deemed to have passed on the burden to buyer of the goods. The manufacturer/buyer claiming refund will have to prove that he has not passed on incidence of tax to any other person. Duty collected from buyer must be paid - Every person, who is liable to pay duty under Central Excise Act and Rules and has collected from buyer any amount in excess of the duty assessed or determined and paid on any excisable goods under CE Act or rules, representing as duty of excise; must pay the amount immediately to the credit of Central Government. [section 11D(1) of CEA – corresponding section 28B of Customs Act]. Thus, a person, who charges an amount in the invoice representing as excise duty, must deposit the same with Central Government. interest payable if excess amount was recovered – If excess amount becomes payable u/s 11D, interest will also be payable from the first day of succeeding month in which the amount should have been paid. If such amount is reduced in appeal, interest will be payable on the reduced amount. If the amount payable is increased in appeal, the interest will be payable on such higher amount. [section 11DD inserted w.e.f. 14-5-2003]. Duty to be shown separately in Invoice - It is presumed under section 12B of CEA (Parallel section 28D of Customs Act) that the incidence has been passed on to the buyer. To ensure that buyer knows what is the duty charged to him, section 12A of CEA [Parallel provision in section 28C of Customs Act] provides that every person liable to pay duty of excise, shall prominently indicate in all documents relating to assessment, sales invoice and other like documents, the amount of duty, which forms part of the price at which such goods are sold. [In a refund claim, the manufacturer has to prove that he has not passed on incidence of tax to another person. Once he has specified the amount in his invoice, it will be extremely difficult to prove that he has not passed on the burden]. This provision is applicable only to a person liable to pay duty on excise and customs. [Really, this provision is meaningless in respect of customs duty, as customs duty is never paid on basis of Invoice. However, provisions of section 12A have been copied in section 28C of Customs Act without applying mind]. Interest on late disbursement of refund - Refund due must be sanctioned within three months from date of application. If not so paid, Government will pay interest to the assessee. The interest rate will be fixed by Central Government if Official Gazette, which will not be less than 5%, but not more than 30% [section 11BB of CEA, corresponding section 27A of Customs Act]. The rate prescribed is 8% w.e.f. 13-5-2002 [17/2002-CE(NT) and 25/2002-Cus(NT) both dated 13-5-2002] [It was 9% w.e.f. 11th May, 2001, vide Notification No. 23/2001-CE(NT) – parallel 21/2001-Cus(NT) both dated 11.5.2001. The rate prescribed was 15% w.e.f. 26th May, 1995]. Of course, the refund is subject to provision of ‘unjust enrichment’ and hence will not be available in most of the cases. Provisions of section 11BB are attracted automatically for any refund sanctioned beyond three months. Jurisdictional Central Excise Officers are not required to wait for instructions from any superior officers or look for instructions from higher appellate authorities. Responsibility should be fixed by Commissioner for not disposing of the refund claim within three months from date of receipt of application. – CBE&C circular No. 670/61/2002-CX dated 1-10-2002. Unjust Enrichment - Validity of Section 11B - Legal validity of provisions of section 11B of CEA (parallel section 27 of Customs Act) has been upheld by a nine member bench of Supreme Court in Mafatlal Industries Ltd. v. UOI - 1996(9) SCALE 457 = (1997) 89 ELT 247 (SC) = (1997) 5 SCC 536 = 1997(68) ECR 209 = JT 1996 (11) SC 283 = 111 STC 467 = 1996(17) RLT 907 (SC 9 member Constitution bench). There were separate judgments and final conclusions can be summarised as follows - [these were later summarised in form of format order in ACC v. Anam Electrical Mfg Co. 1997(90) ELT 260 (SC) = 1997(1) SCALE 716 (SC) = JT 1997 (2) SC 335.= 1997(5) SCC 744 - confirmed in Baroda Rayon Corpn Ltd. v. CC 1997(91) ELT 537 (SC 3 member bench).* CC v. Sangli Bank Ltd. 1997(93) ELT 3 (SC) * Zenith Tin Works v. UOI 1998 AIR SCW 4124]. Provision in respect of unjust enrichment valid - Provision that refund can be denied if the duty incidence has been passed on has been upheld. Provision regarding presumption about passing of the burden are also valid - ( 8 v 1 decision) Writ jurisdiction not affected - Writ jurisdiction of High Court remains unaffected (unanimous view). However, these writ powers are subject to limitations as explained below. Refund in cases where levy is declared unconstitutional - If the levy has been declared as unconstitutional, refund claim can be made by way of suit or a writ petition. Such refund claim will also be subject to provision of unjust enrichment, i.e. refund can be made to the person only if the person proves that he has not passed on the burden of duty to another person. Such refund claim can be made only by a person who has already challenged the validity and the suit or writ is pending. If the writ or suit was dismissed earlier, the decision has become final in his case. He cannot file refund claim based on decision of legal invalidity in case of some other person. Similarly, if a person had not challenged the validity earlier, he cannot file refund claim based on decision of invalidity in case of other person (7 v 2 decision). Minority view was that if a levy is declared as unconstitutional, other persons, who had not filed any writ or suit earlier, can also file refund claim/ writ/suit. [In a subsequent decision, in UP Pollution Control Board v. Kanoria Chemicals Ltd. 2001 AIR SCW 439 = 128 STC 26 = 128 ELT 3 (SC), it was held that writ petition can be maintained for a refund claim filed subsequent upon declaration of law that the levy is unconstitutional, if there is no restriction similar to section 11B of Central Excise Act. In this case, it was held that even those who had not challenged the levy can file refund claim based on judgment of Supreme Court in another case]. In SRF Ltd. v. ACCE 2001(134) ELT 324 = 2001(8) SCALE 132 = 2001 AIR SCW 4653 (SC 3 member bench), it was held that even if levy is unconstitutional, refund is still subject to provisions of unjust enrichment. Jurisdiction of civil court barred - Civil Courts have no jurisdiction in case of refund claim filed under the Act. Thus, refund claim arising out of misinterpreting or misapplying the provisions of Act and Rules can be made only as per provisions of the Act. However, when the levy is declared unconstitutional, the claim is outside the purview of Act. In such cases, refund can be claimed in suit or writ, subject to limitations stated above. (5 v 4 decision). The minority view was that in following cases, jurisdiction of civil court is not barred within normal period of limitation - (a) Unconstitutional levy ( 3 members' view) (b) Where the provisions of Act have not been complied with or the statutory tribunal has not acted in conformity with fundamental principles of jurisprudence ( 2 members' view) (c) When authority acts without jurisdiction ( 3 members' views). - . - However, there was 8 v 1 unanimity that even in case the levy is declared unconstitutional or there is mistake of law or where order is passed without jurisdiction, the refund will still be subject to provisions of unjust enrichment, i.e. refund will not be granted unless the person proves that he has not passed on the burden to another. Other important judgments – Other important judgments are as follows - Provision applicable to cess - In Jindal Solvent Extractions v. CCE 1999(113) ELT 159 (CEGAT), it was held that provisions of unjust enrichment are applicable to cess also. – same view in SRF Ltd. v. CC 2002(144) ELT 563 (CEGAT). Provision applicable to captive consumption - In UOI v. Solar Pesticides P Ltd. 2000(1) SCALE 423 = 2000(2) SCC 705 = 2000 AIR SCW 444 = AIR 2000 SC 862 = JT 2000(1) SC 577 = 116 ELT 401 = 26 SCL 115 (SC 3 member bench), it has been held that provisions in respect of unjust enrichment are applicable in respect of raw material captively consumed also. In case of captive consumption, even if it is difficult to prove that incidence of duty has not been passed to purchase of final product, refund will not be granted if manufacturer is not able to show and prove that incidence has not been passed on to some body else. - followed in CCE v. Usha Beltron Ltd. 2000(119) ELT 3 = 2000 AIR SCW 4658 (SC 3 member bench) * CC v. Borax India 2001(134) ELT 11 (SC 3 member bench) * CCE v. Ahmedabad Packaging 2002(144) ELT 116 (CEGAT) * CCE v. Elgi Ultra Industries 2002(146) ELT 396 (CEGAT). When duty paid on provisional basis – Rule 7(6) of Central Excise Rules makes it clear that even in case of provisional assessment, refund is subject to doctrine of unjust enrichment. Hence, in case of provisional assessment, assessee should recover only lower duty from the buyer in the invoice. [If the buyer is in a position to avail Cenvat, it is highly advisable to pay higher duty and forget about refund. The reason is - section 11B(2) is applicable to all refund claims without any distinction and has overriding effect as per section 11B(3)]. However, in case of customs duty, there is no parallel provision and provision of unjust enrichment should not apply if customs duty is paid on provisional basis, though as per CBEC circular No. 40/2002-Cus dated 17-7-2002, unjust enrichment provisions will apply to provisional assessment also. |