Workshop on Adjudication and Appellate Procedures-Service Tax law-the Institute

Transcription

1 Workshop on Adjudication and Appellate Procedures-Service Tax law-the Institute of Chartered Accountants. Drafting Reply to Show Cause Notice, appearance before adjudicating authorities and Cross Examination: 1. Drafting reply to Show Cause Notice: 1.1 A show cause notice constitutes the foundation on which the Revenue s case must stand or fall. This position is well settled in law and has been reiterated by the Supreme Court in the case of Commissioner of Central Excise v Ballarpur Industries Limited reported in 2007 (215) ELT 489 (SC). The department cannot at any stage of the proceedings go beyond the four corners of the Show Cause Notice. Thus while drafting a reply to the Notice, the assessee needs only to meet the case of the department as set out in the Notice and it is therefore important that the reply to the Notice is so drafted that it squarely meets the department s case as set out in the notice. To achieve this it is necessary that the draftsman of the reply to the Notice appreciates clearly what is the department s case as set out in the Notice and what is the assessee s defence to the department s case as set out in the Notice. 1.2 The following approach would help in achieving this goal. 1.3 It would be worthwhile that any consultant or advocate who on behalf of his client sets about to draft a reply to the Notice should in the first instance go through the Show cause notice on his own and this should be done before any discussion on the matter with the client. This would help the consultant to arrive at an objective view of what the department s case is without being clouded by the client s view of the matter. Since a client is personally interested in the matter, his reading of the Notice may not be entirely objective and therefore the consultant must avoid taking the client s view of the Notice before the consultant has himself first read the notice. 1.4 While reading the Notice greater emphasis should be laid on all such facts and points as are against the client. As one reads along one may find that there may be several points on which the department s case is weak. But it is important to find an answer/ defence to those facts/points in respect of which the department s case appears to be

2 strong and which seem to go against the client and therefore it is necessary to concentrate on facts/points which are against the client. 1.5 After having gone through the Notice and having concentrated on the facts and points which appear to be against the client, it would be worthwhile to go through legal provisions which are involved in the matter. Even if the legal provisions involved are those which one has read earlier and with which one may otherwise be familiar, it would be helpful to have a relook at such provisions and read them in the light of the facts contained in the Show cause notice. Very often we may see the provisions with which may be familiar in a different light in the background of different set of facts. 1.6 It is also important to look up the case law on the subject so as to get an idea of the latest developments in the case law which may have a bearing on the issues involved in the Notice. 1.7 After having undertaken the above exercise, it is now time to discuss the matter with the client and seek his instructions on the facts. It is important to get a satisfactory answer on all such facts as seem to be against the client. For this purpose it may be necessary to go through various documents and records and it is for the consultant to guide the client to identify what documents and records are important and crucial to his defence. 1.8 Very often the Show Cause Notice summarizes the contents of documents or statements which are relied upon in the Notice. It is important to go through the original documents or statements relied upon in the Notice rather than to accept at face value the summary thereof given in the Notice since many a times the summary given by the department in the Notice may not be accurate or it may exclude some portion which is in favour of the assessee and against the department. 1.9 What should be the structure of the reply to the Notice? 1.10 Since as stated above, the revenue s case is confined to the four corners of the Show Cause Notice, the reply to the Notice should meet the case as set out in the Notice. It is therefore important that the reply should not drift into irrelevant and extraneous matters which are not germane to the case set out in the notice. Nothing could be worse for the assessee than his own reply to the Notice expanding the scope of the dispute by introducing facts or points which are not relevant to the case as set out in the Notice.

3 1.11 The temptation to flood the reply with an abundant dose of case law and quoting extensively from case law must be resisted. The emphasis instead should be to deal with the facts of the case and give a convincing answer on facts. Facts must come before the law It would be therefore useful to set out in the reply at the outset what the Notice calls upon the assessee to show cause against and to briefly summarize the contentions in the Notice which the assessee is required to respond to. Before dealing with the contentions, the factual background in which the matter arises may be set out since the setting out of the facts itself would give a person who reads the notice an idea of what the defence would be. The necessary facts on which the defence plea is based have to be pleaded. It is in this background that the contentions raised in the notice may then be dealt with both on facts and in law Just as the Show Cause notice is the foundation of the department s case, the reply to the Notice is the foundation of the assessee s defence. If due care and attention is given in pleading the vital facts while drafting the reply, the superstructure of the defence built thereon will stand through all stages of the proceedings. 2. Appearance before adjudicating authorities: 2.1 If a properly drafted reply in which the relevant facts and defence are pleaded is filed with the adjudicating authority before one appears for the hearing, the task of the person appearing before the adjudicating authority becomes simpler. If on the other hand no reply has been filed before the hearing or just a sketch reply containing bare denials alone is filed, the person appearing before the adjudicating authority would have a difficult task at hand. 2.2 The effort one needs to put in for preparing to appear before an adjudicating authority would be inversely proportional to the effort that is put in while drafting the reply to the Notice. If the ground work of reading the Show cause notice, collecting and going through documents and marshalling and presenting the facts has been carried out satisfactorily at the time of drafting the reply, the preparation for the hearing would be easy and vice versa. 2.3 Most adjudicating authorities are hard pressed for time since they also discharge day to day administrative functions apart from adjudication. Very often therefore the time

4 at their disposal for conducting a hearing is limited. It is therefore important that while presenting the case, arguments should not be long winding but should be focused and to the point so as to effectively make out a case within the limited time at the disposal of the adjudicating authority. 2.4 Grant of a personal hearing by the adjudicating authority is not only a statutory requirement but also a requirement of the principles of natural justice. The principles of natural justice require that the opportunity of hearing which is given should be reasonable and effective. Very often it so happens that a Show cause notice may rely on voluminous documents and statements which may not have been furnished along with the Notice. In such cases the assessee is entitled to insist that copies of all documents and statements relied upon in the Notice be first furnished. If without furnishing copies of the relied upon documents, the adjudicating authority insists on the assessee filing a reply to the Notice that would be in violation of the principles of natural justice. Similarly if without furnishing copies of the relied upon documents, the adjudicating authority insists that the assesse should appear for personal hearing, it would be in violation of the principles of natural justice. 2.5 It is not enough for the department to merely offer for inspection the relied upon documents. It is settled law as laid down in the following judgments that merely making the relied upon documents available for inspection is not sufficient and copies of the relied upon documents have to be furnished: Santogen Silk Mills v CCE 2003 (157) ELT 208 PGO Processors P. Ltd v CE 2000 (122) ELT Not only is the assessee entitled to get copies of the relied upon documents, the assessee is also entitled to return of documents which have been seized from him and which are not relied upon in the Notice. This position in law is laid down in various judgments of the High Courts and also clarified by the Circulars of the Central Board of Excise and Customs. 2.7 Under Section 33A of the Central Excise Act 1944 which is also made applicable to service tax by Section 83 of the Finance Act 1994, the maximum number of adjournments which may be granted by the adjudicating authority is three. Very often the adjudicating authority by one letter of intimation gives three alternate dates of hearing at

5 intervals of a few days. It may so happen that all the three dates which are at short intervals may not be convenient to the assessee or his consultant/ advocate and a request is therefore made for a date other than the three alternate dates. The question which arises is whether the adjudicating authority can refuse to give such other date by contending that the three alternate dates constitute the maximum number of three adjournments stipulated in Section 33A. The Tribunal has in the case of Afloat Textiles P. Ltd v CCE reported in 2007 (215) ELT 198 held that giving three alternate dates by one letter does not constitute three adjournments and the adjudicating authority cannot refuse to grant an adjournment to some date other than such three dates fixed by one letter. 2.8 The Tribunal in Jindal Waterways Ltd and anr v CC 2009 (247) ELT 715 held that even after three adjournments are granted, if certain cause of extreme difficulty is brought out on record, a further adjournment can still be granted. 3. Cross Examination: 3.1 The question of cross examination would arise when the Show Cause Notice relies upon statements of witnesses. An assessee may want to cross examine a witness whose statement is relied upon in the Notice so as to test the credibility of such statement. There may be cases where the department has seized documents, etc by drawing up a Panchnama and the assessee may be disputing the Panchnama or the seizure/ recovery made under the Panchnama. In such cases the assessee may seek the cross examination of the Panchas. There may be cases where the Show Cause Notice relies on the opinion of some expert e.g. hand writing expert or a Chemist, etc. In such cases the assessee may seek cross examination of such expert. 3.2 However whether cross examination should granted to the assessee or not is very often a question of dispute. Many a times the adjudicating authorities decline the assessee s request for cross examination by relying on the decision of the Supreme Court in the case of Kanungo & Co v Collector of Customs 1983 (13) ELT In that case it was contended by the assessee that denial of cross examination amounted to breach of natural justice. The Supreme Court however held that in the facts of the said case where the assessee had failed to give a suitable explanation in reply to the material produced by the department, the principles of natural justice do not require that cross examination should be given. In Fortune Impex v CC (138) ELT 556 the Tribunal by relying on

6 the decision of the Calcutta High Court in the case of Tapan Kumar Biswas v UOI 1996 (63) ECR 546 held that there is no absolute right to cross examination and whether cross examination should be granted or not depends on the facts of each case. 3.3 It may therefore be necessary for the assessee to provide justification for seeking cross examination e.g. by pointing out material which casts a doubt on or contradicts the statements of the witnesses thereby making it necessary to subject the witnesses to cross examination for testing their credibility. 3.4 There are later decisions of the Supreme Court where the Supreme Court has held that cross examination ought to have been given to the assessee. In Sounds N Images v Collector 2000 (117) ELT 538 where the department wanted to rely on a price offer made by a party in Singapore by Fax to enhance the value of goods imported by the Appellant, and the Appellant was not granted cross examination of the offeror, the Supreme Court held that no reliance can be placed on such Fax. In Swadeshi Polytex Ltd v CCE 2000 (122) ELT 641 (SC), where the department wanted to rely on statements of persons according to whom the commodity categorized by the Appellant as waste was fibre for spinning yarn, the Supreme Court held that the Appellant was entitled to cross examine such persons. In Arya Abhushan Bhandar v UOI 2002 (143) ELT 25 the Supreme Court held that where there was a dispute about the place of search under the Panchnama, the Appellant was entitled to cross examine the Panchas. 3.5 The Tribunal in Nicco Extrusions P. Ltd v CCE 2009 (248) ELT 497 after considering the decisions in Kanungo & Co v Collector of Customs 1983 (13) ELT 1486 and Fortune Impex v CC (138) ELT 556 held that if the statements relied upon by the department are contradicted by other statements or evidence, cross examination ought to be given. 3.6 If cross examination is allowed by the adjudicating authority, after conclusion of the cross examination, the adjudicating authority must give an opportunity of hearing to the assessee to make submissions based on the record of cross examination. In the case of Sawant Food Products Ltd v CC 1999 (111) ELT 943, the Tribunal has held that the adjudicating authority cannot proceed to pass an adjudication order without holding a hearing after the conclusion of the cross examination.