Workshop on Understanding the Amended law of Service Tax

1. Presents
Workshop
On
Understanding the Amended Law of Service Tax
Conducted by
Dr. Sanjiv Agarwal
FCA, FCS
Friday, 29th August, 2014 @ New Delhi © Dr. Sanjiv Agarwal
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2. Session – IV
Adjudication
of
Demand
in
Service Tax
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3. This presentation covers –
• Triggers for SCN
• Show Cause Notice – Contents, when and how
• Handling SCN’s
• Adjudication process
• Issuance of demand order
• Consequences / options after Order
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4. • Where any service tax has not been levied or paid, or has been short
levied or short paid, erroneously refunded including suppression
cases (Section 73 )
• Any enquiry which makes officer believe that it may result into a
demand / tax dues
• Any audit conducted by the Department which raises audit para for
possible demand / tax dues
• Any summons issued to assessee which may lead to any demand /
tax dues
• Service Tax collected but not deposited (section 73A)
• Cases of best judgment assessment (Section 72)
• Levy of penalties (sections 76, 77, 78)
• Wrong availment of Cenvat credit
• Rejection of refund claim

5. What is Demand
Demand – A legal right
A claim / request made as a right
Demand of tax – something more than what is due
Something which is being demanded as a legal right
Demand of amount of tax not paid
Beyond assessment / voluntary action
When does a demand arise in Service Tax
Taxable service is rendered
Value of taxable services leads to payment of service
tax
Charge of service tax (section 66B)
Person liable
All these to be present

6.  Section 66B Charge of Service Tax
(Levy of Service Tax @ 12.36% of the value of taxable service)
 Section 68(2) Charge of Service Tax on services
under reverse charge
 Section 67 Valuation of taxable service for charging
Service Tax
 Section 68 Payment of Service Tax (Rule 6)
 Section 69 Registration of assessee / person liable
[Rule 2(1) (d); Rule 4]
 Section 70 Furnishing of returns under self assessment
[Rule 7]
If these sections are not complied with, situation for demand of Service Tax
arises.

7. Recovery of Service Tax not levied or paid or short levied
or short paid or erroneously refunded (Section 73)
Demand involves
Non- payment / short payment / erroneous refund
 Eighteen months (one year upto 27.05.2012 ) in normal course
 five years in cases of suppression, fraud, etc.
Relevant date
 Issuance of Show Cause Notice (SCN)
Adjudication ( Section 83A)
Determination of demand
Demand confirmation (subject to appeal)
Recovery Proceedings

8. Recovery of Service Tax
• Anyone or more of the following situations must exist for
invoking recovery action under (Section 73)
Service tax has not been levied or short levied
Service tax has not been paid or short paid
Service tax has been erroneously refunded
• On being satisfied as to above, adjudicating authority can
issue / serve Show Cause Notice (SCN) to the person
liable asking him to show cause why recovery of service
tax not be made from him

9. • SCN to be issued within following time limits-
 Short levy/ short payment / erroneous refund arising due to
specified reasons within - five years from the relevant date
 Short levy / short payment / erroneous refund arising due
to any other reasons – within eighteen months (w.e.f.
28.05.2012) from the relevant date
Specified reasons may be one or more of following –
 Fraud
 Collusion
 Willful mis- statement
 Suppression of facts
 Contravention of any provisions / rule
 with the intention to evade service tax

10. What is Relevant Date
• Where service tax has not been levied/paid/short levied /short paid:
 When return filed – date of filing of return
 When return not filed –due date on which return was to be
filed
 Where revised return filed – date of filing of revised return
 Any other case- date on which service tax should have been
paid
• Where service tax is assessed on provisional basis- date of
adjustment of service tax after its final assessment
• Where service tax has been erroneously refunded - date of such
refund

11. What should SCN contain
• SCN should include / specify
 Brief facts
 Specific allegations against the assessee / noticee
 Amount of service tax sought to be recovered
 Basis on which such service tax is payable
 Category of taxable service under which tax is sought to be
levied
 Proposed penalties
 Documents on which reliance is made (RUDs)
 Time within which show cause must be shown

12. Understanding SCNs
• Department raises demands by way of SCN to assessee when irregularities are
observed or suspected.
• SCN is a mandatory requirement for raising any demand of duty/service tax.
• A SCN should follow certain principles to be legally sustainable.
• Before any SCN is issued, it is desirable and expected that a written
communication be sent to the assessee so that does not plead ignorance, non
intimation or innocence at a later stage. Such letter may contain necessary
particulars about period, nature of demand, amount, non compliances etc.
• SCN should be clear, precise and unambiguous.
• The basic aim of SCN is to provide a reasonable opportunity to assessee to
present his case or show cause to the proposed demand before any demand is
confirmed.

13. Understanding SCNs
• SCN to be issued timely. The time limit for issuance of SCN is eighteen months
/ five years from the relevant date ,i.e., date of filling of the return. Belated
SCNs are liable to be dropped.
• If any SCN is to be issued on the basis of audit para, it would be desirable that the
audit team provides inputs / draft of SCN to the adjudicating authority with
necessary documentary evidences and enclosures.
• Writ Jurisdiction is not available against a SCN where matter requires factual
examination.
• SCN cum-demand notice merely on the basis of audit para without documentary
evidences may not be sustainable.
• SCN is the first limb of principle of natural justice – no one should be condemned
unheard.

14. Understanding SCNs
• Basic requirements of principles of natural justice are:
 Full information about charges to the party
 Allowing party to state his defence i.e. through personal hearing
 Unbiased authority
 Reasoned Order
• The natural justice hangs on the following elements –
 No man shall be judge in his own cause
 Both sides shall be heard – ‘audi alteram partem’
 The parties to a proceeding must have due notice of when the
Court / Tribunal will proceed
 The Court / Tribunal must act honestly and impartially and not
under the direction of any other person to whom authority is not
given by law.

15. Understanding SCNs
• Reasonable time may be given for adjudication to take place.
Issue of order one day after the SCN has been held to be bad in
law [Ganesh Polytex Ltd. v Union of India (2011) 264 ELT
35(Allahabad)].
• A proper SCN has to specify the demand, i.e., quantify the
demand and liability in clear terms
• A letter from the department is not a proper SCN [CCE v.
Merchant Impex (2012) 276 ELT 458 (Karnataka)]
• Periodical or follow-on SCN is issued when the issues under
consideration are not decided and such issues continue for a
longer period.

16. Handling of Show Cause Notice
• Proper and detailed reply to be submitted to the Department
along with annexures and supporting documents
• Reply should be submitted on time as specified in SCN
• Reply to all departmental letters on time or seek extention of
time
• Submit information as desired by the Department during the
course of adjudication
• Opt for and attend to personal hearings
• Don’t seek adjournments , if it is possible to attend the hearing
• In case personal hearing cannot be attended , adjournment
should be demanded in writing citing the reasons

17. It should be ensured that :
• The authorities are quasi-judicial authorities.
• Duty bound to justify their existence and carry
credibility with the people by inspiring confidence in the
adjudication process.
• No economic loss is caused on both sides.
• No injustice with innocent person.

18. • Adjudication pre-supposes issuance of a show cause notice (SCN) –
an intimation to show cause, explain or defend the proposed
action as mentioned in the SCN.
• Adjudication is a quasi judicial function
• Adjudication is a legal process of deciding on issue relating to tax
matters through departmental authorities.
• Adjudicating proceedings is important aspect because it provides
an opportunity to the assessee to be heard and SCN before any
action is taken against him.
• Adjudication is an important function of Revenue Officers
• Powers of adjudication are subject to jurisdiction and monetary
limits for different officers

19. Adjudication Process –
• SCNs are issued under provisions of the Finance Act, 1994
charging any person for contravention of any provisions of the
said Act and rules and/or notifications issued thereunder and
penal action is proposed
• Competent officers of the Department adjudge the case
• Adjudication is a process involving various steps
• Hearing of other party/ defence grounds to be considered
• Issuance of adjudication order

20. • Issue of SCN is a pre-condition to a proper adjudication.
• Adjudication proceedings shall be conducted by observing principles
of natural justice.
• Adjudicating order should comply with the principle of natural
justice. [Meenakshi Associates Pvt. Ltd. v. CCE, Noida (2009) 245
ELT 362 (Cestat, Delhi); Afloat Textiles Pvt. Ltd. v. CCE, Vapi (2007)
215 ELT 198 (Cestat, Ahmedabad)]
• In case of multiple show cause notices, adjudication shall be done
by the authority competent to adjudicate the SCN involving highest
amount of tax/duty.
• For genuine reasons, three adjournments should be given to
assessee opportunity of hearing for three occasions before passing
any order.

21. • Cases remanded back for de novo adjudication should be decided
by authority which passed the remanded order.
• Adjudicating authority cannot pass two orders on same SCN,
though corrigendum may be issued on minor issues without
substantially altering the order
• Order can not travel beyond the scope of SCN. [MCnally Bharat
Engineering Co. Ltd. v. CCE (2012) 25 STR 496 (Jharkhand)]
• Adjudicating order should be in accordance with judicial
discipline which must be strictly adhered to.
• Order of adjudication must show application of mind and be self-speaking/
reasoned order. Reasons for order would ensure justice

22. • Adjudication order must be a speaking order giving clear findings on
all the points raised by the defence dropping the proposed
allegations or rebuttal of defence points.
• Adjudication order has to be dated and signed by the adjudicating
authority.
• Adjudicating authority should communicate the order/decision
within a reasonable time after the personal hearing is held (say,
upto one month). However, this does not happen in reality and even
the time taken is more than six months in many cases.
• Conditional orders or orders subject to verification are to be
avoided and should not be passed.

23. • Adjudication orders must be dispatched by registered post
acknowledgement due.
• The period of filing of appeal has to be reckoned from the date of
receipt of order.
• Finance Act, 2014 stipulates time limit for adjudication of SCN
within :
Six months (of SCN) extended period not invoked (18 months)
One Year (of SCN) extended period invoked (upto 5 years)
• But language used is vague – ‘ where it is possible to do so’

24. De Novo Adjudication
• De Novo - a new hearing / a hearing for the second time
• DE Novo adjudication can be sought for the following reasons-
 Non-speaking order
 Non-acceptance of evidence
 Non-consideration of the submissions
 Non-application of mind by the adjudication authority
 Submission of additional evidences to higher appellate forum
which were not considered by lower authorities
 Non-furnishing of the relied upon document in the SCN
 Denial of natural justice such as appropriate notice /
reasonable opportunity / sufficient time not given to assessee
 Non-consideration of evidence by the adjudicating authority

25. Judicial Discipline / Precedent
• Order can not be passed which is inconsistent with judgment of Apex
Court
• Tribunal’s decision have overriding effect over departmental
clarification
• Larger Bench decisions to be followed by smaller Bench.
• Decision delivered on peculiar set of facts can not be applied to
situation in different set of facts
• One can not pick a sentence from here and there in judgment and
characterize it to be ratio of case.
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26. Natural Justice Principle
• not capable of a definition
• root of judicial process
• to check arbitrary exercise of power
• duty to act fairly
• to secure justice or to prevent miscarriage of justice
• No person should be condemned or held guilty unheard or an opportunity
should be given for being heard
• Orders without giving adjournment sought
• Denial of cross examination
• Non- return of RUDs
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27. Reasoned / Speaking Order
• Countering grounds / defence
• Order should give reason for arriving at conclusion showing proper application of
mind
• Order should be supported by reasons of rationality
• Out come of observance of principles of natural justice
• Orders without assigning any valid reason and without discussion are not-speaking
orders
• Mere reproduction of submissions in the body of order is not enough. Findings of
deciding authority on those submissions is necessary.
• Order must give specific findings on submission, judgments relied upon and
distinguishing features pointed out by both parties
• Cryptic orders not bringing out reason why assessee faced demand set aside.
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28. S.No
.
Central Excise
Officer
Amount of service tax /CENVAT credit
specified in a notice for the purpose of
adjudication under section 73/ 83A
1 Superintendent of
Central Excise
< Rs.1 lakh (excluding cases relating to taxability
of services or valuation of services and cases
involving extended period of limitation.)
2 AC/DC of Central
Excise
< Rs. 5 lakhs (except cases where Superintendents
are empowered to adjudicate)
3 JC of Central Excise <Rs. 5 lakhs >= 50 lakhs
4 Addl. Commissioner of
Central Excise
< Rs. 20 lakhs >= Rs. 50 lakhs
5 Commissioner of
Central Excise
Without limit

29. • In Shree Renuka Sugars Ltd v CCE, Mangalore (2013) 293 ELT 616 (Cestat,
Bangalore), it was held that adjudicating proceedings has to be based on
evidences relied upon in show cause notice and adjudication order could not go
beyond those evidences. [ Also see: Welspun Corpn. Ltd v. CCE, Vadodara-II
(2013) 40 STT 327 (Cestat, Ahmedabad) ]
• In Vishnu Steels v. Union of India (2014) 299 ELT 292; (2013) 40 STT 408;35
taxmann.com 75 (Bombay), it was held that adjudication is complete only after
authority dispatches order. Prior to such dispatch, adjudication remains pending,
therefore application for settlement filed before date of dispatch of order but
after signing thereof, held to be valid.
• In Sunita Ispat Pvt. Ltd. v. CCE (2014) 300 ELT 326 (Allahabad), it was held that
there must be a demand in the SCN which is to be confirmed in the order.

30. • In Union of India v. Madras Steel Re-rollers Association (2013) 38 STT 346 (SC), it was held
that assessing/adjudicating authorities, appellate and revisional authorities are creatures
of Act and are quasi-judicial authorities. The adjudication authorities must pass their order
by exercising independent mind and without impartiality. While doing so, they are required
to consider various evidences made available to them
• In Bestilo Packaging Pvt. Ltd v. CCE, Chandigarh 2012 (25) STR 440 (Cestat, Delhi), it was
held that adjudication order cannot be based only on audit observation which were basis
to issue show cause notice when the authority fails to examine the issue independently.
• In Delhi Public School Society v. CST, New Delhi (2014) 43 GST 421; 41 taxmann.com 377;
(2013) 32 STR 179 (Cestat, New Delhi), where Department issued corrigendum to show
cause notice to convey the arithmetical computation of tax and such corrigendum was
served after expiry of normal time-limit, it was held that in fact by corrigendum, only
arithmetic re-computation of alleged liability was conveyed and there was no fresh
attribution of fact or law was made against the assessee. Hence, show-cause notice which
was served in time could not be considered as time-barred.

31. In TRF Ltd. v. CCE & ST, Jamshedpur (2013) 293 ELT 172 (Jharkhand), it
was held that–
a) Challenge to SCN is not ordinarily permissible. It is justified only in
exceptional circumstances (Article 226 of Constitution).
b) SCN should not show pre-determined mind of department. Such a
notice cannot be treated to be a notice to show cause in any manner.
c) Reasons for forming opinion against assessee is required to be
reflected in the notice itself. It cannot render notice illegal as being
issued with pre-determined mind. However, notice reflecting in
unequivocal terms decision on contentious issues rather than putting
question to assessee, may sometimes reflect pre-determined mind of
issuing authority. This distinction is required to be found out from
facts of each case.
d) Neither issuing authority nor assessee should make any prestige issue
in SCN. It is especially so as quasi judicial proceedings are initiated
by officers exercising vast statutory powers and jurisdiction, which
should not be misunderstood to have been exercised to humiliate
person holding position in assessee company.

32. Consequences / Options Adjudication
• To deposit full demand with interest and penalties within 30 days to avail an option
to only pay @ 25% of total penalty under section 78.
• To deposit demand with interest and entire penalties after 30 days of receipt of
order.
• To file an appeal to the Department against the order –
within 2 months from the receipt of the order Commissioner (Appeals)
within 3 months from the receipt of the order Cestat
• For Order passed below the rank of the Commissioner, appeal is to be filed before
Commissioner (Appeals)
• For Order passed by the Commissioner or Commissioner (Appeals), appeal is to be
filed before Cestat
• W.e.f. 6.08.2014, mandatory pre-deposit has to be deposited

33. THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur / Delhi
asandco@gmail.com
sanjivservicetax@gmail.com
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