Thursday, August 05, 2010

SHOW CAUSE NOTICES EVEN AFTER APPELLATE ORDER

by

K. VIJAY KUMAR*


 

" There are a number of instances where not only the appellate orders have not been complied, but even show cause notices have been continued to be issued for demanding duties at regular intervals of 6 months on the same issues and grounds as had already been decided in appeal. Perhaps these are being done under certain instruction of the Board. It is not understood how such demands of the SC notices can be adjudicated and recovered for the period the appellate orders had remained in force", says Mr.Safdar Ali in his article on the Finance Minister's Budget commitments – 1998 (102) ELT A174. Mr. Ali would appreciate the fact that appellate orders are not final and are further appealable. If the appellate order is in favour of revenue will the assessee go by the appellate order even while his appeal is pending in a higher forum?

It is true that an appellate order quashing an original order is legally binding on the department until set aside by a higher authority. Then why show cause notices for further periods? Let us study an illustration.


 

ABC company has been manufacturing a product 'p' , which they thought was exempted from Excise Duty and so they were not paying any duty. On 1.1.87, this was detected and a show cause notice was issued on 1.5.87, for the period upto 31.12.86. The assessee has time till 1.6.87 to reply to the notice and to seek extension of three months on various counts and they do not file their reply even on 1.9.87. To protect the revenue for the subsequent period, another show cause notice is issued on 1.8.97 for the period 1.1.87 to 30.6.87 and this process continues for a year and on 1.5.98, the Assistant Commissioner holds that the goods are dutiable and confirms the demand. The party goes in appeal and no stay is granted. During this period the party refuses to pay duty either for the past or the future periods. As of now the Assistant Commissioner's orders are final, but the party hopes to get a favourable order from the appellate authority and so does not obey the Assistant Commissioner's orders. During this period the department issues further Show Cause Notices to ensure that any future demand is not hit by time bar. On 1.8.89, the Commissioner (Appeals) passes an order quashing the Assistant Commissioner's Order. During this time the department had continued to issue Show Cause Notices and some of them were also adjudicated as in the case of the first Show Cause Notice. Now the issue raised by Mr. Ali crops up. My be according to the learned Advocate, once the appellate order is in the assessee's favour, the department should withdraw all pending Show Cause Notices and stop further issue of Show Cause Notices. Quite a fair concept, but then just like the assessee, the department also has a chance to appeal it does in this case. On 1.10.89, an appeal is filed before the CEGAT by the department and on 1.10.97, the CEGAT quashes the appellate order and upholds the original order of the Assistant Commissioner. Now if Show Cause Notices are not issued by the department after the appellate order, i.e. 1.8.89, will it be able to enforce the demand for the period after 1.8.89? I am sure, lawyers like Mr. Ali will Shout "Time Bar". And why did the assessee not follow the orders of the Assistant Commissioner, while his appeal was pending.


 

The appellate channels are used by many assessees only to buy time. Most often they are interested in Stay and not a decision, but the department goes in appeal only in rare cases when the chances of winning at the appellate stages are bright. So when the department wins an appeal, the result should bring revenue to the government and that revenue can not be sacrificed by not issuing Show Cause Notices. Therefore it becomes necessary that protective show cause notices are issued even after an appellate order, when the department has appealed to a higher authority. Any lapse on the part of the department will be used by the assessees while they know fully well their obligation to pay the duty.


 

The following illustration will show how non-issue of a timely Show Cause Notice can ruin the department's case. M/s.ABC Ltd., felt they had paid and excess of Rs Five Lakhs of excise duty. They requested the Assistant Commissioner to refund the amount. The Assistant Commissioner rejected their claim. They went on a writ petition to the High Court and the High Court ordered the refund to be paid. Obeying the High Court's order, the refund was paid to them. And the department went in appeal to the Supreme Court which quashed the High Court Order. Now the refund had been paid. When the department asked the assessee to pay back the refunded amount, the assessee refused and asked for a Show Cause Notice which they know is hit by time bar. The department is in a catch 22 situation. The advantage of winning the case in the Supreme Court is lost.


 

In another case, the Assistant Commissioner wanted the assessee to pay duty at 20% but the assessee got an order from the Hight Court that duty @ 10% may be paid till final disposal of the case. In the final disposal, the High Court ruled that 20% was payable. When the assessee was asked to pay the difference, he insisted on a Show Cause Notice and when the Show Cause Notice was given, he argued that it was time barred. His plea was that the High Court asked you to collect 10% , but it did not bar you from issuing Show Cause Notices.


 

So even though there is a favourable order for the assessee, the department is constrained to issue Show Cause Notices for subsequent periods especially if the department's appeal is pending.


 

A senior colleague once told me, "We issue Show Cause Notices, not because we have the power to do so, not to harass the assessee, not because we like it but because it our duty to do so and duty due to the country will be lost if we don't." I think that sums it all up.

EXCISE LAW TIMES 01.09.1998– A5

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