CA G SARAVANAKUMAR

REPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICE

CA G SARAVANAKUMAR

MADURAI

SELF ASSESSMENT OF SERVICE TAXSELF ASSESSMENT OF SERVICE TAXSELF ASSESSMENT OF SERVICE TAXSELF ASSESSMENT OF SERVICE TAX

� Section 68 – prescribes payment of service tax by service provider and service receiver at the specified rate and time.

� Section 70 – Service tax to be paid on self assessment basis. Return is to be paid on half yearly basis.basis. Return is to be paid on half yearly basis.

� Tax is not a voluntary payment – compulsory extraction from assessee

� Rights are affected – assessee is deprived of the right of property.

� However principles of natural justice is followed.

Initiation of Recovery proceedings Initiation of Recovery proceedings Initiation of Recovery proceedings Initiation of Recovery proceedings ––––

Situations Situations Situations Situations –––– Section 73Section 73Section 73Section 73

• Non levy of service tax;

• Non payment of service tax;

• Short levy of service tax;• Short levy of service tax;

• Short payment of service tax;

• Erroneous refund of service tax.

SHOW CAUSE NOTICE SHOW CAUSE NOTICE SHOW CAUSE NOTICE SHOW CAUSE NOTICE ---- MEANINGMEANINGMEANINGMEANING

�Means of Communication to an assessee to

� Show cause why

� The actions proposed therein

� Should not be taken against him� Should not be taken against him

� Requires the assessee to justify or prove his defense

� To comply with principles of natural justice.

Who can issue SCN?Who can issue SCN?Who can issue SCN?Who can issue SCN?� A Central Excise Officer Can issue SCN.� A Central Excise Officer means

�Chief Commissioner of Central Excise;�Commissioner of Central Excise;�Additional Commissioner of Central Excise;�Additional Commissioner of Central Excise;�Joint Commissioner of Central Excise;�Deputy Commissioner of Central Excise;�Assistant Commissioner of Central Excise;�Any Person including an officer of the State Government entrusted by CBEC;

Vital Points on Show Cause NoticeVital Points on Show Cause NoticeVital Points on Show Cause NoticeVital Points on Show Cause Notice� Not defined in the Act;� No prescribed format;� Should be in writing and not by oral;� Should be signed by proper authority;Should contain specific allegations;� Should contain specific allegations;

� Relevant Sections should be quoted;� Proposal about imposing penalty under relevant section should be mentioned;

� Should be issued for a particular period;

Who is proper authority for issuance of Who is proper authority for issuance of Who is proper authority for issuance of Who is proper authority for issuance of

SCN?SCN?SCN?SCN?S.NO Central Excise

OfficerAmount of ServiceTax or Cenvat Credit specified in a notice for the purpose of adjudication

1 Superintendent of CE Not exceeding Rs. One lakhExcluding the cases relating to taxability of services or valuation of services and valuation of services and cases involving extended period of limitation

2 AC or DC Not > Rs. 5 lakhs (except where superintendent is empowered to adjudicate)

3 Joint Commissioner > Rs. 5 lakhs but < Rs. 50 lakhs

4 AdditionalCommissioner

> Rs. 20 lakhs but < Rs. 50 lakhs

5 Commissioner Without Limit

TIME LIMIT FOR ISSUE OF SCN Sec 73(1)TIME LIMIT FOR ISSUE OF SCN Sec 73(1)TIME LIMIT FOR ISSUE OF SCN Sec 73(1)TIME LIMIT FOR ISSUE OF SCN Sec 73(1)

If ST is not levied / short levied / not paid / short paid / erroneously refunded not for reasons stated below

ST can be demanded within a period of 18 months from the Relevant Date (Section 73(1)

Non-levy/short levy/Non-payment/Short-payment by

ST can be demanded for a period of 5 years from the Relevant payment/Short-payment by

reason of a. Fraud orb. Collusion orc. Wilful mis-statement ord. Suppression of factse. Contravention of provisions

with an intent to evade pmt of ST.

of 5 years from the Relevant Date. (Proviso to Section 73(1)

What is Relevant Date?What is Relevant Date?What is Relevant Date?What is Relevant Date?� RD for calculating limit of 18 months / 5 years for issue of SCN is as follows� Where periodical return is to be filed – Date on which such return was filed

� Where no return was filed – the last date on which the return � Where no return was filed – the last date on which the return should have been filed under ST Rules

� In case of provisional assessment – Date on which assessment is finalized.

� In any other case – Date of payment of service tax

� Refund of Service Tax – Date of such refund

Contents /essential points in SCN Contents /essential points in SCN Contents /essential points in SCN Contents /essential points in SCN � Details of Assessee – Regn No – Name –Address � Facts of the case – Incomplete or colored facts –Hidden Facts – having impact on ST liability

� Evidences based on which facts are taken.� Period of Demand�Normal Period – 18 months from the Relevant Date

�Extended Period – 5 years from the Relevant Date

� Value of Taxable services computed by Dept.

Contents /essential points in SCNContents /essential points in SCNContents /essential points in SCNContents /essential points in SCN� Conclusions drawn from the given facts� Extract of Relevant Provision

� To See whether any amendment not incorporated� Reference to Service Tax Return

� Compare the figures in SCN Vs ST-3 return filed� Deviation by assessee to invoke extended period of � Deviation by assessee to invoke extended period of limitation.

� Tax liability arrived by Cen Excise Officer� Interest under section 75� Penalty under section 76/77/78.� Duty FINALLY determined CAN NOT EXCEED duty demanded in SCN.

Serving of Statement of Demand Serving of Statement of Demand Serving of Statement of Demand Serving of Statement of Demand ––––

Deemed SCNDeemed SCNDeemed SCNDeemed SCN

� CEO may serve subsequent to any notice served u/s 73 a statement only containing details of service tax not levied or paid or short levied or short paid for the subsequent periods without issuing a detailed notice setting out all the points noted in earlier notice. – Section 73(1A)noted in earlier notice. – Section 73(1A)

Overall Intent of issuing SCNOverall Intent of issuing SCNOverall Intent of issuing SCNOverall Intent of issuing SCN� Calling the assessee to show cause why�Proposed ST, Interest & penalty should not be demanded

�Service in question is not taxable �Classification by the assessee is not according to �Classification by the assessee is not according to provisions of law

�Not Valuation method adopted by the assessee is not according to provisions of law

�Not cenvat credit is ineligible�Not abatement is not available

Adjudication ProcedureAdjudication ProcedureAdjudication ProcedureAdjudication Procedure

� ISSUE OF SHOW CAUSE NOTICE

�REPLY TO SHOW CAUSE NOTICE

�PERSONAL HEARING

�PASSING OF ORDER

NO SCN BY DEPT NO SCN BY DEPT NO SCN BY DEPT NO SCN BY DEPT ---- SituationsSituationsSituationsSituations� Voluntary payment before issue of SCN (Sec. 73(3))

� If Service Tax + Interest is paid + Intimation to department in writing

� Before issue of SCN

� For cases not involving fraud, suppression etc.,

� Payment at the time of investigation, audit, inquiry etc., (Sec. 73(4A))

� If Service Tax + Interest + 1% pm of ST subject to a max of 25% of ST as � If Service Tax + Interest + 1% pm of ST subject to a max of 25% of ST as penalty is paid

� Intimated to dept

� Before issue of SCN

� True and complete records are available

� Though the case involves fraud, suppression etc., (Para 4.11 of Letter No DOF 334 / 3/ 2011 –TRU dated 28-02-2011)

REPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICE

�Letter head of Assessee or Legal Counsel

�Properly addressed

�Reference to SCN No and date

Assessee Details – Name & Address – ST �Assessee Details – Name & Address – ST registration number – nature of services provided

�Reference to PoA / Vakalat

REPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICEREPLY TO SHOW CAUSE NOTICE� Request for Personal Hearing

� Brief summary of allegations put forth in SCN jotting down important points.

� Defensive points on � Fundamental items� Fundamental items

� Merits of the case

� Extended period of Limitation if invoked

� Interest

� Penalty

� Prayer

REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE –––– Validity of Validity of Validity of Validity of

SCN on Fundamental pointsSCN on Fundamental pointsSCN on Fundamental pointsSCN on Fundamental points

� Simple Letter to pay tax is not a notice� Violative of principal of natural justice

� Letter in the form of suggestion or advice can not be taken as SCN

� SCN to be under specific provision of law� SCN to be under specific provision of law

� Notice must indicate the amount demanded and call upon the assessee to show cause.

� Any demand without SCN is violation of statutory provision

� Metal Forgings V UOI 2003 146 ELT 241 (SC)

� JK Synthetics Vs UOI 2009 234 ELT 417 DEL

REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE –––– Validity of Validity of Validity of Validity of

SCN on Fundamental pointsSCN on Fundamental pointsSCN on Fundamental pointsSCN on Fundamental points

� Penalty for Late filing notice shall not confirm tax � Notice issued to assessee for penalty under section 77 for late filing of return. Held that service tax with interest can not be confirmed on the basis of this notice.basis of this notice.

�Marked Oil Vs CCE [2007] 9 STT 490 CESTAT DELHI

REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE –––– Validity of Validity of Validity of Validity of

SCN on Fundamental pointsSCN on Fundamental pointsSCN on Fundamental pointsSCN on Fundamental points� Vague SCN shall not sustain

� If SCN is not specific to particular issue and vague, lack details and unintelligible – noticee is not given reasonable opportunity to meet allegations in the SCN.

� CCE Vs Brindavan Beverages (2007) 213 ELT 487 (SC)� Invoking provision not specified in SCN is not validvalid� If there is no invocation of a rule (Valuation rule) in this case it would not be open to adjudicating authority to invoke that rule

� CCE Vs Ballarpur Industries Ltd 2007 215 ELT 489 SC� Adjudicating authority can not go beyond what is canvassed in SCN.� Saci Allied Products Vs CCE (2005) 216 ELT 662 (SC)� Invocation of any provision not specified in SCN is impermissible� Smr. Renuka prasadVs CCE 45 GST 425/45 taxmann.com 132 (Kolkatta HC) 2014

REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE ––––

Validity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental points

� Copies of relevant documents shall be given by Dept when called for by assessee� Copies of all relied documents considered vital for assessee’sdefense should be supplied.

� Adjudication order was set aside when copies of documents � Adjudication order was set aside when copies of documents relied upon were not supplied to assessee.

� Principles of natural justice not followed.

� Secure Industries Ltd CCE Vs 2003 (155) ELT 529 (CEGAT)

� Sivam Ply-N-Wood Vs CCE 2001 (133) ELT 435 (CEGAT)

REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE ––––

Validity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental points� Proper Serving of SCN (Sec 37C(1) of CEA – sec applies to service tax also)� Service by

� Tendering the same � Send by RPAD � If not possible by above two modes then, affix a copy at noticeable space � If not possible by above two modes then, affix a copy at noticeable space in a factory or warehouse

� If point 3 is also not possible affix at the notice board of authority who issued the notice.

� Notice posted one day prior to last date received by assessee after last date is not validly served on time.� Sewing Systems P Ltd Vs CC – 1992 (62) ELT 725 CEGAT –Affirmed by SC as revenue appeal dismissed – 89 ELT A36.

REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE ––––

Validity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental points� SCN wrongly addressed – entirely quashed

� Dept issued SCN in the name of “Divisional railway manager –Railways” demanding service tax on services of “Renting of immovable properties”

� Held that Assessment was in respect of Union of India through Ministry of Railways – Divisional Railway Manager being an employee of Ministry of railways was not assesseeMinistry of Railways – Divisional Railway Manager being an employee of Ministry of railways was not assessee

� Since demand was to be enforced against Union of India through Ministry of Railways, notice must have been issued in the name of Union of India

� Entire proceedings were declared void.� CCE Vs Divisional Railway Manager N.C.R. 2014 46 GST 144/46 taxmann.com 249 (Allahabad HC)

REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE ––––

Validity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental points

� SCN wrongly addressed – entirely quashed� Appellant challenged notice demanding ST on ground that notice was misdirected in as much as appellate Smt. BhavanaDesai was shown as Proprietor of a private limited company.

� Held : Private limited company can never have a proprietor Held : Private limited company can never have a proprietor

� Issue of SCN to appellant is unsustainable in eye of law as SCN needs to be issued to service provider. – Demand was set aside.

� Bhavana Jayantibhai Desai Vs CCE & ST 45 GST 397/45 taxmann.com 167 (Ahmedabad CESTAT) 2014

REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE REPLY TO SHOW CAUSE NOTICE ––––

Validity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental pointsValidity of SCN on Fundamental points

� SCN can not be issued on a non-existing provision

� Dept issued SCN u/s 73(1)(a) seeking recovery of service tax for the period from 16-10-1998 to 31-03-2004.

� Section 73 was substituted by section 73(1)(a) w.e.f 10-09-2004.

� Section 73 related to value of taxable services escaping assessment � Section 73 related to value of taxable services escaping assessment while amended provision (section 73(1)(a)) provided for recovery of service tax not levied or paid or short levied.

� Held : Statutory provision, under which SCN issued, was not in existence as on that date. Such SCN was bad in law.

� CST Vs Peoples Choice – 2014 45 GST 714/46 tamxmann.com 22 KAR HC

Reply to SCN - Merits

Fact FIRST Law NEXT

Reply to SCN - Merits

Reply to SCN - Merits

Reply to SCN - Merits

Reply to SCN - Merits

Reply to SCN – Points on Limitation� All previous communications with the department – attach as evidence � Shows no case of suppression

� Fact is already intimated to department.

� Departmental correspondences in the following format may be � Departmental correspondences in the following format may be maintained and adduced to reply.

S NO

Natureof letter received

Date Issuingauthority

Matter

Section reference

Reply date

Internal file ref

Reply to SCN – Points on Limitation� When dept is aware of assessee’s activity later it can not issue SCN invoking extended period of limitation

� CCE & ST Vs Monsanto Manufacturer P Ltd 45 GST 699/46 taxmann.com 4 Allahabad HC� Dept asked assessee to pay ST on fixed monthly cold storage charges collected by it in 2002 and assessee replied to the department that said activity is not taxable.

� Dept kept quiet till 2006 and issued SCN for the said receipt for the period 2001-02 to 2004-05.

� Held : Dept had knowledge in year 2002 itself about quantum of cold storage charges on which assessee was not paying ST – Hence extended period not invokable – Demand was set aside.

Reply to SCN – Points on Limitation� Department regularly visiting assessee’s factory are aware of the process

� Hence dept is well aware of assessee’s process and hence extended period can not be invoked.

� Removals disclosed and indicated in documents verified by � Removals disclosed and indicated in documents verified by department. Demand is time barred.

� Ugam Chand BhandariVs. CCE, 2004 (167) ELT 491 (SC);

� CCE Vs Reliance Industries Ltd 2004 (171) ELT 151 (SC);

Reply to SCN – Points on Limitation� Extended period not invokable when bona fide belief arises out of court judgments� Two High courts had taken a view that goods exempted from duty are not includible in the definition of excisable goods as defined in section 2(d).

� Assessee relied on the above judgment and hence extended � Assessee relied on the above judgment and hence extended period not invokable.

� Cosmic Dye Chemicals Vs CCE 1994 (9) TMI 86 – SC� Recent Example – Judgment on Intercontinental case by Delhi High court for ST on reimbursement of expenses.

Reply to SCN – Points on Limitation� Extended Period not invokable when there are conflicting decisions prevailing� Conflicting decisions were given by different High Courts and tribunals

� Not settled as to whether turnover of assessable and exempted goods were liable to be clubbed for determining the liability.

� Appellant was put in the state of uncertainty � Appellant was put in the state of uncertainty � When law itself was not certain as to its clarity then the appellant could not be held guilty of suppression.

� Pushpam Pharmaceuticals Company Vs CCE 1995 (3) TMI 100 (SC)

� Recent example – Kerala Resort Association Ker HC Vs Indian Hotel and Resort Association (IHRA) Bombay High court

Reply to SCN – Points on Limitation� Periodical SCNs cannot allege suppression� Assessee was served an SCN first for which Assessee replied stating that the said activity is not taxable. No action was taken against that.

� Second notice was issued after a period of 3 years quoting the first SCN no date alleging suppression.first SCN no date alleging suppression.

� Held that demand was not sustainable since department already had the knowledge of activity of assessee with the first reply filed.

� Nizam Sugar Factory Vs. UOI, 2006 (197) ELT 465 (SC),� ECE Industries Limited v. CCE, 2004(164) ELT 236 (SC),

Reply to SCN – Points on Limitation� Figures taken from public documents – No case of suppression or willful misstatement

� Balance sheet is a public document and available to all concerned.

� Reflection of income and the said activity in the ledger � Reflection of income and the said activity in the ledger account and the balance sheet will reflect upon the absence of any wilful suppression or misstatement on the part of assessee to invoke longer period of limitation.

� Rama paper mills Vs CCE 2011 (1) TMI 536 – CESTAT, New Delhi

Reply to SCN – Points on Limitation� Undue delay in passing order + all points on submission not considered – Order set aside

� It is most important that litigant must have complete confidence in process of litigation

� This confidence would be shaken if there is excessive delay between conclusion of hearing and passing of order.

� Undue delay in delivery of judgment after hearing is, in itself, sufficient � Undue delay in delivery of judgment after hearing is, in itself, sufficient to set aside impugned order without considering merits of the case.

� EMCO Ltd Vs Union of India 45 GST 82/44 taxmann.com 85 Bombay HC

� However in TelestarTravels (P) Ltd. Vs Special director enforcement 2013 289 ELT 3 SC it was held that delay by itself cannot be a ground for setting aside the order.

� However in EMCO’s case besides delay non-consideration of all submissions was also one of the ground for setting aside of order.

Reply to SCN Reply to SCN Reply to SCN Reply to SCN –––– Points Interest liabilityPoints Interest liabilityPoints Interest liabilityPoints Interest liability

� When extended period is not invokable Tax is not payable

When Tax is not payable interest is also not payable.� When Tax is not payable interest is also not payable.

Reply to SCN Reply to SCN Reply to SCN Reply to SCN –––– PenaltyPenaltyPenaltyPenalty

Sec 76

• Non-payment not involving fraud• Higher of Rs. 100 / day or 1% of Tax outstanding each month• Subject to a maximum of 50% of Service Tax

Sec. 77

• Defaults not covered elsewhere i.e. Non-reg/Non-furnishing information/e-pmt of tax not made etc.,

• Rs. 10000 or Rs. 200 per day of default depending on nature of offenceSec. 77

Sec.78

• Wilful suppression / fraud reasons / deliberate omission• Max up to 100% of service tax• Transactions recorded in specified records – penalty reduced to 50%• If tax + Interest + 25% penalty paid within 30 days / 90 days of OIO + specified records are available – Penalty reduced to 25%

• NO WAIVER UNDER SECTION 80 FROM 06THAUGUST 2014

Reply to SCN Reply to SCN Reply to SCN Reply to SCN –––– Waiver of penalty under Waiver of penalty under Waiver of penalty under Waiver of penalty under

section 80section 80section 80section 80� If reasonable cause is shown for non-payment of service tax then no penalty u/s 76,77 and 78 (removed by Finance Act (No 2 ) 2014) is imposable.

� What is reasonable cause?� Not defined in Act – could be following reasons� Levy was introduced newly and confusion exists as to its applicability.� Levy was introduced newly and confusion exists as to its applicability.� Board issued a clarification that activity is not taxable and later changed its view

� Conflicting decisions e.g. Taxing restaurant activity� Clarification sought from the department or board to explain applicability but department yet to reply on that.

� Levy is challenged before the courts the delay is caused due to delay in outcome of decision.

Reply to SCN - Conclusion� Time limit for further written submission if not added in the present reply

� Request for copy of evidences based on which charge is made in SCN

� Request for Personal Hearing before adjudication� Request for Personal Hearing before adjudication

� Permission of further submissions at the time of PH

� Prayer for dropping the proceedings considering the submissions made in the reply.