Audit Objection and Immediate Show Cause Notice
THE AG's Audit is one single agency to which tax consultants should be ever indebted to. In Central Excise matters, the moment AG's Audit raises an objection, the Department is ready with a Show Cause Notice, even when the objection is silly and against the Law, judgements, Notifications and Board Circulars. Audit can come up with strange objections and they are a law unto themselves and have no respect for the Parliament, Supreme Court and in any case certainly not the Board. They believe that they know more about Central Excise and Service Tax than the combined wisdom of the Revenue Department, the Legislature and the highest Court in the country!
In Circular No. 5/83-CX.6 (F.No. 210/29/81-CX.6) dated 10-3-1983, CBEC had directed, inter alia , that immediately on receipt of objection from the Accountant General's Audit Party, demand-cum-show-cause-notice should be issued without any loss of time even if the Central Excise Officers do not agree with the Audit's point of view and such demand-cum-show-cause notice may be withdrawn where Department's stand is ultimately accepted by the Accountant General's Office and the objection is settled.
In Circular No. 444/10/99-CX., dated 12-3-1999, Board clarified that that the Assessing Officer should not raise protective demands pursuant to the Audit Objections contrary to the Orders issued by the Board under Section 37B of the Central Excise Act, 1944. Circular No. 5/83-CX.6, dated 10-3-1983 was modified to that extent.
In Circular No. 674/65/2002-CX, dated 1-11-2002, Board clarified that wherever Board's instructions or circulars (whether issued under Section 37B or not) exist on a particular issue, no protective demands should be raised on the basis of CERA objection if the objection is contrary to such Board's instructions or circulars. However, in all such cases, the matter should be immediately referred to PAC section of the Board for resolving the issue with the C&AG of India.
In Circular No. 698/14/2003-CX., dated 3-3-2003, twenty years after the first circular, Board took a volte face and directed “in the meantime, till the time written instructions from the Board for not raising protective demands are received in reply to the reference, the protective demands should be raised/continued to be raised.”
But in 2007, CBEC took a bold step and issued a Section 37B order pertaining to Service Tax on GTA and emphatically held, “no demand notice may be issued on the basis of objection raised by the C&AG office, and all pending matters may be decided accordingly.” – refer 37B Order No 5/1/2007-ST dated the 12th March, 2007.
Now Board has come up with a new clarification.
Explaining the position, Board states, “during audit by C&AG officers, Local Audit Paras (LAR) are initially raised, some of them are converted to Statement of Facts (SOF). A few SOF are made into Draft Audit Para (DAP). Generally, a LAR is converted into SOF within a period of 6 months. In some cases, it has been noticed that objections raised in LAR is not accepted by the department but the reply given by the department is also not accepted by AG's office. Further, if the said LAR is not converted to SOF/ DAP, the said objection remain unsettled and these show cause notices are transferred to Call Book. For these cases, jurisdictional Commissioners are required to hold meeting with local DAGs to settle the objection. However, in many cases, these issues are not settled for a long period.”
So Board clarifies, “in cases where a LAR has not been admitted by the department, and the same is not converted into SOF/ DAP by CERA, then the SCNs issued on account of said LAR may be adjudicated after a period of one year from the date of sending the reply to the LAR. However, before adjudication, it must be ensured that the LAR has not been converted into SOF/ DAP.”
Incidentally LAR means Local Audit Report, not Local Audit Para.
Adjudication is a quasi judicial function and it should not be biased by Audit paras – otherwise why can't we just ask the Audit to adjudicate? Why can't the Department tell the Audit that its objection is wild and stupid and the Adjudicating Authority has adjudicated the case, as per law? [if there is any such adjudication order].
Should a statutory Board administering a large tax base bow down before Audit?
CBEC F. No. 206/02/2010-CX.6 Dated: February 03, 2010