CAG Objection and immediate Show Cause Notice
AG's Audit is one single agency 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, Customs 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if the Central Excise Officers do not agree with the Audit's point of view and such demand-cum-show-cause notice may be withdrawn where Department's stand is ultimately accepted by the Accountant General's Office and the objection is settled.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. , 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 did 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.
Recently, the CBDT in a bold Circular No. ., Dated: March 17, 2016 directed that:
(i) An Audit objection should be accepted and remedial action should be taken in a case where the audit objection relating to an error of facts or an issue of law is found to be correct.
(ii) Appropriate remedial action should invariably be initiated within two months of the receipt of the Local Audit Report, and necessary orders should be passed within six months thereafter.
(iii) Where the PCIT/ CIT does not accept the Audit objection, he may record his reasons for doing so and inform the AG accordingly within two months from the date of receipt of the LAR. No remedial action needs to be taken in such cases.
Second appeal in cases involving Revenue Audit Objection: The adverse order of the first appellate authority in cases involving revenue audit objections should be carefully scrutinised by the PCIT/ CIT, and appeal should not be preferred if the order is justified either in law or on facts. Reasons for not filing appeal may be recorded by the PCIT/ CIT.
Will we get a similar circular from the CBEC?