Assesses beware – Draconian Circular coming!
ONCE upon a time, not very long ago, Government was perceived to be a model for ethics and fair play. And this costs pretty lot for the government. The state has no privilege to lie before courts, fabricate accounts or cheat, though the other party may be doing all these. Just because you think a Naxalite has killed some people, you don’t call him to the city centre and shoot him. However inconvenient it is, the state is expected to be honest, fair and follow the strict and narrow path of law and if the Government does not have respect for the laws and the Courts, the system will crumble.
To boost up revenue, Show Cause Notices are routinely issued and more routinely confirmed. And then starts the coercive measures to collect these outstanding dues caused by the most outlandish orders. Let’s take a hypothetical example. A Show Cause Notice is issued to a small manufacturer whose product is not excisable. The Adjudicating Authority confirms the notice and demands a duty of Rs 10 Lakhs and imposes a penalty of Rs 10 Lakhs. This manufacturer has not seen twenty lakhs of rupees in his life. He was offered a private settlement with the officer (We are not referring to Settlement Commission, we are referring to Settlement by Commission), but even that he could not afford and he was stuck with a demand of twenty lakhs. When he takes the case in appeal to Tribunal, they ask him to deposit 10 Lakhs, which he can never organise. Well, the story is not all that hypothetical.
The department had a practice of waiting till the appeal period is over before pouncing on the assessee to realise the arrears. Then they changed the law to say that if Tribunal cannot decide the case within six months the stay is cancelled (Of course, the Tribunal holds that it can extend the stay.) Recently we reported a case where a PSU assessee had to approach the High Court as the department had attached its property, because there was no Commissioner (Appeals) to hear the assessee’s stay petition.
The department has very talented officers – after all they got their jobs after passing one of the toughest competitive examinations in the world. They can come up with ingenious ways to collect what they think is tax. The proposed Board Circular is one such masterly brilliant piece of ingenuity most unbecoming of the Government and if finally issued will cause chaos in the field.
The Board wants the field to recover demands prospectively. Let us see the position through another hypothetical situation. An assessee cuts grass grown in the factory and sells it. The Central Excise officer feels that duty is payable on that grass and issues a demand cum notice (cum adjudication order), which is promptly confirmed for the past five years, say till March 2005 by the adjudicating authority. The party gets a stay from the appellate authority. Now the Board says, the stay is in respect of the demand and penalty for the past period and does not restraint the department from implementing the order from April 2005! Preposterous, as it may sound, that, according to the Board, is the law. This means even if he gets a stay, the order can be put to effect for the future period and there can be no stay for this period. So from April 2005, when he clears grass, he has to pay duty. Otherwise all consequences of clearance without payment of duty will befall on him.
This is the gist of a circular the Board is planning to issue. Thankfully, they have made it applicable only to stay matters not decided issues. By the same logic, an issue decided by the Tribunal is only for a past period and for the subsequent period, the orders of the lower authority will hold!
If you have any objections or suggestions on the proposed circular, you may write to the Board. The full text of the Circular is given below for your ready reference.
F.No. 208 /1/2005-CX 6
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
Subject :- Central Excise-Prospective implementation of orders relating to valuation and classification matters or matters having recurring revenue effect -regarding.
I am directed to say that certain references have been received from field formations raising doubts over prospective implementation of the orders relating to classification, valuation or other matters having recurring revenue implications when a stay has been granted against recovery by Commissioner (Appeals) or Tribunal.
2. In this connection, your attention is invited to first proviso to section 35F of Central Excise Act, 1944. As per this provision, the Commissioner (Appeals) or the Appellate Tribunal depending on the circumstances of the case, may dispense with the deposit of duty demanded or penalty levied subject to such conditions as he or it may impose to safeguard the interests of revenue. Thus, it may be seen that any stay against the order confirming the demand and/or levying penalty is only with respect to duty demanded/ penalty levied under the impugned order.
3. In view of legal position as explained above, it is clarified that any stay granted by Commissioner (Appeals) or the Tribunal against recovery of demand or imposition of penalty in a particular order does not restrain the department to implement such orders with prospective effect. Such action cannot be construed as coercive action in terms of Board’s Circulars No. 396/29/98-CX dated 2.6.1998 and No. 788/21/2004-CX dated 25.5.2004. Necessary action may be taken accordingly.
4. Field formations may be informed suitably.
5. Receipt of the Circular may please be acknowledged.
6. Hindi version will follow.
Yours faithfully,
Neerav Kumar Mallick
Under Secretary to the Govt. of India