TIOL-DDT 2824
11 04 2016
Monday

FEAR of Audit and Vigilance is said to be the major reason for the ridiculous notices and absurd orders passed by the otherwise brilliant officers of the IRS.

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if the Central Excise Officers do not agree with the Audit's point of view and such demand-cum-show-cause notice may be withdrawn where Department's stand is ultimately accepted by the Accountant General's Office and the objection is settled.

I have great pleasure in reporting exactly 33 years after that demonic circular was issued that it is consigned to the dustbin of history and is no more valid.

Board has taken a bold decision that every objection by CAG's Audit will not result in a Show Cause Notice. The CAG was responsible for creation of thousands of Show Cause Notices and perennial litigation at all stages. In a comprehensive and clear circular leaving no scope for ambiguity or further interpretation, Board has clarified/directed that:

1. No Show Cause Notice should be issued in cases where department has not agreed with the audit objection on merits.

2. In cases where department has agreed to the merits of the objections, Show Cause Notices should be issued immediately.

3. Where a contested audit objection has become DAP and on examination it is found by CBEC that the objection should have been admitted, necessary directions may be given to the field to issue show cause notice and adjudicate the case on merits.

Instructions on adjudications: While emphasizing that the Adjudicating Authority is a quasi-judicial authority and is legally bound to adjudicate the case independently and judiciously, certain veiled instructions are given:

1. Adjudication should take into consideration the audit objection by CERA/CRA, reply of the department as referred above, reply of the party, relevant legal provisions, case laws on the subject and relevant circulars of the Board, if any.

2. It is expected that the factum of SCN being a consequence of CERA/CRA objection, would be incorporated in the brief facts of the case in the adjudication order.

3. Where an issue was under audit objection and has been subsequently either judicially settled, by say judgment of Hon'ble Supreme Court or where a circular of the Board has been issued on the subject, further correspondence with the Board on the audit objections, even if they have become DAPs, is not necessary and such cases may be adjudicated on merits taking into consideration the latest judgments and circulars.

4. While adjudicating, it should be ensured that the reply given by the department is available on record.

No Call Book: the procedure of transferring the show cause notice arising out of CAG objection to call-book has been discontinued and in future no such show cause notice should be transferred to the call-book.

This is one of the best circulars issued by the Board in recent times and is sure to promote ease of doing business and reducing litigation. The circular has been drafted in precise language with absolute clarity in thought and expression. The directions are straight and clear. This is a template for Board Circulars. DDT congratulates all those responsible in CBEC for issuing such an exemplary circular.

Now is the time for the field officers to show their brilliance and independence and above all their decision making capabilities are under test. They should have the ability to challenge the audit view and take the decision not to issue Show Cause Notices. The Board has done its job, will the field officers do theirs?

CBEC Circular No. 1023/11/2016-CX, Dated: April 8, 2016

The Audit Trail - CBEC Explains

THE above Circular explains the great Audit Journey:

It all starts with the visit of a few Audit officers from the office of the CAG.

(i) Half Margin: Half margin/audit memo is issued to the Superintendent of the Range during the course of audit on points noticed by CERA. The half margin is to be replied to immediately and in any case before the end of the audit of Range/ Division/Commissionerate concerned. It is called Half Margin, because the margin is half the paper. The paper (actually belonging to the assessee) is folded into two halves vertically; the objection is written on the right side leaving a half margin for the department to reply. Normally at this stage, the reply of the department is, "issue will be examined and detailed reply submitted.")

(ii) Local Audit Report (LAR): LAR containing audit paragraphs is generally issued by the headquarters of the local CAG Office to the Assistant/Deputy Commissioner generally within one month of the completion of the audit by the headquarters of the Director General or Principal Director of Audit. The Assistant/Deputy Commissioner is expected to reply to the LAR within thirty days.

(iii) Statement of Facts (SoF): SoF is issued to the jurisdictional Commissioner/Addl. Commissioner on the major audit observations which may feature in Audit Reports. It has been decided that SoF shall be   replied within six weeks   where the audit objection is not contested. Where the audit objection is contested and the amount of duty involved in the audit objection is rupees fifty lakhs or less, SoF shall be replied with the approval of the Commissioner and for audit objections involving higher amounts of duty, SoF shall be replied with the approval of the Chief Commissioner. Detailed reasons for contesting the audit objection should be recorded in the file quoting relevant case-laws and circulars, if any.

(iv) Draft Audit Para (DAP): Potential audit paragraphs considered fit for inclusion in the Audit Report are issued by the CAG officer to the Ministry (CBEC) as DAPs. CBEC is expected to   reply to DAP within four weeks   of its receipt.

(v) Audit Paragraphs: CAG's office, after considering the reply of the CBEC may convert a DAP into Audit Paragraph. Audit Paragraphs are periodically compiled and are submitted by the office of CAG to the Parliament in the form of a report called Audit Report. CBEC is expected to furnish an Action Taken Note on each of the paragraphs in the Audit Report, The ATNs received are examined by the office of CAG and duly vetted ATNs are submitted to the PAC. The process of submission of ATN, due vetting and submission to PAC is expected to be completed   within four months   of submission of Audit Report.

What happens after that? Board has not explained.

CBEC Circular No. 1023/11/2016-CX, Dated: April 8, 2016

Customs -Clarification on Exemption to Fuel in tanks of aircraft - An "Indian Airline" does not mean "Indian Airlines" alone

NOTIFICATION No. 151/94-Cus dated 13.07.1994 exempts the additional duty of customs on Fuel in the tanks of the aircraft of an Indian Airline or of the Indian Air Force.

Now there is a doubt whether the exemption is available only to Indian Airlines.

CBEC clarifies that exemption is not limited to the ‘Indian Airlines' (now called as ‘National Aviation Company of India Limited'). It is available to any Indian airline, in other words, to all Indian airlines.

CBEC Instruction in F. No. 528/15/2016-STO (TU)., Dated April 08, 2016

FTP -Export of Betel Leaves

GOVERNMENT has amended the Schedule-2 (Export Policy) of ITC(HS) Classification of Export and Import Items to stipulate the condition that Betel Leaves can be exported to European Union subject to registration with APEDA, the designated Competent Authority.

DGFT Notification No. 1/2015-20., Dated: April 08, 2016

FTP - Pre-Shipment Inspection Agencies Approved

GOVERNMENT has approved 9 new Pre-Shipment Inspection Agencies (PSIA) under the heading "New PSIAs recognised in terms of FTP 2015-20".

DGFT Public Notice No. 2/2015-20., Dated: April 08, 2016

Trap of Central Excise Superintendent - Attack on CBI Officers

A central Excise Superintendent in the temple town of Madurai was caught red-handed by a team of CBI officers while accepting a bribe of Rs. 75,000/-. The trap went on well and the CBI officers were happily recording the statement when an armed gang attacked them and ran off with the Central Excise Superintendent, the trap money and evidence of the trap. Two injured CBI officers are in hospital.

The Superintendent and eight others are now booked by Police for attempt to murder and dacoity. We don't know what will happen to the bribery case.

Common input services for manufacturing and trading - What to reverse

IN a recent Judgement of the CESTAT, the issue was the quantum of reversal of CENVAT Credit in the case of Common input services for manufacturing and trading, for the period prior to 1.4.2011.

Trading became ‘exempted service' only w.e.f. 01/04/2011. It cannot be considered even as a service prior to that. The assessee cannot take credit of input services used for trading, which was neither taxable service nor exempted service prior to 01/04/2011. Hence that portion of credit availed on input services used for trading is not admissible. The question is how to arrive at the quantum used for trading when no separate accounts are maintained.

In the instant case, the original authority has adopted the formula given in Rule 6(3A)b(iii). This provision deals in situation when there is both dutiable goods / taxable services and exempted goods / exempted services. It does not mention trading. Prior to 01/04/2011 the only method of computation available was the method in case of exempted services and original authority adopted such method. The computation method taken by the appellant to arrive at the figure is the method for computing in case of trading w.e.f. 01/04/2011. As this is the formula / method provided by legislature for computing value in case of common inputs / input services used for trading activities when there is no separate accounts, the application of this method to arrive at the value would be more appropriate though it was introduced w.e.f. 01/04/2011 only.

Please see Breaking News for more details of the case

For orders passed in quasi-judicial functions, disciplinary proceeding cannot be initiated, much less officer penalized

IN a recent Judgement,the High Court of Patna held that an officer, who has been conferred with statutory jurisdiction to adjudicate matters, acts in a quasi-judicial capacity. Unless it can be shown that the decision was taken malafide or with ulterior motive, for a wrong decision taken there cannot be disciplinary proceedings as it is not a misconduct.

In this case, a Superintendent of Central Excise was punished with a penalty of withholding 30% of his pension for granting a refund and not issuing a notice to recover the erroneous refund.

The High Court held that for orders passed in quasi-judicial functions by statutory authorities, disciplinary proceeding for misconduct cannot be initiated, much less officer penalized.

Recently a retired High Court Judge who imposed costs on a Commissioner twice told me, "I would never punish an adjudicating authority for a wrong order, but I would definitely punish him for a perverse order."

Please see Breaking News for more details of the case.

ACES Troubles

AN assessee informs:

Recently, the CBEC has come up with ST-3 returns for the period from October 2015 to March 2016.

However, it is full of errors, firstly due to the addition of SBC, in the new returns, files cannot be validated in Excel 2003 version.

Secondly, if one validates the return in a higher excel version, while uploading the file, the SAVE button on the ACES website seems to have been disabled thus no files being saved and processed further.

The assessee wanted us to resolve the issue. Hopefully the department will try to resolve.

Yesterday was the last date for filing Central Excise returns. We got calls and mails from several assessees that the ACES website was down for most part of the day.

Until Tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@tiol.in