FEBRUARY 02, 2016

By P R Chandrasekharan, Member (CESTAT) (Retd.)

CENTRAL Board of Excise and Customs ('Board' in short) action plan to reduce litigation communicated vide instruction dated 21st December, 2015, makes a very interesting reading. The "preventive action" suggested therein, inter alia, includes a bi-monthly conference at the level of Zonal Chief Commissioners/Pr. Commissioners to advise and counsel the respective adjudicating authorities/appellate authorities on how to pass good adjudication orders. The instruction, in para 4 thereof, also states that "adjudicating authorities to be suitably empowered/assured of the backing of the board, so that they do not succumb to pressure from enforcement agencies like DRI, DGCEI, etc. to confirm demands and levy penalties on all the accused".

2. These instructions, amusing as they are, docall for certain comments. It is the Chief Commissioners/Principal Commissioners, who in their previous 'avatars' as Commissioners, not in the distant past, have passed all kinds of orders which could not pass judicial scrutiny. How are they qualified to 'advise' their sub-ordinates to pass good adjudication orders? The CBEC instruction seems to assume that as you go up in the ladder, you are endowed with knowledge and wisdom. If that is the case, then the Board Members themselves should undertake this exercise as they are still higher up in the ladder and, therefore, more knowledgeable and wise. The instruction also clearly admits that the adjudicating authorities were hitherto passing orders under pressure (or dictation?) from enforcement agencies and the Board was not protecting them. Now there would be no need for this since in respect of DRI investigated cases, the adjudicating authorities are also going to be officers of the DRI. I had commented on this in my previous article titled "Appointment of adjudicating authorities - An obituary to the independent adjudicator?" Where does the Board get power to empowerits adjudicating authorities?The only power the Board has is the power to appoint an adjudicating authority. It is the law (and law alone) which empowers the adjudicating/appellate authorities to pass reasoned orders by following the due process of law. Articles 14 and 21 of the Indian Constitution, as interpreted by the Hon'ble Apex Court in the celebrated Maneka Gandhi's case [AIR 1978 SC 597], mandate "fair play" in action and direct the adjudicating/appellate/judicial authorities to pass reasoned orders. The Board, it appears, is suffering from 'megalomania'. The Board is only a sub-ordinate office attached to the Department of Revenue and does not have any constitutional status, whatsoever. The impugned instruction, the way it is worded, is derogatory of the Indian Constitution and exposes the Board's ignorance and muddled thinking on the subject. It's time the Board employs a person who has good command over English and well-versed in law to draft its instructions, before they are put in the public domain, so that the object and purpose of instruction sought to be conveyed and actually conveyed are one and the same.

3. The instruction further goes on to say that "re-examination of all exemption notifications and withdrawal of the same wherever possible. Exemption notifications are a major cause of litigation amongst the trade". Exemption notifications are issued to effectuate the policy objectives of the Government. Is the Board suggesting that Government should stop formulating policies? It is either the bad drafting of notifications or the wrong interpretation placed thereon by the departmental authorities which causes difficulties for the trade leading to litigation. One cannot throw the baby along with the bath water. It reminds one of the artisan blaming the tools for the poor quality of his wares.

4. The departmental adjudicating/appellate authorities have been chastised by the Appellate Tribunal, the High Courts and the Supreme Court on several occasions in the past for not adhering to judicial discipline and contravening the principles of natural justice. It will be useful to glance through some of them to put the matter in proper perspective.

4.1 In Galaxy Indo Fab Ltd. vs. UOI - 2010-TIOL-234-HC-ALL-CX, the Allahabad High Court imposed an exemplary cost of Rs. One lakh on the Asst. Commissioner of Central Excise for refusing to obey the order of the Appellate Tribunal which had granted stay from recovery of dues pending the disposal of appeal.

4.2 Recently, the Patna High Court, in Overseas Enterprises case - 2016-TIOL-63-HC-PATNA-CUS directed the Patna Customs Preventive Commissionerate to pay a sum of Rs.14,69,650/- along with interest @ 9% per annum for causing damage to the betel nuts duly imported from Bangladesh, by failing to release the seized goods for more than one and half years, in spite of the provisional release order by the competent authority and passing of the final adjudication order dropping the proceedings against the importer. The hon'ble High Court further directed that the amount should be recovered from the erring officials and the CBEC Chairman was directed to get an enquiry conducted for fixing individual responsibility.

4.3 In CCE, Mumbai III vs. RDC Concrete (India) Ltd. - 2015-TIOL-245-SC-CX, the hon'ble Apex court, while dismissing the departmental appeal, chastised the department in the following words- "it was a total mindless exercise on the part of the Revenue which is mis-use and abuse of the process of law".

4.4 In CCE & ST (LTU) Bangalore vs. Adecco Flexione Workforce Solutions Ltd. - 2011-TIOL-635-HC-KAR-ST, the Karnataka High Court lambasted the department in the following words - "Authorities are wasting valuable time proceeding against persons who are paying service tax with interest promptly. They are paid salary to act in accordance with law and to initiate proceedings against defaulters …..and not certainly to harass and initiate proceedings against persons who are paying tax with interest………. It is high time, the authorities will change their attitude towards these tax payers, understanding the object with which this enactment is passed and also keep in mind the express provisions as contained in sub-sec.(3) of Sec. 73. The Parliament has expressly stated that against persons who have paid tax with interest, no notice shall be served. If notices are issued contrary to the said section, the person to be punished is the person who has issued the notice and not the person to whom it is issued ……… ".

4.5 The decisions cited above are only a few on the subject and there are a large number of such orders passed by the Appellate Tribunal, various High Courts and the Supreme Court and in spite of such judicial chastisement, if the departmental officers have not learnt the lessons, how can anyone even hope that they will mend their ways listening to the inane sermons of the Superior Officers. It will only remain a wishful thinking. The culprit for this state of affair is the Board itself. All orders in appeal, where gross violation of the principles of natural justice and abuse of the process of law is noticed by the higher appellate authorities and the Courts, are invariably marked to the Chairman/Member of the Board concerned or the Revenue Secretary. The Department has never taken any action against the erring officials, as far as I know. If that is the respect the Board has towards the judicial review by the higher authorities, how can one expect the lower adjudicating and appellate authorities to adhere to judicial discipline? The malady is much more deep rooted; as rightly observed by the hon'ble Justice Raghuram, President (CESTAT), in his speech delivered on 17-1-2015 at FAPCCI, Hyderabad, "something is pathologically, terminally and seriously wrong with our departmental adjudication".

5. The instruction,under reference, exhorts National Academy (NACEN) to conduct training for all adjudicating authorities. It has been my experience, both when within the Department as well as outside, that the Commissioners seldom attend any training programme intended for them conducted by NACEN. Probably, they are under the mistaken impression that they do not need any training and only junior officers such as Asst./Deputy Commissioners need training, whereas the truth is otherwise. My experience at the CESTAT as a Member (Technical) during the last 4 years of my career has convinced me that it is the Executive and Appellate Commissioners who do maximum damage to the rule of law and have tarnished the fair image of the department.It is their attitude that they know the law, nay, they are the law, which is the root cause of all the ills prevailing in the department. As the adage goes - one can wake up a person who is asleep; but, one cannot wake up a person who is pretending to be asleep.

6. Coming back to the question - what should be done to improve the quality of departmental adjudication - they (the adjudicating and appellate authorities) have to earnestly and meticulously follow the prescriptions/guidelines given by Lord Denning, Lord Chancellor of the United Kingdom during the last century. In his speech titled "THE ROAD TO JUSTICE" delivered in September, 1955, as part of Hamlyn Lectures, Lord Denning made the following prescriptions. Though meant for judges, they apply equally well to all quasi-judicial and administrative authorities. Excerpts from his speech are reproduced below:-

1) THE JUDGES MUST BE INDEPENDENT - The first and most important principle is that the judges should be absolutely independent of the Government. We regard the judges as standing between the individual and the State, protecting the individual from any interference with his freedom which is not justified by the law.

2) NO MAN A JUDGE IN HIS OWN CAUSE - To ensure a fair trial, the second principle is that the judge must have no interest himself in any matter that he has to try. He must be impartial.

3) JUSTICE MUST BE SEEN TO BE DONE - The reason is because it is of the utmost importance that every person should be able to feel that his case has been tried by an upright and impartial judge. It is a settled principle of our law that justice must not only be done, but it must manifestly and undoubtedly be seen to be done.

4) A JUDGE MUST HEAR EACH SIDE - The third principle is that the judge, before he comes to a decision against a party, must hear and consider all that he has to say. No one ought to becondemned unheard.

5) A JUDGE MUST ACT ONLY ON EVIDENCE - The fourth principle is that the judge must actonly on the evidence and arguments properly before himand not on any information which he receives from theoutside. This is very much bound up with the right ofevery man to be heard in his own defence. If his right tobe heard is to be a reality, he must know in good timethe case he has to meet, and must know what evidenceand arguments are to be adduced against him, so thathe can refute them with other evidence and betterarguments.

6) A JUDGE SHOULD GIVE REASONS - The fifth principle is that the judge must give hisreasons for his decision for, by so doing, he gives proofthat he has heard and considered the evidence andarguments that have been adduced before him on eachside and also that he has not taken extraneousconsiderations into account. It is of course true that hisdecision may be correct even though he should give noreason for it or even give a wrong reason but, in orderthat a trial should be fair, it is necessary, not only thata correct decision should be reached, but also that itshould be seen to be based on reason; and that can onlybe seen, if the judge himself states his reasons.Furthermore if his reasons are at fault, then they afforda basis on which the party aggrieved by his decision canappeal to a higher court.

7) A JUDGE SHOULD BE BEYOND REPROACH - The sixth principle I would suggest is that a judgeshould in his own character be beyond reproach, or atany rate should have so disciplined himself that he isnot himself a breaker of the law. Time and time againhe has to pronounce judgment on those who haveoffended against the law. He has to rebuke the evil and support the good. He cannot well do this-he cannot without hypocrisy do it-if he himself has been found guilty of an offence against the law.

I have reproduced theseexcerpts from Lord Denning's speechso that the readers can benefit from the advice of a highly regarded humanist judge of the last century.

7. The above principles lucidly explained by Lord Denning have been re-confirmed and re-iterated by the Supreme Court of India and the various High Courts in many judgments. The rule against bias has been beautifully elucidated by the hon'ble Apex court in its decisions in the case of Mineral Development Ltd. vs. State of Bihar [AIR 1960 SC 468] and A.K. Kraipak & Ors. vs. UOI&Ors. [AIR 1970 SC 150]. Similarly the Apex court has laid down that "the show cause notice must be precise and unambiguous and it should appraise the party determinatively the case he has to meet" in CCE Bangalore vs. Brindavan Beverages (P) Ltd. - 2007-TIOL-118-SC-CX. The principle that "the assessee has a right to know and rebut all the material relied upon by the Revenue" has been emphasized in Dhakeswari Cotton Mills Ltd. vs. Commissioner of Income Tax [1955 AIR SC 65] and Kothari Filaments vs. CC (Port), Calcutta - 2008-TIOL-237-SC-CUS. The rule that deponents, whose statements are relied upon, should be made available for cross examination has been emphasised by the Apex court in Lakshman Exports Ltd. vs. CCE[2002 (143) ELT 21 SC] and by the hon'ble High Court of Delhi in Basudeb Garg & Ors. vs. CC - 2013-TIOL-464-HC-DEL-CUS. Similarly the requirement of passing a reasoned order, the failure of which amounts to denial of justice, has been spelt out by the Apex court in Seimens Engg. Vs. UOI [1976 AIR 1785]. The rule that utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of higher appellate authorities which are binding on them, has been emphasized by the Apex court in UOI & Ors. vs. Kamalakshi Finance Corporation - 2002-TIOL-484-SC-CX-LB and The Bhopal Sugar Industries vs. Income Tax Officer, Bhopal [1961 AIR 282].

8. It has been my experience in the CESTAT that the departmental adjudicators do not know who their audiences are. They are under the wrong impression that the audience is the Commissioner, Committee of Commissioners or the Committee of Chief Commissioners, who undertake administrative review of their orders. Their audience is or ought to be the tax-payers who have to bear the civil consequences of their orders and the higher appellate authorities who undertake judicial review of the orders in the appeal/writ proceedings. The departmental authorities seldom realize that when they contravene the principles of natural justice, it is not merely a statutory violation but also a violation of the fundamental rights of the citizens guaranteed by the Constitution. Any arbitrary or irrational order amounts to discrimination violative of Article 14. Similarly, non-adherence to the procedure prescribed by law (both statutory and natural) is violative of Article 21. Such orders are not only illegal but also unconstitutional. That is why the Courts come down heavily on such aberrations. The departmental authorities also do not realize that they are answerable to the jurisdictional High Court in relation to their quasi-judicial function, which exercises writ jurisdiction over their actions under Article 226. The adjudication manual, both the existing as well as proposed (still in the draft stage), also contains no reference to the legal and constitutional provisions governing quasi-judicial/administrative functions. The saying that "ignorance is bliss" applies squarely to the departmental officers.

9. In spite of the clear and binding decisions of the Tribunal, High Courts and the Supreme Court, the departmental adjudicators have been grossly mis-using and abusing the process of law every day clearly attracting the provisions of "Contempt of Court". If past experience is any indication, it is highly unlikely that disputes in indirect taxes would come down in the foreseeable future. Unless exemplary action is taken against erring officials (especially at the Commissioner level to begin with), who violate the law with impunity, by imposing costs and passing adverse remarks in the Annual Performance Appraisal Reports, there is not even an iota of chance that things would improve. The CBEC would be well-advised to initiate action on the above lines, if it really wants to achieve the stated objective of reducing litigation. The long-term solution mightlie in creating a separate cadre of adjudicators for all taxes (both direct as well as indirect) by recruiting people who are well-versed in law, which should be outside the revenue department. They could be later on elevated to higher levels of Appellate Commissioners and Tribunal Members, based on their performance and career progression.

(The author was an officer of the Indian Customs and Central Excise Service for more than three decades and retired as Member (Technical), CESTAT, WZB, Mumbai.)