JUNE 19, 2018

By Nupur Maheshwari, Dhruv Matta & Raghav Khurana

IN line with the amendment to Section 28 (1) (a) of the Customs Act, 1962 ('Act') vide Clause 61 of the Finance Bill, 2018, the Central Board of Indirect Taxes and Customs ('CBIC') has notified the Pre-notice Consultation Regulations, 2018 ('Regulations'). The Regulations provide the manner in which 'pre-notice consultation' is to be conducted in cases not involving collusion, suppression, etc. before issue of demand notice under Section 28 (1) of the Act.

Definitions:

The Expression 'Consultation' has been defined under Regulation 2 (b) to mean 'communication of the grounds known to the proper officer for issuance of notice to the person' chargeable with duty or interest in order to elicit the response of the person and consideration of the representation of the said person. Therefore, 'consultation' involves two stages: -

(a) Communication of the grounds, to the person chargeable with duty or interest for him to represent his case; and

(b) Consideration of the representation of the said person.

The expression 'notice' has been defined under Regulation (c) as a notice issued under Section 28 (1) of the Act.

Manner of Consultation:

Regulation 3(1):

Regulation 3 (1) provides that before issuance of a Show Cause Notice ('SCN'), the proper officer shall inform, in writing, the person chargeable with duty or interest of 'the intention to issue the SCN ' by 'specifying the grounds' on which the SCN is proposed to be issued.

The proper officer should 'initiate' the procedure of consultation at least 2 months before the expiry of time limit under Section 28 (3) of the Act i.e. within 2 years of the 'relevant date'.

Regulation 3(2):

Regulation 3 (2) provides that the person chargeable with duty or interest shall within 15 days from the date of communication referred to in sub regulation (1), make his submissions in writing wherein he shall 'clearly indicate' whether he desires to be heard by the proper officer.

The expression, "date of communication" has not been defined in the Act. In the said circumstances, the date of receipt of the notice will be construed as the date of communication. Reference in this regard is made to the decisions in CC v. M.M. Rubber and Co., - 2002-TIOL-111-SC-CX wherein it has been laid down that a party can avail a remedy against a decision only when it is made aware of the order. Therefore, Courts have uniformly laid down as a rule of law that for seeking remedy the limitation starts from the date on which the order was communicated to him or the date on which it was pronounced or published under such circumstances that the parties affected by it have a reasonable opportunity of knowing of passing of the order and what it contain s. Further, the Supreme Court had observed that the application of this rule so far as the aggrieved party in concerned is not dependent on the provisions of the particular statute, but it so under the general law. The Court also observed that if the intention or design of the statutory provision was to protect the interest of the person adversely affected, by providing a remedy against the order or decision any period of limitation prescribed with reference to invoking such remedy shall be read as commencing from the date of communication of the order.

The proviso to Regulation 3(2) stipulates in unambiguous terms that if no response is received within 15 days from the date of communication, the proper officer can issue the SCN without any further communication.In such a situation, it becomes important for the 'person' to respond within 15 days from the 'receipt of the letter' and also clearly request for a personal hearing along with his response.

Regulation 3(3):

In terms of Regulation 3 (3), the proper officer may if requested by the person 'hear' the person within 10 days of receipt of submissions. Further, the proviso to Regulation 3(3) states that no adjournment shall be granted.

Regulation 3(4):

Regulation 3 (4) stipulates that where the proper officer 'after consultation' does not proceed with issuance of notice, he shall intimate the same to the person by way of a simple letter.

Regulation 3(5): Time limit for conducting procedure of pre-consultation:

In terms of Regulation 3 (5), the consultation process shall be concluded within 60 days from 'date of communication of grounds'.

Plausible Difficulties

What constitutes 'consultation'?

'Communication of grounds'

The first stage of the process involves 'communication of the grounds' known to the proper officer to the person in order to elicit a response. Therefore, it is incumbent on the proper officer to issue notice informing the person of the grounds known to him.

In such a situation, it remains to be considered that whether a pre-notice consultation issued without stating any grounds is valid in law and can be said to be in violation of the principals of natural justice.

If and when such pre-consultation notices are issued without indicating the grounds of demand, what would be the legal sanctity of these notices? The notices will be issued in violation of the Regulations and principles of natural justice.

In this regard, reference is made to the decision of the Supreme Court in Union of India v. Hanil Era Textiles Civil Appeal 8966 of 2013, dated 3 October 2013, wherein it was observed, that the issuance of an SCN is a part and parcel of the principle of natural justice which ensures that the parties are in a position to defend themselves adequately, after being aware of the exactness of the allegation against them.

Similarly, in the case of these Regulations, if the person is not made aware of the grounds known to the proper officer in the letter issued by the proper office, it would tantamount to a violation of the pre-consultation process envisaged in the Regulations itself. Therefore, it would be incumbent upon the proper officer to communicate the grounds to the person and any action to the contrary would be in violation of the principles of natural justice.

In such a scenario where the grounds are not communicated and the whole process is vitiated, the person could approach the High Court by way of a writ petition praying for quashing of the proceedings, since the essential process of 'communication of the grounds' has not been duly followed by the proper officer.

Consideration of representation

Importantly, the Regulations also provide that while making submissions in response to the communication of the grounds, the person shall clearly indicate his intention to be heard by the proper office.

However, the Regulations have also granted discretion to the proper office to grant a personal hearing in response to the submissions filed by the person.

Conspicuously, the Regulations seem self-contradictory insofar as on one hand it provides for a request to be made for personal hearing but at the same time 'gives discretion to the proper officer' for grant of personal hearing.

In this regard, it is important to note natural justice is the essence of fair adjudication and is ranked as fundamental to the administration of justice. Audi Alteram Partem, as the basic principle of natural justice, ensures an opportunity of fair hearing and mandate that no one shall be condemned unheard. The principles of natural justice apply even to administrative orders affecting the rights of citizen.

Reference is made to the decision of the Apex Court in Assistant Commissioner, Commercial Tax Department v. Shukla Brothers, - 2010-TIOL-131-SC-CT, wherein it was observed that the principle of natural justice has twin ingredients. Firstly, the person who is likely to be adversely affected by the action of the authorities should be given notice to show cause thereof and granted an opportunity of hearing and secondly, the orders so passed by the authority should give the reason for arriving at any conclusion showing proper application of mind. It was observed that violation of either of them could vitiated the order itself.

The Supreme Court in the case of Uma Nath Pandey v. State of UP, 2009-TIOL-65-SC-MISC had occasion to deal with a situation wherein the Revisionary Authority had passed an order without notice to the parties. It was observed by the Apex Court with reference to the principles of natural justice that, 'he who shall decide anything without the other side having been heard, although he may have said what is right, will not have been what is right' or in other words, as it is now expressed, 'justice should not only be done but should manifestly be seen to be done'.

This corollary had been deduced from the two fundamental principles of natural justice i.e. 'nemo judex in causa sua' (no man shall be a judge in his own cause) and 'audi alteram partem' (hear the other side). Therefore, the act of not granting personal hearing, which could result in improper consideration of the representation of the person could be a cause of action to be challenged by way of a Writ Petition.

Are the timelines provided in the Regulations sacrosanct?

On a perusal of Regulation 3, it is seen that strict timelines have been provided for under the Notification. The Regulations, though not penal in nature, provides for timelines to be followed strictly.

Here a parallel can be drawn with the Customs House Agents Licensing Regulations, 2004 ('CHALR'). Time and again, the timelines provided for in the CHALR have been violated and the Courts have held that the statutory time limits are sacrosanct and mandatory. (Refer - Schenkar Clearing & Forwarding v. CC - 2012-TIOL-657-HC-DEL-CUS & Sanco Trans Ltd. v. CC, - 2015-TIOL-1524-HC-MAD-CUS)

Therefore, it will be important for the Department to follow the timelines indicated in the Regulations, since any violation of the same may vitiate the 'consultation process', which itself has been introduced for reducing litigation.

Whether the Regulations will be effective in reducing litigation or is merely adding another stage will be clear in times to come.

(Nupur Maheshwari is Joint Partner, Dhruv Matta is Senior Associate and Raghav Khurana is Associate with Lakshmikumaran and Sridharan Attorneys, New Delhi. The views expressed are strictly personal.)