AUGUST 20, 2019

By Dr G Gokul Kishore

POWERS to issue show cause notice and adjudicate the same are conferred by the statute. Tax administration allocates various types of work including issuance of notices and passing orders to officers based on stakes involved. Can these instructions allocating work whereby monetary limits for issuing SCNs and passing orders be considered as travelling beyond the statute? Let us try to find an answer to this question in this 51 st part.

Monetary limits to issue SCN and pass orders

As per Section 11A of Central Excise Act (CEA) and Sections 73 and 74 of CGST Act, 'Central Excise Officer' and 'Proper Officer' are respectively empowered to issue show cause notice demanding excise duty / CGST and also adjudicate i.e. pass orders confirming or dropping the demand along with imposing or refraining from imposing penalty and interest. As per Section 2(b) of CEA, Central Excise Officer includes various officers like Commissioner of Central Excise, Additional Commissioner of Central Excise, Joint Commissioner, Deputy / Assistant Commissioner and any other officer of Central Excise Department. As per Section 2(91) of CGST Act, 'proper officer' in relation to any function to be performed under the CGST Act means the Commissioner or Officer of Central Tax who is assigned that function by the Commissioner in the Board. A plain reading of these provisions indicate that any Central Excise Officer has the power to issue show cause notice and also decide the same by way of passing orders in respect of excise duty.

Tax administration has been of the view that higher the duty involved, higher should be the rank of the officer issuing notice and adjudicating the case. Quantum of amounts involved in a case and rank of the officer in the hierarchy are directly proportional, as per the department. Therefore, from good old days, CBEC (now CBIC) has been issuing circulars / instructions prescribing monetary limits for issuing notices and adjudicating the same with officers like Superintendent / Deputy/Assistant Commissioner having a lower limit upto which only they can exercise such powers while officers like Joint/Additional Commissioner and Commissioners can decide cases involving higher amounts of duty also with the latter having no such limit. The last revised circular is Circular No. 1049/37/2016-CX., dated 29-9-2016 whereby Additional / Joint Commissioners can adjudicate cases involving duty or credit demand of more than Rs. 50 lakhs but less than Rs. 2 crore. Traditionally, Chief Commissioner used to be head of a zone comprising several Commissionerates and, therefore, head of many Commissioners but such zonal head was never vested with powers of adjudication probably to relieve him of quasi-judicial functions and to enable him to concentrate on administrative / leadership functions.

In GST regime also, CBIC has issued similar Circular bearing No. 31/05/2018-GST dated 9-2-2018. As per this circular Superintendents, Asst. / Deputy Commissioners and Joint / Additional Commissioners have been vested with such powers to issue SCN and adjudicate in cases involving CGST / credit amount upto Rs. 10 lakhs, between Rs. 10 lakhs and Rs. 1 crore and above Rs. 1 crore without limit respectively. Commissioners have executive functions only as they have not been assigned any quasi-judicial responsibilities of issuing SCN and adjudicating cases as per this circular.

Board cannot curtail jurisdiction conferred by statute

In those days, under Central Excise, only a Collector (now Commissioner) could issue show cause notice in cases where charges like suppression of facts with intent to evade duty are levelled against the taxpayer and extended period of limitation is invoked. Later, CEA was amended to substitute the word 'Collector' with 'Central Excise Officer'. In a particular case, when a Superintendent issued SCN and Deputy Commissioner adjudicated the same, the department argued that both did not have jurisdiction as per the circular in force at the relevant period. The matter was carried upto Supreme Court.

The Apex Court posed to itself the questions - Can the Board override the provisions of the Act by issuing directions in the manner in which it was done and if the Board cannot do so then what was the effect of such circulars? Pahwa Chemicals Pvt. Ltd. v. CCE, Delhi - 2005-TIOL-43-SC-CX-LB. It held that a Deputy Commissioner or any officer of Central Excise would be covered under the definition of Central Excise Officer and it was the Act which conferred jurisdiction on officers concerned and, therefore, the Board has no power to cut down the jurisdiction vested in Central Excise Officers by the Central Excise Act to issue SCNs and to adjudicate. According to the Court, the officers may follow the circular as a matter of propriety and deal with work allotted to them by the Board but if an officer still issues SCN contrary to the circular, the same cannot be held as without jurisdiction.

GST Circular prescribing monetary limits on better footing?

In the GST regime also, notwithstanding the Apex Court decision as noted above, CBIC has prescribed limits based on tax amount involved for issuance of notices and adjudication of cases. Departmental officers cannot afford to contravene instructions of their own Board and, therefore, normally, officers not covered by the ceiling fixed in the circular will not proceed to issue notice. However, what happens when the limits fixed under Central Excise and under GST are different (as is the fact) and the SCN issued to a particular taxpayer raises demand for both Central Excise duty as well as CGST? In one such case, the officer empowered as per GST instructions (Joint Commissioner) proceeded to issue SCN and also passed orders. The taxpayer assailed the same before Gujarat High Court as without jurisdiction because Joint Commissioner could not have dealt with a notice involving excise duty demand of over Rs. 5 crore. The High Court followed the above judgment of Supreme Court and did not agree with the petitioner. Palak Designer Diamond Jewellery v. UOI, - 2019-TIOL-1756-HC-AHM-CX.

In the above case, it appears, a fine point was either not argued or not brought to the notice of the High Court. CGST Act uses the term 'proper officer' in relation to the function as assigned by the Board. The definition of proper officer relates the CGST Officer with the function that may be assigned by the CBIC. If CBIC entrusts the functions of issuance of SCN and adjudication to certain officers, in respect of such function, they are the proper officers. In contrast, the definition of Central Excise Officer in Central Excise Act does not refer to any function and it is open-ended. Any person including a State Government officer can be invested with powers of Central Excise Officer but the definition is silent on functions. Can it, therefore, be said that compared to its excise counterpart, the GST Circular prescribing monetary limits is on a better statutory footing? One may have to wait till the Supreme Court answers such question in future. CBIC may take note of this High Court judgment and ring-fence its instructions / circulars so that actions taken based on administrative expediency or convenience stand upto judicial scrutiny without inconveniencing taxpayers.

[…To be continued]

[The author is an Advocate. Views expressed are strictly personal.]

See Part 50