APPLICATION OF PRINCIPLES OF NATURAL JUSTICE IN TAX CASES

[Mr. M. GOVINDARAJAN]

            In tax matters the lowest authority is the adjudicating authority who imposes penalty for non payment of tax, short levy or short payment of tax, erroneously refunded etc., The assessee can file appeal against the order of the adjudicating authority before the Commissioner (Appeals) and further appeal may be made, if there is any grievance on the order of the Commissioner (Appeals) to the Appellate tribunal. These authorities are statutory authorities. While deciding the cases these authorities have to comply with the provisions of the respective laws. In addition to they have to apply the principles of natural justice.           

            In 'Kothari Filaments V. Commissioner of Customs (Port), Kolkatta - [2008 -TMI - 31872 - SUPREME COURT] the Supreme Court held that the statutory authorities under the Customs Act exercise quasi judicial function. By reason of impugned order, the properties could be confiscated, redemption fine and personal fine could be imposed and in the event an importer was found guilty in violation of the provisions of the Act. In the event, a finding as regards violation of the provisions of the Act is arrived at, several steps resulting in civil or civil consequences may be taken. The principles of natural justice, therefore, were required to be complied with. The Act does not prohibit application of the principles of natural justice. The Commissioner of Customs either could not have passed the order on the basis of materials which were only known to them, copies which were not supplied or inspection thereto had not been given. He, thus, could not have adverted to the report of the overseas enquires. A person charged with misdeclaration is entitled to know the ground on the basis whereof he would be penalized. He may have an answer to the charges or may not have. But there cannot be any doubt whatsoever in the law he is entitled to a proper hearing which would include supply of documents. Only on knowing the contents of the documents, he could furnish an effective reply.

            The grievance of violation of natural justice goes to the root of the matter and is incurable at the appellate stage as held in 'Steel fittings manufacturing company ltd., V. Commissioner of Central Excise, Kolkatta-II'- [2008 -TMI - 30284 - CESTAT, KOLKATA]. In the present case the tribunal noticed that the seized documents which were proposed to be used against the appellants should have been brought to light without being unilaterally used and those should have been controlled to the appellants to examine relevancy thereof for appropriate defence plea. Once the aggrieved feels that its defence is founded on the number of documents, facts and circumstances, as well as the legal provisions, the Department cannot press its foot to cross the legal defences or the documentary evidences available to the aggrieved. It is the fully the choice of the aggrieved to raise all defences, which are available to him under the law and learned authority of the department would only consider the defences and reject the same, if the same are not in accordance with law or are based on misconstruction of the factual aspect or misconception of law.

            Passing reasoned order is one of the principles of natural justice.   In 'Shivsagar Veg. Restaurant V. Asst. Commissioner of Income Tax, Mumbai' - [2009 -TMI - 32061 - HIGH COURT BOMBAY] the High Court held that the basic rule of natural justice requires recording of reasons in support of the order. The order has to be self explanatory and should not keep the higher court guessing for reasons. Reasons provide live link between conclusions and evidence that vital link in a safeguard against arbitrariness, passion and prejudice. Reason is a manifestation of mind of adjudicator. It is a tool for judging the validity of the order under challenge. It gives opportunity to the higher court to see whether or not the adjudicatory has processed on the relevant consideration, material and evidence. 

            Reasoning order is the heartbeat of justice.  This view is confirmed in 'Commissioner of Central Excise V. Devchand Ramsaran Indus (P) Ltd.,' - [2009 -TMI - 32314 - CESTAT, KOLKATA] the tribunal held that while the table throws light on different types of payments, the learned adjudicating authority has whispered nothing about the nature of payments made on each occasion as exhibited by the table. Had the nature of payment been tested, that would have thrown light as the nature of service provided or work done. We have particularly examined the findings of the learned adjudicating authority in the impugned order which does not throw light as to the extent of examination made by him on the basis of bills, scope of work and nature of the contract. The impugned order suffers from lack of reasons of decision. Reason being heartbeat of justice, in absence of reasoned and speaking order, neither conclusion can be drawn nor it is possible to ascertain whether a just decision was arrived at by the learned adjudicating authority. There is a violation of natural justice in this case.

            Non consideration of merits of the case would amount violation of the principles of natural justice.  In Esteam Services V. Union of India' - 2009 (13) STR 106 (Bom) the High Court perused the records of the case and it is found that the tribunal by the impugned order has disposed two appeals filed by the Revenue namely appeal against the order of Commissioner of Central Excise (Appeals), dated 22.2.05 and another order of Commissioner of Central Excise (Appeals), dated 28.2.205. The appellant contended that the impugned order of the tribunal was in violation of principles of natural justice. The High Court held that in view of the fact that by the impugned order the tribunal has disposed of two different appeals filed by the Revenue without going into the merits of the case. The High Court set aside the impugned order and directed the tribunal to decide both the appeals afresh and after giving reasonable opportunity of being heard.

            In 'Drishthi Consultants (P) Ltd., V. Commissioner of Service Tax, Ahamedabad' - [2008 -TMI - 30121 - CESTAT AHMEDABAD] that the tribunal considers it very necessary consider whether the appellant have prima facie case before rejecting the stay application or fixing pre deposit amount. In this case the tribunal held that the Commissioner (Appeals) had not observed principles of natural justice before the issue of stay order or at the time of final order. While the submissions made by the appellant have been reiterated in detail, there are no observations about the submissions and 75% of service tax and penalty has been required to be paid.

            In 'Fashion Fair V. Union of India'-[2009 -TMI - 32642 - PUNJAB & HARYANA HIGH COURT] the High Court that in a scheme of taxing statute, unless expressly or by necessary implication excluded, personal hearing is desirable at the appellate stage though the effect of denial of opportunity differs from case to case.

            Deciding the case without getting the reply would also amount in violation of principles of natural justice. In 'Mahanagar Telephone Nigam Limited V. Commissioner of Service Tax, New Delhi' [2008 -TMI - 31497 - CESTAT NEW DELHI] the tribunal held that the Commissioner has decided without getting the reply from the appellant and confirmed huge demand. In the interest of justice we deem it proper to set aside the order of the Commissioner and remand the matter for fresh consideration. The appellant is directed to file the reply along with the evidence relied upon. The Commissioner shall take into account the reply to be submitted by the party and also grant reasonable opportunity of being heard and decide the matter afresh.

            Passing revisionary order without show cause notice is in violation of the principles of natural justice. In 'Kirloskar Power Equipments Ltd., V. Commissioner of Central Excise, Pune - III' - [2008 -TMI - 31452 - CESTAT MUMBAI], the tribunal held that the adjudicating authority while deciding the show cause notice issued to the applicant had confirmed demand and imposed penalties. The Commissioner (Appeals) upheld the order-in-original. No appeal is filed against the order.   Subsequently by the power vested under Section 84 of the Finance Act, 1994 the learned Commissioner, Pune - III, reviewed the order-in-original and vide his review order directed the assessee/applicant filed a reply why the penalty not enhanced. After considering the submissions made before him, the Commissioner enhanced the penalties on the applicant.   The tribunal held that the order passed by the reviewing authority is in violation of principles of natural justice. The applicant was not issued show cause notice for enhancement of penalty as provided under Section 84 of the Finance Act, 1994.

            In 'Silverline Express V. Commissioner of Service Tax, New Delhi' - [2008 -TMI - 30273 - CESTAT, NEW DELHI] the contention of the appellants is that the demand is not properly quantified since the amounts of all the deposits i.e. Other than deposits of services provided are included in assessable value. The appellants further contended that non relied upon documents/hard discs were not returned to the appellants to enable them to defend their case which is the violation of principles of natural justice. The tribunal accepted the plea of the appellants and directed the department to return all non relied upon documents/hard disc so that the appellants can present their case properly. The adjudicating authority will also decide the issue of penalties afresh. The tribunal remanded the matter to the adjudicating authority.