PRINCIPLES OF NATURAL JUSTICE IN SERVICE TAX PROCEEDINGS

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

The provisions of service tax gives powers to Central Excise Officers to recover the service tax not levied, short levied etc., from the service provider and to levy interest and also penalty. The amount involved may vary from case to case. Huge amount also involves in such cases. In any judicial or quasi judicial proceedings even though not specifically mentioned in the provisions of the Act or rules it has been stressed that the principles of Natural Justice are to be observed in trying a case. In service tax case we can witness many a case has been remanded by Tribunals to the original Adjudicating Authority or Commissioner (Appeals) in cases where the principles of Natural Justice have not been followed. Even High Courts remanded the cases to Tribunals in such cases. Thus observing the Principles of Natural Justice is a must in any proceedings. In this article the said point is discussed with reference to the provisions meant for service tax proceedings.

RECOVERY OF SERVICE TAX:

Sec. 73(1) of the Finance Act, 1994 provides that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or short levied or short paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why should not pay the amount specified in the notice.

Sec. 73(2) of the Finance Act, 1994 provides that Central Excise Officers shall, after considering the representation, if any, made by the person on whom notice is served under sub section (1) determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and there upon such person shall pay the amount so determined.

The plain reading of Sec. 73(2) it is clear that the Central Excise Officer will determine the amount on receipt of representation, if any, on the show cause notice. If no representation is received the amount will be determined in the absence of the assessee. It is the bounden duty of the assessee to represent on the show cause notice. If he fails to represent then it is he deciding his own fate. At the same time we have to note that nowhere in Sec. 73(2) it is mentioned that the Central Excise Officer will determine the amount after considering the representation and giving reasonable opportunity of being heard. This itself is against the principles of Natural Justice.

However a solace is there that in the show cause notice it is used to mention whether the assessee wishes to be heard in person. If he fails to indicate in the representation that he wishes to be heard in person then his case will be decided in his absence. If he expresses his desire to be heard in person what would happen? The assessee will be called for in a particular date to appear the Central Excise Officer concerned. He has to tell whatever he wants. No departmental representation will be there. Even in a Departmental Inquiry against an official an Inquiry Officer will be appointed to inquire the charges framed against the Official. The Department will appoint one Presenting Officer to present the case before the Inquiry Officer on behalf of the Department. The charged official will attend the hearing. He is at liberty to appoint any Defence Assistant to assist him in the proceedings. Non representation of the Department before quasi judicial proceedings is also inconsistent with the principles of Natural Justice. It is also a chance missed by the Department to take note of the arguments put before the Central Excise Officer concerned by the assessee and to defend against the points wherever required.

APPEAL:

Appeal before Commissioner of Central Excise (Appeals)

Sec.85 of the Finance Act, 1994 provides for filing appeal to the Commissioner of Central Excise (Appeals) by any aggrieved person against the decision or order passed by an Adjudicating Authority. Sec.85(5) provides that in hearing the appeals the Commissioner of Central Excise (Appeals) shall exercise the same powers and follow the same procedure as he exercises and follows in hearing the appeals and making orders under the Central Excise Act, 1994. Sec. 35Q of Central Excise Act, 1944 (applicable to service tax also) provides that any person who is entitled or required to appear before a Central Excise Officer or the Appellate Tribunal in connection with any proceedings to appear personally for examination or appear by an authorized representative.

Sec.35Q, thus, gives the opportunity to the assessee to appear before any proceedings. But the Form ST 4 meant for filing appeal to the Commissioner of Central Excise (Appeals) in sl.no.6A asks whether the appellant wishes to be heard in person?

Sec. 85(4) of the Finance Act, 1994 provides that the Commissioner of Central Excise (Appeals) shall hear and determine the appeal and, subject to the provisions of this Chapter pass such orders as he thinks fit such orders may include an order enhancing the service tax, interest or penalty. Provided that an order enhancing the service tax, interest or penalty shall not be made unless the person affected thereby has been given a reasonable opportunity of showing cause against such enhancement. Thus the provisions of appeal give reasonable opportunity only in case of enhancement of service tax but not for other purposes.

The provisions shall allow giving reasonable opportunity to the assessee as well as the Department to represent before the Commissioner (Appeals).

Appeal before CESTAT:

Sec. 86 of the Finance Act, 1994 provides for filing appeal to appellate tribunal. Sec. 86(1) provides for filing appeal by an aggrieved assessee against the order of Commissioner (Appeals). ST-5 is the form prescribed for the aggrieved assessee to file appeal before CESTAT. In this Form Sl.No.,9A indicates whether the appellants wishes to be heard in person. The assessee in filing appeal before CESTAT is to file additional declaration also. In the form prescribed for giving additional declaration sl.No.13 indicates whether the appellant wishes to be heard in person. It is a wonder to note how an appeal may be disposed without giving an opportunity of being heard to the appellant.

Sec. 86(2) provides for filing appeal by the Department against the order of the Commissioner of Central Excise (Appeals) before CESTAT for which Form ST 7 is prescribed. In that form no such wordings 'whether the appellant wishes to be heard in person' are found. Thus there is discrepancy in filing appeal between the department and the assessee.

CONCLUSION:

The proceedings before the quasi judicial forum are summary in nature. In respect of tax matters the amount involving may be huge. In such a case giving reasonable opportunities shall be given to both the assessees as well as the Department in all stages so that justice will be ensured. Now the indirect tax regime is moving to GST to be implemented with effect from 01.04.2010. It is the right time to take this issue so that provisions for giving reasonable opportunity in quasi judicial proceedings in GST Rulings may be incorporated. The views of experts/readers are solicited in this regard.