RECTIFICATION OF MISTAKE IN SERVICE TAX

[Dr. Sanjiv Agarwal]

The provisions relating to rectification of mistake (Section 74) can be summarized as under —

i)   After an order is passed, any mistake apparent from the record can be rectified within a period of two years from the date of the original order by the Assistant or Deputy Commissioner of Central Excise or Central Excise Officer by amending such order.

ii)  When the matter is considered and decided in an appeal, the adjudicating authority can amend the order to rectify the mistake apparent on record in relation to any matter other than that decided by the Appellate Authority.

iii) The proceedings relating to the rectification of mistake should be made by application of the principles of natural justice.

iv) The order of rectification of mistake should be made in writing.

v)  Rectification of mistake can also be made if the same is brought to the notice by the assessee himself or Commissioner of Central Excise or Commissioner of Central Excise (Appeals) before the concerned authority.

vi)  If consequent to the passing of order for rectification of mistake, the liability is reduced, the excess payment shall be refunded to the assessee. In case the liability is enhanced, the short tax shall be recovered from the assessee.

For rectification of mistake, Central Excise Officer shall have power to rectify or amend the assessment order in any of the following situations/cases –

(i) on his own motion, or

(ii) if any mistake is brought to his notice by any of the following –

(a) assessee concerned

(b) Commissioner of Central Excise

(c) Commissioner of Central Excise (Appeals)

But the Central Excise Officer cannot amend the order unless he gives notice to the assessee of his intention to do so and an opportunity of being heard in cases resulting in –

(a) enhancement of an assessment, or

(b) reduction in amount of refund, or

(c) otherwise enhancing the assessee’s liability.

For the purposes of this section, if the amendment has the effect of enhancing the liability of the assessee or reducing a refund or increasing the liability of an assessee, it shall be obligatory on the Assistant/Deputy Commissioner of Central Excise or Central Excise Officer to serve a notice in writing upon the assessee and provide him a reasonable opportunity of hearing and representing him.

Though the provisions are silent on the issue or more than two rectifications, it appears that more than one rectification of substance may be permissible, provided such mistake is apparent from record and is within the time limit of two years.

The word ‘mistake’ is inherently indefinite in scope, as what may be a mistake for one may not be one for another. It is mostly subjective and the dividing line in border areas is then and indiscernible. It is something which a duly and judiciously instructed mind can find out from the record – T. S. Rajan v. Controller of Excise Duty 1967 (9) TMI 139 - MADRAS HIGH COURT .

A mistake, which can be rectified must be a mistake apparent from the record and not otherwise. It may be a mistake either of law or of fact. The power of rectification can be exercised only if there is a mistake apparent from the record of the assessment of the assessee. A mistake apparent on record must be an obvious and patent mistake and not something, which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record – CTO v. Sri Venkateshwara Oil Mills 1973 (3) TMI 116 - SUPREME COURT OF INDIA . ‘Apparent’ means that it must be something which appears to be so ex facie and is incapable of argument ordebate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remain to be investigated cannot be corrected by way of rectification – N Rajamoni Amma v. Dy. CIT (1990) 86 CTR (Kerala) 12. An apparent error must be from the record of the assessee and not an error discovered from other sources. Any error discovered as a result of investigation of other records or other sources will not institute an apparent error on the face of the record which alone confers jurisdiction on the authority concerned to rectify any order as enumerated. – EM Vishwanathan Chettairv. Agrl. ITO 1982 (11) TMI 41 - KARNATAKA High Court. A mistake apparent from the record is one to point out which no elaborate argument is required. It must be a glaring obvious or self-evident mistake. If it is a mistake which requires to be established by complicated process of investigation, argument or proof, it cannot be regarded as a mistake apparent from the record – held in National Rayon Corporation Ltd. v. G R Bahmani 1964 (3) TMI 82 - BOMBAY HIGH COURT ; Walchand Nagar Industries Ltd. v. V S Gaitonde 1961 (8) TMI 26 - BOMBAY HIGH COURT ; P M Bharucha & Co. v. G S Venkeatesan 1968 (10) TMI 36 - GUJARAT High Court .

Rectification of mistake is not a review. A revenue cannot be done in garb of rectification. The power of rectification cannot be used as a trial by disgruntled unsuccessful party to prolong proceedings. The power of rectification is to be exercised with due care and circumscription.